IR Monitor – 22 November 2023

In this week’s newsletter:

• FTI Governance Breakfast Briefing. Join FTI, here at 200 Aldersgate on Wednesday 6th December, for a discussion with some of the world’s leading institutional investors and major proxy advisors as they share their perspectives on the latest trends and key developments related to voting, reporting and engagement. IR Monitor readers welcome
• Meanwhile, a new study by the American Council for Capital Formation suggests Glass Lewis & ISS make material errors in their recommendations to investors
• Wall Street’s ESG craze is fading, says The Wall Street Journal. Investors pulled more than $14 billion from sustainable funds this year
• Think like an analyst: a webinar on how to manage coverage in today’s environment
• DealBook oncybersecurity disclosure: being too specific about vulnerabilities could give attackers valuable information, while being too broad isn’t valuable to investors
• And finally … CEOs aren’t hearing a lot of ‘Great Quarter, Guys!’ this earnings season. Bloomberg reports that kudos during earnings calls are down 29% so far this quarter

This week’s news

FTI Governance Breakfast Briefing on 6 December – please sign up

Join FTI, here at 200 Aldersgate on Wednesday 6th December, for a discussion with some of the world’s leading institutional investors and major proxy advisors as they share their perspectives on the latest trends and key developments related to voting, reporting and engagement. At a time where debate as to what constitutes ’good corporate governance’ is louder than ever – particularly in the context of remuneration and cost of living issues, ESG, and institutional investor voting – the discussion will provide participants with practical guidance on key shareholder priorities and ideas to improve corporate reporting and engagement. Building on the success of our previous editions across London and Dublin, we look forward to hearing from some of the most influential players in corporate governance. All IR Monitor readers welcome and you can sign up here.

New study suggests leading proxy advisors make material errors in their recommendations to investors

As reported by the Wall Street Journal, the ACCF argues that leading proxy advisors have failed to correctly analyze corporate information when formulating voting recommendations. Worse, the ACCF adds that proxy advisors also failed to correct misleading recommendations, even when the errors had been pointed out to them. Between 2020 and 2023 complaints to the SEC about inaccurate proxy adviser reporting increased by at least 60%. The ACCF suggests that the majority of these errors result from a combination of sloppiness and a lazy “one-size fits all” approach which takes insufficient account of investor clients’ preferences. The ACCF reported the scrapping of rules, introduced by the former SEC Chairman Jay Clayton, has had a significant knock-on effect in relation to oversight of proxy agencies. The former rules required proxy advisers to notify investor clients of company statements alleging errors in voting recommendations. The scrapping of these rules has resulted in one rule for companies that are subject to SEC oversight and another for the proxy agencies.

Wall Street’s ESG craze is fading

Shane Shifflett has written a piece in the Wall Street Journal which discusses the shift in investor sentiment regarding ESG, with significantly lower flows into ESG funds compared with last year. Investors are currently retreating from ESG and sustainability, a complete contrast to the situation three years ago. As an example, the article highlights how Pacific Financial removed ‘sustainability’ from the name of all three mutual funds then holding more than $187 million, whilst other asset managers have decided to liquidate ESG focused funds. Vice President of Marketing at Pacific Financial, Ron Rice, said that all three funds subsequently saw positive flows. The article mentions different reasons behind this trend, ranging from greater regulatory pressure linked to ESG labels, to falling demand from financial professionals through to political pressures criticizing ESG. Given the change in dynamic in the last few years, it will be interesting to see how resilient ESG funds will be in the future, and whether the moniker has really fallen out of favor with investors or not.

Think like an analyst: an IR Magazine webinar on how to manage coverage 

Last week, IR Magazine partnered with Visible Alpha to deliver an informative webinar offering viewers an insightful discussion on how sell-side analysts think, how they build their models and what shapes their views on a company’s prospects. The panel was expertly led by Laurie Havelock, the editor at large for IR Magazine, with the panel consisting of four experts with backgrounds across the board including Investor Relation Officers and sell side analysts. The speakers included Andrew Cooper from Raymond James, Giuseppe Montefinese from Visible Alpha, Peggy Reilly Tharp from ICL Group and Jason Schmidt from Upstart. The common consensus across the panel was that by providing transparency, accessibility and accuracy, companies and IROs would have the best chance of having successful and mutually beneficial relationships with analysts. As further expanded by Peggy Reilly Tharp, the best relationships between analysts and executives occur when the IRO provides accessibility to the executive committee. Polls from the audience reinforced this panel consensus which found that the most effective tools to both initiate coverage and boost engagement with analysts was through face-to-face meetings and by allowing analysts face-to-face time with executives.

DealBook on the dilemma of cybersecurity disclosure 

Andrew Ross Sorkin reports in the New York Times on the recent surge in cybersecurity lawsuits, especially as boilerplate cybersecurity disclosures are becoming increasingly inadequate according to the US SEC. The latter is pushing for policy changes that require more specific cyber security risks to be disclosed by companies. From December of this year, the SEC will also require companies to report material attacks within four days and to make yearly disclosures about their cybersecurity risk management, strategy, and governance. However, there is a question mark as to whether the SEC can define a clear middle ground. Recent changes to cyber policies have faced a backlash, as some companies and individuals take the view that the fear of a lawsuit over incorrect filing may incentivize companies to avoid documenting vulnerabilities altogether, as well as creating an opportunity for more attacks if every potential vulnerability is disclosed. On the other hand, security experts have instead argued that these changes will ensure that executives do not view their cyber risks through rose tinted glasses. 

And finally … CEOs aren’t hearing a lot of ‘Great Quarter, Guys!’ this earnings season

Words of positive affirmation from analysts are rapidly declining, with “good quarter” and “congratulations” becoming more and more scarce. This downturn in analyst sentiment isn’t a result of poor performance, but rather of increasing macro uncertainty, with higher labour costs, soaring raw material prices and surging interest rates, as well as increased geopolitical tensions. This change in sentiment, which has resulted in less verbal praise on earnings calls, hasn’t gone unnoticed by executives either. As Bloomberg reports, perhaps the dynamics of Wall Street are changing, with analysts now far more objective and narrowly focused on simply getting the information and context they need. Compliments on earnings calls create a sense of optimism, which may be at odds with growing investor concerns around macro-economic risks.

Contact Us

To be added to the distribution list for the IR Monitor, or for further information on the dedicated investor relations team at FTI, please contact [email protected].