IR Monitor – 15th December 2021

This week’s news

Opperman writes to fund managers over investor voting rights 

Pension fund managers will have to begin voluntarily offering asset owners more sway at company Annual General Meetings – or face new rules which will compel them to do so. As the FT Adviser has reported, Pensions Minister Guy Opperman has written to 44 asset managers (including Baillie Gifford, abrdn and Schroders) to highlight this recommendation. According to the Department for Work and Pensions, asset owners are often excluded from decision-making, and in a recent report on stewardship, the DWP stated that companies need to do more to rectify this. The move comes amongst a wider trend of increasing attention to funds’ social and environmental impacts. Client-directed voting in pooled funds, long considered too difficult to implement, has already been put into action at BlackRock.

Crisis Communications report 

In a new report on crisis comms, the IR Magazine has reported that more than three quarters of companies now have formal crisis plans. The IROs who responded to the report’s survey also indicated that these have been updated in response to Covid-19, and that they now felt more confident in dealing with crisis situations than they had before the pandemic. These results varied by geography, however, with IROs in Asia more likely to state that Covid had been a useful experience for crisis preparedness in comparison to their counterparts in Europe or North America. Notably, the survey also investigated the relative importance of audiences during a crisis, with over 70% of IROs agreeing that communicating with all stakeholders and not only shareholders is important.

Bloody noses in the boardroom: Activist activity surges 

A surge in investor activism has rattled remuneration committees over pay awards, thereby ‘spooking’ directors trying to get re-elected to their posts, City AM has reported. FTSE 350 investors have become increasingly more activist, with a 29% surge in shareholder votes against director re-appointment, according to a recent Reuters report. Those most likely to draw the ire of investors have proven to be company audit or remuneration committee members – perhaps unsurprising given the slew of accounting and audit scandals, as well as executive pay issues in recent years. In addition, research from PwC shows that CEO pay in the FTSE 100 has dropped by almost 10% in the last year which arguably represents a victory for activist efforts.

Managing across the Corporate Life Cycle: CEOs and Stock Prices 

Musings on Markets has explored bringing a life cycle perspective to assessing CEO quality, in the wake of Jack Dorsey’s decision to step down as Twitter CEO. Dorsey’s departure was met with a 10% Twitter stock price increase which, for the moment, suggests that investors believe the social media giant is better off without him running it. However, this raises the questions of what makes for a great CEO and how, simply put, there is no one right answer. In his analysis, Aswath Damodoran suggests that the makings of a great CEO are dependent on the company and where it stands in its life cycle; a CEO who succeeds at a company at one stage in its life cycle may not have the qualities needed to succeed at another. The board of directors should therefore pay less attention to the past track records of nominees and more attention to the qualities they possess, to see whether these align with what the company needs to succeed.

S.E.C. cuts SPACs down to size

Last week S.E.C. Chair, Gary Gensler, outlined one of his main focuses in reducing the risks faced by investors in special purpose acquisition companies (SPACs) by introducing methods that could shake up the entire industry. A New York Times article has reported that the S.E.C may now require SPACs to provide more complete disclosures of their deals, and to do so earlier to avoid the rosy-looking numbers many financiers have benefited from in SPACs previously. Gensler has also suggested that those behind SPACs should be held more accountable for their due diligence on the companies which their funds acquire. Ultimately, the end goal is to level the playing field between SPACs and IPOs.

And finally … Pressure for ethical investing is weighing down public companies 

An editorial in The Times has argued that governments have pressganged public companies into advancing the ESG agenda which, in turn, has acted as a brake on their profitability. Whilst ESG ratings and analysis have brought topics such as diversity and climate change to the fore, assessments of a company’s ESG performance often vary dramatically depending on the framework used.  Increased regulatory intervention, alongside pressure from investors keen to avoid certain sectors such as defence, are arguably limiting public companies’ ability to operate and finance themselves. This pressure could encourage public companies to go private, ultimately, in order to avoid the regulatory and financial restraints of ESG. Moreover, there is a wider point here about democracy: if ESG analysts and fund managers think that their definitions of what is right for society trump those of democratically elected governments, then ESG has surely gone too far.

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