IR Monitor – 17 January 2024

In this week’s newsletter:

In this week’s newsletter:

• The eight trends that will define investor relations in 2024: leading IROs pick themes that will define their profession over the next 12 months for IR Magazine 
• Strong gains by newly listed stocks raise hopes of IPO market revival: the shares of large companies that floated since the start of 2023 have outperformed the wider equity market, according to Financial Times analysis of the data
• ESG campaigns seen falling out of favour with activist investors by Bloomberg
• Why are regulators demanding demographic diversity targets? asks The Times
• Why complex CEO pay can be ‘dangerous’: Moral Money explains
• And finally … something else for the IR officer to worry about: drug use. Musk again

This week’s news

The eight trends that will define investor relations in 2024

As 2024 is well underway, IROs will be looking at new emerging trends. IR Magazine discussed with several IROs what they see as the biggest trends that could define investor relation in 2024. While professional development and medical innovations were mentioned as trends to watch out for, two major external factors stood out in that they are expected to almost certainly affect investor relations and IPOs: potential political changes linked to elections and the developments of AI. With elections taking place this year in the UK, US and Europe, accompanied with increasing discussions around the future of AI, IROs are anticipating greater share price volatility as a result and the IPO landscape to be potentially impacted too.

Strong gains by newly listed stocks raise hopes of IPO market revival

The Financial Times reported that the shares of companies which raised at least $100mn through IPOs since the start of 2023 have outperformed the S&P 500 equity index. Investors are increasingly confident that interest rates have peaked, meaning 2024 has the potential to be the year marking a comeback of the IPO market. Whilst 2022 and 2023 have been two of the softest years for capital raising activity in the US, industry experts view 2024 with a more positive outlook. One factor fuelling optimism stems from the sharp stock market rally that occurred in the back end of 2023. However, caution still prevails as a number of investors think the opportunity for companies to IPO in the second half of the year may not be as attractive as in the first half, due to the US presidential election in November 2024 and the potential increase in volatility that it could bring to the markets.

ESG campaigns seen falling out of favour with activist investors

Activist investor campaigns could focus less on environmental issues in 2024, due to their lack of profitable returns. According to research cited by Bloomberg, returns generated by investor campaigns focussed on environmental and social issues were at their lowest level in comparison to activist campaigns focussed on operational or strategic change. Results from these findings suggest that share price performance following campaigns focused on operational or strategic change outperformed the market by an average of 9.4% over the past six years, in comparison to just 0.2% of environmental and social issues. Investors will wait and see which campaigns take off in 2024 and which are expected to be least profitable.  A central, if contentious, conclusion from the recent research is that the golden age of ESG-driven campaigns seem to be behind us now.

Why are regulators demanding demographic diversity targets?

The FCA is reportedly considering the implementation of compulsory diversity and inclusion strategies for UK firms, according to a report by The Times. However, some experts warn that this could lead to the creation of bureaucratic entities that promote discriminatory policies and restrict free speech. Economist Ryan Bourne argues that this approach is based on a flawed ideological belief that groups of people can be treated as homogeneous entities. Furthermore, he suggests that internal compliance bureaucracy may undermine business excellence. Adding to the scepticism, Professor of Finance at London Business School, Alex Edmans, questions the FCA’s reasoning and reminds us that its primary role is to protect financial consumers, not to enforce social justice in the workplace.

Why complex CEO pay can be ‘dangerous’: Moral Money explains

Denise Coates, Bet365’s founder and CEO, has recently come under fire for her staggering annual salary of £221 million, as reported in the Financial Times. While some have criticised the ethics of such high earnings, Coates’ supporters argue that she deliberately chose a simple salary structure, despite the resulting heavy tax burden. This contrasts with a trend among European companies, where CEOs are adopting ever more complex pay structures tied to various KPIs, including ESG targets, according to a study cited by the Financial Times. Xavier Baeten, the head of the Executive Remuneration Research Centre at Belgium’s Vlerick Business School, warns against overly complicated pay systems. His annual study of executive pay in the Stoxx 600 index has shown a negative correlation between pay complexity and companies’ return on assets over a three-year period. Baeten stresses the danger of overly complex pay structures, describing them as potential “camouflage” that could confuse stakeholders and even board directors and ultimately put companies at risk.

And finally … something else for the IR officer to worry about: drug use.

A recent Wall Street Journal article has highlighted concerns among executives, board members, and those close to Elon Musk regarding his reported drug use and its potential impact on the companies under his leadership. Within Tesla and SpaceX, board members and executives have reportedly engaged in discussions about Musk’s behaviour, pondering its potential connection to drug use, stress, or lack of sleep. However, despite ongoing concerns, investors have consistently chosen to overlook Musk’s actions, particularly during periods of financial success for Tesla and SpaceX. Now, members of Tesla’s board find themselves grappling with a familiar dilemma as they weigh the potential risks to directors and shareholders posed by a CEO whose behaviour could expose them to significant financial and legal risks.

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