IR Monitor – 16th March 2022

This week’s news

Tim Cook pay vote shows ISS should not be judge and jury

Institutional Shareholder Services (ISS) – the largest of the firms to offer advice to investors around voting at shareholder meetings – came under fire in a Financial Times column last week. Its proxy voting services allegedly cover 45,000 shareholder meetings across the globe and its influence, as well as that of its peers, has skyrocketed – in part due to the prevalence of exchange traded funds, where managers know less about underlying companies, and in part simply due to the ease of outsourcing voting decisions to a third party. In an example of ISS potentially growing too big for its boots, the firm objected to Tim Cook’s compensation for 2021 – despite total shareholder returns now exceeding 1000 per cent under his stewardship.

What is a stock split? What to know about Amazon’s 20-1 split

Amazon has announced it is splitting its stock 20-for-1, as the Wall Street Journal has reported. As of May 27, shareholders will be getting 19 new shares for each share they own, at a per-share price that is one-twentieth of the pre-split value. Once commonplace, stock splits have become a rarity these days, fading out of favour since the dot-com bust in 2000. Intended to entice investors who might be put off by a high share price, splits don’t affect a company’s value – although history indicates there is often a short-term rise in a company’s stock price, with average increases across the S&P 500 of 2.5% immediately after the announcement, and 5% over the following year.

Jaw-dropping expenses are just one of many IPO surprises 

Going public can be one of the most rewarding experiences in a CFO’s career, though the journey of taking a company from private to listed can throw up some surprises. Steve Hansen, executive vice president and CFO of Sarcos, shared some of his top tips for going public with CFO Dive last week. Firstly, hire additional staff. Hansen stresses the importance of getting your house in order before an IPO or SPAC merger. Secondly, identify a project manager to avoid too many cooks in the kitchen. Thirdly, prepare for extra expenses when planning for public offerings including legal, auditing and IR costs. Hansen says if you follow these tips, have a good business plan, and ensure your company is well-funded, you’ll be set up for a successful process.

Hybrid as the long-term solution for corporate access 

Research shows that hybrid working is still seen as the long-term solution for corporate access. However, Swaroopa Desai, head of corporate access at Cowen, pointed out that hybrid working can mean “very different things for different people.” In her interview with IR Magazine, she explained how definitions of hybrid working must be defined on a case-by-case basis to suit the needs of individual companies. Having people in a meeting physically and others virtually at the same time can be challenging, as trying to keep two audiences engaged at a high level creates a tricky environment for high quality discussion. She has been seeing a trend towards more in person group meetings, as many miss the benefits of an impromptu exchanges of ideas. It seems like hybrid working isn’t going anywhere soon, as its flexibility makes working in an uncertain world easier. However, differing interpretations of ‘hybrid’ might have to get flexible too, as companies design new ways of working to suit their employee and business needs.

Leaving Russia for morals or money

Why are companies and investors pulling money out of Russia? For one – or both – of two reasons, Matt Levine has suggested in his column for Bloomberg: morals and money. From a moral standpoint, pulling out of Russia means punishing Russia for its aggression, even at a cost to yourself. On the money side, Russia has become a less attractive business and investment prospect, due to international sanctions and economic contraction. If the first reason is altruistic, the second is profit-seeking – and yet together they form the central tenets of ESG investing: raising the cost of capital for funding bad activities, and avoiding investing in things which are likely to be unsustainable in the long term. They’ve also had some interesting side effects: investors have been self-sanctioning before governments have themselves decided on sanctions, and for those who choose not to divest – notably largely Russian buyers – there could well be plenty of profit to be made as others rush to sell. A case might even be made here for companies that wish to stay in Russia: “it’s important not to sell your Russian assets, because that would put them in the hands of Russians.”

And finally … Extreme risk management

Disclaimers seem to get longer & longer with tail risks more & more numerous. With war in Europe, investors looking for reassurance will have been disappointed by a note from Peter Berezin at BCA Research which claimed that the odds of civilisation being destroyed in a nuclear war in the next year have risen to 10%. In the face of an upcoming apocalypse, however, he has maintained that investors should ‘stay bullish on stocks’. In a conversation with DealBook, he argued that if conflict escalates the aftermath will be rather irrelevant so, in the absence of any possibility to hedge, investors might as well buy stocks when they are down. In the absence of Armageddon, he believes prices will revert and inflation will stick around – whilst also admitting to having bought potassium iodide.

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