IR Monitor – 1st December 2021

This week’s news

Nuclear weapons are the next battleground for ESG warriors

First comes oil, gas and tobacco, then comes nuclear weapons. Last week, The Times reported that ESG investors are now turning their attention to the defence sector where concerns that weapons manufacturing could become unpalatable for a broad swathe of shareholders are weighing on share prices. Analysts at BNP Paribas recently pointed out that defence valuations have fallen in line with those for tobacco companies since 2018. In November, Norwegian pension fund KLP dumped shares in 14 companies including Rolls-Royce, whose propulsion systems are used in Britain’s nuclear submarines, and Babcock, which maintains the fleet. The Times has suggested that that these moves are seriously misguided as the geopolitical calculations behind nuclear weapons are extremely complicated: “a prime example of a well-intentioned movement straying beyond the bounds of what it should be doing”.

Equity funding no longer preferred finance choice for smaller UK firms

For the past decade, UK small and mid-cap companies have always told the Quoted Companies Alliance that if they needed external financing the public markets would be their preferred choice. In a rebuff to institutional investors, this has now changed. These companies now cite a preference for bank debt over an equity raise for the first time since the survey began in 2011. Just 39 percent would prefer an equity raise compared with 52% who would choose debt. IR Magazine has suggested that very low interest rates (making debt more attractive) along with increased pessimism among smaller firms around the wider economy are the potential factors behind the shift.

Twitter CFO says investing in Crypto doesn’t ‘make sense right now’

The Wall Street Journal has reported on Ned Segal’s claims in an interview that investing Twitter Inc’s corporate cash in crypto assets such as bitcoin ‘doesn’t make sense right now’. He added that the company instead prefers to hold less volatile assets such as securities on its balance sheet. This is despite Twitter’s recent announcement that it is assembling a Crypto team to look into ways to help creators on the app earn money or accept cryptocurrencies as payment. Segal confirmed that whilst the company’s finance department supports these product initiatives, it doesn’t see the need for immediate changes to policies around its own corporate cash. Segal’s comments echo a common concern among finance chiefs, many of whom cite the volatility of digital currencies. The lack of specific accounting rules for these assets is the central IR challenge here. Large U.S. corporations in recent months have urged the Financial Accounting Standards Board to write rules on how to treat crypto assets.

UK Corporate Governance reporting improves but more is required

The Financial Reporting Council has suggested that reporting against the UK Corporate Governance Code has generally improved in the UK but that there is still room for further improvement. Areas lacking progress include substantive disclosures on Board appointments, succession planning and diversity. The FRC has called for greater focus on reporting the effectiveness of internal control and risk management systems, which would enhance levels of confidence in a company’s framework. The report also offers examples of good corporate governance practice from which others can take note.

Adhere to the Corporate Governance Code, says Wetherspoons chairman

An alternative view of the corporate governance world was offered last week by Wetherspoons chairman Tim Martin who suggests that ‘box-ticking’ cultures and mechanistic processes threaten to weaken the structures of UK businesses . Martin calls for a number of major investors and advisors, who he claims are breaching the Code, to pay greater adherence to the its practice. Best practice requires companies to pay “due regard to individual circumstances” and “assess differing company approaches thoughtfully”. He also criticises the rule that leads to the removal of executive directors from company boards after a nine-year tenure – an arbitrary number which leads to inexperienced boards. To ensure commercial success, Martin calls for a more bespoke approach to corporate governance practice, with greater flexibility and individualised processes, to better fit the needs of organisations.

And finally… what are CEOs thankful for?

Thanksgiving in the US last week gave us all an opportunity to express our thanks. But what are CEOs thankful for? Dealbook has gathered responses based on some of the things that business leaders said they were grateful for, last month, during presentations to analysts. Most often, executives say they are thankful for investors and employees, the corporate equivalent of “friends and family” around the table. But it also seems they’re grateful for patient customers, the F.D.A., the mortgage boom and growing markets. What is your organisation thankful for this year?

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