IR Monitor – 1st February 2023

This week’s news

Future of shareholder engagement

With the pandemic, investors and issuers have seen a change in technological tools and how they use them. Increased digitisation has meant that creating a user-friendly, timely form of communication between interested parties has become a responsibility for all IR teams. From the initial all-digital approach during the pandemic, to a fierce in-person push-back last year, the industry has currently settled on a ‘hybrid approach’. For tech providers, IR teams and analysts have driven technological evolution, with teleconferencing companies reporting a massive swing towards virtual meetings. Investors are demanding more from available technology, and IROs are fully leveraging technology to fine tune IR processes. Alternative communication platforms such as social media and online conferencing have become principal tools for companies to gauge sentiment, swiftly flag areas of concern, and identify future allies. However, the most important change is by far the speed of response expected by investors.

Stock pickers now hope to turn the tables after a decade of pain

In a new market environment where interest rates are rising, equity returns are expected to reach historic lows. In that context, focused active asset management and careful security selection could offer better returns, and the Financial Times sees Franklin Templeton as particularly well-positioned. The firm has been acquiring new tech capabilities and alternative offerings over the past five years and is looking to prove its mettle in stock picking, as it believes active is far from dead, but just getting more specialised.

Cooperation between boards and shareholders is required, says IF

The Investor Forum, a group of major asset managers representing £680bn in UK equities, and including BlackRock and Baillie Gifford, has warned that UK equities are no longer a “must own” market. The group’s executive director wrote in their annual review that the “status and value of UK listed companies are in need of restoration” due to sustained selling from retail investors and limited exposure of pension funds to UK equities. The Investor Forum has called for a supportive environment for UK listed companies and cooperation between boards and shareholders, as the strained relationship has led to a decline in the market’s attractiveness. The Forum has also called for a re-set of relations between investors and companies, stressing a “proliferation of reporting initiatives and accusations of corporate governance box-ticking”.

Big business: rough earnings season 

The Economist has concluded that Chief Executives of the world’s biggest firms left Davos on January 20th feeling hopeful that risks to the world economy seem to be contained, at least for now. Central banks have squared up to inflation and, on the whole, analysts predict profits to grow in 2023. This being said, a key trend that has been picked up by analysts on earnings conference calls is the weary consumer, demarcated by bargain hunting in the face of ever-rising prices. Mounting costs represent another trend. The impact of these two diverging trends on profits, borrowing, dealmaking and investments remains to be seen, but it can be said with certainty that the earnings season will contain one or two surprises, as companies lay out spending plans for the year ahead.

The McDonald’s ruling everyone is talking about: executives beware

A landmark ruling in Delaware chancery court could hold company officials, and not just board members, liable for breaches of fiduciary duties. The ruling stated that David Fairhurst, former Chief People Officer at McDonald’s, could be sued by shareholders for allowing a culture of sexual misconduct and harassment to develop at the company. This ruling, which rejected the argument that the buck stops with the board, has significant implications for officer liability and opens the floodgates to lawsuits. The “duty of oversight” responsibility is defined so broadly in the ruling that it could result in significant lawsuits against executives. Some argue that this is a good thing – that the threat of shareholder lawsuits is more effective in ensuring rightful duties, as opposed to the typical settlements in employment lawsuits.

And finally… Activist investors circle Salesforce’s celeb-schmoozing CEO

Salesforce’s founder Marc Benioff is known for racking the brains of musician Will.i.am and actor Matthew McConaughey during the company’s strategic discussions. Benioff claims he didn’t hire the men because he is starstruck – quite the contrary. His defence is that Will.i.am is known for extensive tech knowledge and McConaughey has played an important role in articulating the company’s narrative through advertising campaigns. However, the celebrity involvement in Salesforce has drawn the attention of a trio of activist hedge fund investors, who are looking to “bring change to the company”, the FT reports. Elliott management, Starboard Capital and Inclusive Capital have also questioned the legitimacy of Benioff’s advisers, in the context of Salesforce’s 48% decline in market capitalisation in 2022. What’s more, the activists have targeted the Company’s focus on growth at the expense of profit margins and, crucially, the acquisitions of Tableau and Slack – $44bn in total – which were said to too expensive.  “They are friendly now, but it could get nasty”, says an observer.

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