IR Monitor – 20 December 2023

In this week’s newsletter:

In this week’s newsletter:

• ‘The fox knows many things, but the hedgehog knows one big thing.’ Unfortunately, stock analysts are hedgehogs, not foxes, laments Jonathan Guthrie in his farewell. Analysts often fail to see the important things about companies because of their narrow vision
• Shareholder democracy is still very complicated, in the opinion of Merryn Somerset Webb writing for Bloomberg. No matter how you tweak it, there’s no getting away from the fact that some opinions hold much more weight than others
• Different perspectives on executive pay from different sides of the Atlantic: The FT reports on how shareholders are turning up the heat on US companies over exec pay. Meanwhile, the Sunday Times asks: is it time to pay Britain’s chief executives more?
• NIRI’s webinar on transforming trends into opportunities for 2024: our summary
• Cyber-paperwork blizzard will soon blind markets, warns Breakingviews. New SEC rules force companies to divulge a hack within days of deeming it serious
• And finally … the parties you missed. Big Christmas parties in banks were a modest headache for IR and a major headache for HR. Your guide from efinancial careers invites you to take a trip back in time to the 12 most notorious banking Christmas parties past

This week’s news

‘The fox knows many things, but the hedgehog knows one big thing.’

Ahead of his retirement, Jonathan Guthrie from the Financial Times reflects on the lessons he has learned from a career in financial journalism. The first is somewhat bleak: individual incentives favour collective instability. From Black Monday in 1987 to last year’s US rout, personal incentives for those in the banking sector too often discourage proper caution. As Guthrie puts it, ‘a crash is tolerable if you have transmuted several years of asset price inflation into cash bonuses.’ The next lesson is closely related… ‘You do not hear the whistle of the bullet that hits you.’ Guthrie goes on to dub stock analysts ‘hedgehogs, not foxes’. This is because hedgehogs have a single conceptual framework, rather than several, as foxes have. Analysts are tied to a talisman, their financial model, which tends to underestimate the effects of extraneous controversies and corporate scandals.

Shareholder democracy: complicated

The London Local Government Pension Scheme serves as a case study for the complexities of shareholder democracy in this Bloomberg article. The group in question manages London Local Government Pension Scheme assets for the London Boroughs and the City of London. It claims to be committed to responsible investment, viewing it as ‘not only a moral imperative but an economic necessity.’ However, not all asset managers working for the scheme see things the same way. This prompted Dean Bowden, chief executive of the group, to write a letter urging the fund’s managers to correct their course and align their investing with the company’s values. The solution proposed by the letter’s signatories is to introduce a pass-through voting system, whereby they would be able to influence the votes cast by fund managers on their behalf in direct proportion to the percent of the assets under management in any given fund. However, the problem then becomes who received the votes; the trustees of the fund? Those who have paid and are paying into it (workers and retirees)? The fund sponsors? In any case, the solution ‘still leaves some opinions rather more important than others.’

Different perspectives on executive pay from different sides of the pond

Shareholder vigilance over executive pay continues to be a hot topic in the US, with dozens of US-listed companies proposing changes to pay plans to keep investors on side. Patrick Temple-West of the FT notes particular disgruntlement at the “golden parachutes” that guarantee top severance packages for leadership. The piece highlights that whilst shareholders are willing to use their votes to scrutinise executive pay, they continue to shy away from cutting support for highly politicised environmental and social matters. However, UK-based investors hold a very different view, as discussed by Jill Treanor in the Sunday Times . FTSE boards are proposing major pay rises, driven by concerns that Britain’s top talent is being lost to the US. Despite directors of Britain’s biggest companies mostly refuting the matter on the record, with noise around having to appoint “second-best” executives, Chief Executives could be in line to receive the more lucrative, American-style compensation packages. Settling international pay discrepancies to enable the retention of top-tier leadership teams will be high on the agenda for any discerning investor, but whether it will be the US falling into line or the UK getting a pay-bump, remains to be seen.

NIRI’s webinar on transforming trends into opportunities for 2024

Last week, our US colleagues attended a panel discussion, hosted by the National Investor Relations Institute (NIRI) on investors’ engagement expectations, remaining relevant in a competitive environment, and implementing data-driven IR strategies. There was a surge in conference activity in 2023, and it’s important to note what resonates with investors to manage their different interests. Hybrid roadshows remain popular, though investors are seeing more value with in-person meetings. Additionally, mixing up the types of investor events is key as it leads to a better mix of investors attending. To stay competitive and top of investors’ minds, companies continue to see the benefits of being transparent, thereby building relationships and fostering trust with investors. This includes communicating a clear, long-term strategy, actively and regularly engaging with investors, and maintaining meaningful connections with sell-siders. For IROs, staying competitive through greater efficiency is also key, which can be helped by technology and data. For example, CRMs can be a valuable tool if you are detailed about your notes and tagging correctly, and AI is becoming an increasingly popular tool when it comes to summarising.

Cyber-paperwork blizzard will soon blind markets via new SEC rules

Jeffery Goldfarb of Breakingviews warns investors will be flying ‘partially blind’ until the dust settles on new rules brought by the Securities and Exchange Commission (SEC) in the US. Companies that experience a system hack or data breach categorised as ‘serious’ will be required to disclose the event within 4 days. Not wanting to make an enemy of the SEC, executives are likely to err on the side of caution and report anything and everything, resulting in a deluge of documentation for investors to sift through to sort major incidences from minor variations in boilerplate language. As recently experienced by cleaning-products maker Clorox, which suffered a 30% loss in its shares following a long-winded investigation into “unusual activity” on its IT systems, even minor breaches are becoming increasingly widespread and expensive. With a distinct lack of company directors with cybersecurity credentials and the ongoing threat of system hacks, investors will need to become more savvy in identifying what really matters. 

And finally … the 12 most notorious banking Christmas parties past

Big Christmas parties in banks were a modest headache for IR and a major headache for HR. Reflecting on the Gatsby-esque parties of years gone by, Sarah Butcher discusses some of the myths and legends surrounding Christmas celebrations at the big banks over the last 25 years. Highlights include a private audience with Robbie Williams, a 5,000-bottle bar tab, and a lavish affair held at the American Museum of Natural History. You have probably had your Christmas party by now so all that remains is for us at the IR Monitor to wish our readers Happy Holidays.

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