IR Monitor – 22nd March 2021

This week’s news

A bump in the road for purpose-led capitalism?

The rise and fall of former Danone chief executive and chairman Emmanuel Faber has been framed as a classic clash between capitalists and idealists. His dismissal earlier last week at the hands of activist investors was seen by some as a repudiation of his purpose-led vision for the consumer goods company, but the truth is far more nuanced according to the Financial Times. Faber is a long-time advocate of “humanist capitalism,” putting ESG at the forefront of Danone’s business model since he took charge in 2017. However, investors and board members have seen the company’s performance slump during his tenure. Following an initial pledge to protect jobs during Covid-19, in October Faber announced a plan to slash 2,000 jobs. The share price has lagged behind rivals Unilever and Nestlé, and annual profit forecasts have reportedly been cut three times in the last seven years. Sources close to Danone insist that investors were not opposed to Faber’s ESG vision and that their issue with Faber was not ideological but operational. One adviser close to the company suggests “It is all well and good to topple the statue of Milton Friedman. You can do that when your financial performance is better than competitors and your governance is above reproach, but if they aren’t, then it is going to be a problem.”

The rise of the retail investor

The IR Society hosted a webinar last week on the rise of the retail investor, asking  what makes this audience on social media such an unpredictable and powerful force. The speakers highlighted the importance of preparedness  in the wake of the GameStop saga, suggesting that the retail audience is highly emotional in its trading patterns and has the capacity to act en masse to disproportionately impact share prices. This makes companies with large volumes of retail shareholders vulnerable to rapid and violent fluctuations in share price and exposes them to targeted trading campaigns orchestrated by those with the wherewithal to unify traders on Reddit, Twitter and even the dark web. To combat this risk, the speakers advised companies to map the networks of retail investors online to provide them with real-time updates on online sentiment, conversation volumes and trading activity. On top of this, the speakers encouraged companies to actively engage with retail shareholders, tricky though this may be, through the usual channels of communication. The key takeaway? Communities of retail investors (which are educated, engaged and care deeply about ESG) are here to stay, so companies should invest now in expertise and technology to insulate themselves against “the swarm.”

Restoring trust in corporate governance

Business secretary Kwasi Kwarteng last week published sweeping new reforms to address concerns over corporate scandals and dividend payments emanating from the high-profile collapses of Carillion and BHS, among others. The reforms, contained in an ambitious white paper entitled Restoring Trust in Audit and Corporate Governance, will require company directors to justify dividend payments, risking their bonuses being clawed back if they do not act in the interests of customers and employees. The Times reported that business groups are broadly in favour of the reforms but raised concerns that more onerous reporting requirements could deter businesses from listing in Britain. Meanwhile, the Telegraph suggested that the plans to make company directors personally liable for the veracity of accounts risks undermining the Covid-19 recovery. Sir Iain Duncan Smith warned the reforms could deter people from becoming directors at a time when the priority should be kickstarting the economy. However, with Carillion and BHS fresh in the government’s mind, Mr Kwarteng said that rebuilding confidence in business is crucial to repairing the economy and building it back from the pandemic.

CEO Stress, Aging, and Death

Marginal Revolution has reported the findings of a study published by the National Bureau of Economic Research on the correlation between stress, ageing and death among corporate executives. The paper suggests that negative industry downturns can decrease a CEO’s lifespan by as much as 1.5 years. On the other hand, the executives of companies shielded by anti-takeover laws may gain up to two extra years. The study also employs machine learning to analyse a large number of CEO photographs to spot evident signs of ageing on the job, noticing how the chiefs of large US companies appeared to age more quickly during the Great Recession of the early 2000s.

IR: the Geographical Landscape

In this DNA article, Debbie Nathan discussed the disparities in how Investor Relations experts are perceived and valued across geographies. Looking at a range of countries such as Australia, Israel, Romania, Saudi Arabia, the United Kingdom, Spain and South Africa, the author highlights how varying corporate norms affect the role that IR plays in the development of firms. For example, in the UK and Romania it is common to find an IR officer sitting on the Executive Committee. The same can be said of Spain and South Africa but, on the other hand, the practice is much rarer in Israel and Saudi Arabia. Nathan suggests that a number of factors may be at play, including market maturity and the composition of the local investor community.

And finally … the master of claptrap 

Reuters has weighed in on the recent, puzzling changes in corporate nomenclature at Tesla. CEO Elon Musk has recently changed his own title to “Technoking”, whereas CFO Zach Kirkhorn is now to be addressed as “Master of Coin” (fans of the popular TV series Game of Thrones will have already spotted the reference). Reuters has suggested that Musk is at best mocking what is described in the article as “America’s obsession with job titles”. But he may also be laughing at investors. In mitigation, a change in name only should be of little concern when compared to other, established American board practices, such as the tendency to have the same person covering both the roles of CEO and Chair. Moreover, Reuters reminds readers, shareholders should be less concerned with names and more with numbers.

Conferences

23 March: 2021 Consumer Retail Conference, London – Credit Suisse

23-25 March: UK Corporate Conference – Berenberg

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