IR Monitor – 16 August 2023

In this week’s newsletter:

• FTI reports on proxy voting and trends in the UK and Ireland 2023 AGM season
• The ESG movement is being exposed as a dangerous con, says The Telegraph
• Not entirely true, says The Wall Street Journal. Clear mission statements are critical for company success: the case of Ben & Jerry’s
• IPOs are back — but investors should keep their enthusiasm in check says the FT. Investment bankers are slowly resurrecting the moribund market for initial public offerings
• Companies and investors are weighing up unlimited Personal Time Off as unlimited-vacation companies are seen beating the S&P 500
• And finally … most of the time investors are the ones criticising companies for their performance. The Spot the Dog report turns the tables

This week’s news

Proxy voting and trends in 2023’s AGM season 

AGM season provides annual insight into the state of an increasingly complex corporate governance landscape. In a report published this week, your FTI Consulting team take a deep dive into this year’s AGM season in the UK and Ireland to identify the key trends and evaluate what they mean for corporate governance. Taking place within the context of a cost-of-living crisis, it may be no surprise that 2023 constituted a “remuneration policy year” in the UK, with 107 remuneration policy proposals submitted for shareholder approval at FTSE 350 AGMs up to 31 May. Perceived poor handling by boards of executives’ long-term incentives proved to be the main source of shareholder dissent. Though fewer companies tabled say-on climate proposals this year, the report posits that this does not indicate a downturn in the pressure companies face to implement rigorous ESG strategies. Rather, this trend reflects how regulations and voluntary frameworks are continuing to evolve, creating an additional level of complexity for issuers that is likely to prove somewhat persistent. Overall, strong reporting and engagement practices will help companies build long-term trust with shareholders who are only set to become increasingly hard to please. 

Is the ESG movement a dangerous con…

In a commentary piece for The Telegraph, Ben Marlow outlines his view that Russia’s invasion of Ukraine has exposed ESG investing to be “little more than a con”. Following the eruption of the war, the West jumped to defend Ukraine through the provision of military aid, providing access to critical defence systems which Zelensky has praised for yielding “significant results” and repelling Russian attacks. Yet, according to Marlow, Ukrainians have not been able to rely on the same dedicated support from the City of London as ESG investing guidelines work to chip away at the West’s display of unity and support by effectively de-funding the defence industry. Government figures reveal that, on the basis of ethical concerns, two thirds of institutional investors have divested from firms involved in security and defence or are considering doing so. This has triggered the growing concern, as expressed by City minister Andrew Griffith, that the UK’s long-term security is being put at risk by this aversion to defence stocks. Marlow calls out the hypocrisy lying in ESG’s show of defunding defence in the name of social responsibility while the peace and democracy of a neighbouring country are under threat. 

… or are clear mission statements critical for company success?

Writing for the WSJ, Anson Frericks considers the success that ‘woke capitalism’ has brought Ben & Jerry’s. Clear mission statements are increasingly being recognised as critical for company success. While it is important that companies have a well-established purpose that speaks to their role in society, Frericks warns that this does not necessarily translate to a need for corporates to engage in any charged political discussion that its leaders hold a view on. In fact, this conflation between company purpose and political activism has proven deeply problematic for a number of companies who have fallen in the firing line for being too outspoken on controversial debates. Crucially, corporates must keep sharp focus on their mission and stay away from any politicised discussion that does not speak directly to their agenda. This success is exemplified by Ben and Jerry’s; the ice cream company has been advocating for the social change it campaigns for since its inception; their customers expect activism, and it is always perceived to be authentic. When done correctly and in-line with customer and shareholder expectation, social mission statements can, in fact, become the cornerstone of company success. 

IPOs are back 

Writing in the Financial Times, former investment banker and author William Cohan highlights the Nasdaq’s recent strong performance and the re-emergence of the IPO market – seen as a measure of the state of the equity capital markets. Despite positive signs there are still issues, however, with many IPOs from 2022 and 2021 trading below their initial pricing thereby discouraging institutional investors from buying into new issues. As a result, Wall Street has been proceeding with caution – notably seen with the recent big carve-outs from existing listed companies. Nevertheless, there is optimism that positivity around IPOs will continue later into the year with several large listings expected in the coming months; recent successes have started to restore some confidence in the markets. 

Unlimited-vacation companies are seen beating the S&P 500

Bloomberg reports on results from its latest Markets Live Pulse survey showing that investors believe that unlimited time off is actually good for a company’s share price. 64% of the survey’s respondents said that they thought that companies offering these more flexible working arrangements would perform better than the S&P 500. Unlimited time off is still unusual with only 8% of US businesses thought to offer it to their employees (according to a survey from the Society for Human Resource Management) and such a practice is often associated with Silicon Valley start-ups. It is becoming more common though, including among big tech companies, and it is a useful tool for recruiters to attract new talent. There are concerns among some companies that employees would take advantage of unlimited time off; however, around two thirds of companies who have tried it have said that the amount of holiday taken by employees did not change while others reported that employees actually took less leave. 

And finally… Spot the Dog

Once again, IROs have a rare opportunity to make some light-hearted fun of their investors. Several big name companies were the target of Bestinvest’s latest Spot the Dog report which notes that the number of persistently underperforming funds has reached 56 – an increase of 27% since February this year. Investment Week reports that the global sector had the highest number of these funds – this was despite strong performance from some US mega-cap tech companies. The report highlights that the list of these underperforming funds was largely dominated by bigger groups rather than smaller, boutique companies. Managing Director of Bestinvest, Jason Hollands, notes that the aim of these reports is to highlight how some funds consistently underperform and to encourage investors to monitor their investments.

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