IR Monitor – 23 August 2023

In this week’s newsletter:

• Taking an innovative approach to your investor day: an IR Magazine webinar
• The controversy around share buybacks: the FT’s US financial editor Brooke Masters explains why share repurchases have become so hotly debated
• London isn’t calling but New York is – Alistair Osborne laments in The Times
• In defence of credit-rating agencies: the much-maligned institutions have performed well of late, claims The Economist
• Problems inside and outside the ESG camp: SEC lawyers subpoena fund managers over ESG disclosures, reports the Financial Times. At the same time anti-ESG funds face obstacles to broad investor acceptance, reports the Wall Street Journal
• And finally… CFOs are stepping into a rapidly revolving door: one-tenth of the 1,000 largest US companies lost their CFO in the first half. Economic whiplash is one factor, but another is expanded job duties which include wrangling with uppity investors

This week’s news

Taking an innovative approach to your investor day 

Last week FTI Consulting tuned into an IR Magazine webinar asking the question every Head of IR should be asking themselves: why exactly are we holding an investor day? If your company has nothing insightful or new to share, it might not be the right move. Investors are incredibly busy individuals, and their time is of the essence. An investor day without up-to-date financial targets, for instance, is unlikely to be welcomed by your investors.  One suggested means of differentiating your investor day from competitors is to allow investors to hear from employees “a couple of layers down”. At the heart of the business, these colleagues can offer a well-informed, fresh perspective. The panel warned, however, that this approach is not without risks, and extensive training and guidance should be given, ensuring that all important messaging alignment is maintained.  

The controversy around share buybacks 

The Financial Times’ US financial editor Brooke Masters spoke to the Behind the Money podcast this week to discuss the topic on everyone’s lips – well everyone in finance-, that is…share buybacks. 2022 saw $1.3tn of share buybacks globally, around a three-fold rise over the previous decade, a trend that does not appear to be waning. The debate about share buybacks revolves around one central question – are they a positive as they benefit investors, or are “greedy” investors hindering future growth to line their pockets in the short term? While low interest rates and the tech boom made share buybacks an increasingly attractive prospect, critics argue it’s a poor allocation of companies’ resources, which should be directed towards investing in people, products or capital stock.  

London isn’t calling but New York is  

The exodus of listed companies from London to New York is not new news to any IR professional, and Alistair Osborne from The Times is the latest journalist to draw attention to what he terms the “de-equitization” of the UK market. While the US is seen as the market of the new, more snazzy technology stocks, London is seen to be the home of the old economy stocks, with changes in public opinion and ESG expectations making them less attractive prospects.  Heavy regulation and political instability since Brexit have worsened the London Stock Exchange’s outlook, and in a fittingly pessimistic assessment Osborne argues there is no “quick fix”. What’s more, the recent wave of share buy backs is not expected to bring any improvement to the UK’s stock markets according to Osborne.

In defence of credit-rating agencies 

In August 2008, during the global financial crisis, credit-rating agencies faced their worst period in history. But in a turn-up for the books, these firms have not only survived but thrived in recent years, argues The Economist. Moody’s made around $4 billion in 2021, compared to $1.8 billion in 2007, and the issuer-paid model, where borrowers pay for their ratings, continues despite renewed criticisms and limited reform. While rating agencies took some flak during the demise of Silicon Valley Bank in March, the article notes however that they largely avoided negative attention during the covid-19 pandemic. Research also demonstrates a continued role for agencies in rating emerging-market government debt, while a recent study by the World Bank calculated that the effect of credit ratings may have even risen since the global financial crisis. While they still are very much a lightning rod for criticism, the article suggests that rating agencies do remain a crucial player for capital markets.  

Problems inside and outside the ESG camp 

The Financial Times reports that in the US, the SEC has initiated investigations into several asset managers regarding their ESG investment marketing, suggesting a potential crackdown on the sustainable fund industry. The inquiries are focused on asset managers that have rebranded conventional funds as ESG funds, as well as cases where funds offered in the US and Europe may share similar strategies, holdings or portfolio managers, without presenting the same amount of information to clients on either side of the Atlantic. Experts anticipate more enforcement actions to emerge as new investigations unfold, which is corroborated by provisions booked recently by a number of asset managers like DWS which disclosed it had set aside €21 million to settle an ESG investigation by the SEC and other regulators. Meanwhile, on the other end of the spectrum, the Wall Street Journal reports that the new and so-called “anti-ESG” funds are struggling to attract investor interest in the US, not least because of unclear investment strategies…

And finally… CFOs are stepping into a rapidly revolving door 

According to Reuters, CFO turnover is accelerating as finance chiefs at major companies like Alphabet and Walgreens Boots Alliance are changing roles, moving employers, or resigning more rapidly than usual this year. Economic challenges, including rising inflation and interest rates, are impacting corporate earnings while the responsibility to wrangle with uppity investors and shape corporate strategy add to CFOs’ workloads. Some CFOs are advancing in their careers, like Alphabet’s Ruth Porat who became the company’s president and chief investment officer. Retirements are also contributing to the turnover: about one in three departing CFOs choosing to retire according to a recent study. In the first half of 2023, 103 of Fortune’s top 1,000 companies replaced their CFOs, up from 79 the previous year, a trend that could lead to around one in five companies on the list having a new CFO in 2023. The average tenure for CFOs in the first half of 2023 was also 4.9 years, down from 5.3 years a decade ago, indicating a sustained pattern of faster rotation. 

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