IR Monitor – 23rd August 2021

This week’s news

Business should come clean on unflattering comparisons

Just one-third of the FTSE 350 companies to publish half-year results and updates since the start of July have included direct, consistent comparisons with 2019 – the year before the Coronavirus pandemic hit. Instead, it appears that many British companies have gratefully exploited the dire figures from 2020 to create the illusion that they are performing especially well in 2021, while omitting any reference to previous years, pre-pandemic. Unsurprisingly, according to research last week by FT Lex, it is the companies that have underperformed that have shown the highest propensity to leave out unflattering 2019 comparatives. There is, however, a good case for businesses to measure their financial results for 2021 against both 2020 and 2019; those businesses that have measured up this way were rewarded with share prices rising by an average of 24%, while the companies that failed to do so on average saw an increase of just 11%. It would therefore appear that, as normality gradually returns, using the poor conditions of 2020 as a smokescreen for a mediocre performance now won’t pay in the long-run for Britain’s chief executives. Lex also reminds us that investors will themselves dig out the figures for 2019 before too long.

What company executives chose to say on earnings calls 

Today, what company executives choose to say on earnings calls is collated, sorted and analysed by high-tech, sophisticated software. Yet even with this technology at our disposal judgements on the overall message can still vary, Bloomberg Opinion has suggested. The bible of qualitative earnings call analysis – the quarterly Goldman Sachs ‘Beige Book’ – has this time found that three themes have dominated: margin pressure and preservation, ESG and cash as king. Meanwhile, Deutsche Bank’s survey and Morgan Stanley’s quarterly report have also identified several other key themes including bullish attitudes toward demand strength along with more bearish attitudes towards the delta variant and cost pressures. Despite a few differing takeaways, inflation is broadly accepted as the great concern of the moment and as good news for shareholders but bad news for consumers; transcript analysis notably found that Wall street seems confident it can pass on those costs to consumers and actually increase margins.

‘Stakeholder’ talk proves empty again

Two years on, The Wall Street Journal has shared its research into the actions taken following multiple CEOs’ signing of the Business Roundtable statement on purpose, stating that its findings cast serious doubt on whether corporations are matching the ‘stakeholder’ talk with action. Ultimately, two years after signing the Business Roundtable statement, companies still prioritise shareholders. Examining the actions taken, and the changes to governance statements, the Wall Street Journal found that although companies made slight changes not only did they fail to elevate the status of stakeholder but they actually reaffirmed principles supporting shareholder primacy. So why sign up to such contrary and grandiose statements in the first place? The article suggests there could be several motivations for such statements:  “Corporate leaders and advisers often use stakeholder arguments to urge institutional investors to be more deferential to incumbent leaders, less open to activists’ challenges in the event of underperformance, and more accepting of arrangements that insulate management from shareholder intervention”.

My years on Wall Street showed me why you can’t make a deal on Zoom 

In a guest essay for The New York Times, William D. Cohan has lamented upon his time on Wall Street, sharing details of watching and learning from Wall Street giants and having the facetime with his mentors that he viewed as vital to his success. He goes on to urge his “fellow Wall Street drones” to return to the office as soon as possible, compelling individuals to get vaccinated. He emphasises the importance of the in-person office experience, highlighting how subtle mannerisms in discussions can be invaluable when negotiating deals. Cohan continues with the message that although it is clear Wall St can continue to succeed by working from home, it is essential to get back into the office so the next generation of bankers & traders can learn about things only possible through the environment present from in-person working. He finishes by stating his belief that there is an art to deal making, an artistry that could be lost if not passed on in person.

FTSE bosses’ pay plunges during pandemic 

The Telegraph has reported that FTSE 100 bosses took, on average, a 17 per cent pay cut last year, as the pandemic squeezed earnings. It added that whilst the average bonus fell from £1.1 million to £828,000, 36 per cent of FTSE 100 companies decided not to pay their chief executives a bonus at all. Following a year of uncertainty due to the pandemic, executive pay has come under increased focus as millions were furloughed and some companies suffered unprecedented hits to revenues and profits. As an example, it highlights the investor revolt faced by AstraZeneca regarding Mr Soriot’s renumeration package. However, Matthew Lesh, head of research at the Adam Smith Institute, said that generous compensation is necessary to attract the talent that delivers innovative products, creates jobs and boosts company value. He adds that “Obsessing about CEO pay does nothing to boost incomes. As the economy recovers from Covid-19, we should embrace policies that will boost pay for all workers.”

And finally … the regulatory costs of being public 

4% is a sobering number for anyone who works in IR. A paper has been published by the National Bureau of Economic Research  which explores the connection between regulatory costs and the number of listed firms by exploiting a regulatory quirk: many regulatory rules are triggered once a public float exceeds a determined threshold. Estimates have shown that various disclosure and internal governance rules have led to a total compliance cost equivalent to 4% of the market cap for an average U.S. public firm (and this could potentially be further increased from the addition of regulations in relation to ESG and MIFID III). However, regulatory costs have a greater impact on private firms’ decisions to float than on public firms’ decisions to go private (which suggests that companies come to accept these costs once they have taken the plunge and gone public). The paper concludes with the suggestion that non-regulatory factors have likely played a more important role than regulatory factors in explaining the decline in U.S. public firms.

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].