IR Monitor – 22nd February 2023

This week’s news

5 common shareholder proposal mistakes in an uncommon year

AGM season is around the corner, and there are some common mistakes often made when approaching shareholder proposals, according to colleagues at FTI. These include assuming previous results will dictate future results, not communicating with the proponent, and having a lengthy and unstructured response statement. To ensure success, companies should take the time to understand the proposal and the shareholders and to create a plan that communicates authentically and effectively with them.

Plan to revive the City of London

Last week the FT turned its sights towards an ailing City of London, where the mood has been less that buoyant. London’s financial centre is struggling to keep pace with global rivals like New York and Hong-Kong, and continues to face fallout from Brexit. But plans are in place to boost the Square Mile’s competitiveness. Earlier this month, The City of London Corporation embarked on a sweeping review of regulations for financial services in the UK. And the Government’s Edinburgh reforms, announced last year, aim to rip up many EU-derived rules and redraw the regulatory regime to ensure the City holds its own against global rival financial capitals. Whilst the policy initiatives place heavy emphasis on calculated risk taking, reception among some industry professionals has been lukewarm, with some fearing a watering down of regulation that has made London’s financial industry so successful. Whether these plans will succeed in reversing the steady erosion of the UK’s reputation as a pre-eminent financial services hub will soon be clear.  Will its equity markets ever attract big tech companies? Only time will tell.

A conversation with the AI chatbot everyone’s talking about

IR Magazine interviewed the OpenAI chatbot, ChatGPT, about its potential impact on the IR profession. ChatGPT has the potential to automate responses, provide consistent and accurate information, enhance customer experience and increase efficiency by automating repetitive tasks. However, it is not a substitute for human expertise and judgement. Some specific examples of its application to IR include automating investor FAQs, investor outreach, earnings call assistance, market intelligence and integrating ChatGPT into an investor portal. Although there are no specific public case studies about ChatGPT, there are examples of companies and organisations using natural language processing (NLP) more broadly in their IR work, such as virtual assistants, NLP-powered IR websites and NLP analysis of investor sentiment. As it turns out, the limitations of ChatGPT in IR include a lack of human interaction and emotional intelligence, limited understanding, bias in training data, limitations in dealing with complex information and dependence on data quality.

Normal voting vs cumulative voting

Holding elections for a board of directors can be a messy business, not least when activist shareholders are in the mix. Bloomberg’s Matt Levine suggests that cumulative voting is often good for activists as it makes it easier for minority shareholders to pick and mix their candidates. Predictably, company boards and senior executives take a less favourable view; they believe such voting practices can lead to a disjointed board where priorities are misaligned. However, in the case of Purple Innovation Inc. versus Coliseum (a 45% shareholder), Purple has essentially switched to cumulative voting so as to dilute Coliseum’s power. While Purple Innovation is a peculiar case, it’s an interesting example of how cumulative voting can also offer an effective means to repel large shareholders.

Companies face swarm of agitators

Bloomberg reports that activist investing is on the rise and large companies are particularly vulnerable to packs of agitators with different agendas, according to Goldman Sachs. As large-cap companies are often viewed as a safe place to put money in a volatile economic environment they have become prime targets for activists. Goldman’s global head of shareholder advisory has stressed that, when dealing with a swarm of activists, companies need to focus on who they are dealing with as some activists have more sway than others. In particular, technology companies are suggested as examples of especially ripe targets for shareholder activism, due to a significant increase in the industry’s headcount during the pandemic. But Tech is not the only attractive sector for activists and there are plenty of other industries where margins could be improved.

And finally… The beguiling behaviour of narcissistic CEOs: evidence from SBB

Share BuyBacks (SBB) has become the predominant method of remunerating shareholders, but what factors influence plans and timing? A new research paper examines the role that leaders play in wider buyback decisions – specifically, it offers a no holds barred look at how CEO narcissism affects a firm’s plans. The findings are unsurprising. US firms with narcissistic CEOs are more likely to make repurchase announcements and announce higher repurchase dollar amounts. Often, they announce repurchases because of their “unrealistic inflated self-view” which, in turn, leads them to wrongly believe their firms are undervalued. No wonder then that these announcements don’t necessarily translate into action, with the report noting such firms are less likely to follow through on repurchase executive… All bark and no bite?

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