IR Monitor – 24th November 2021
Investor Relations News
Tax residence, and the especially difficult choice between London and Amsterdam, is a vexing topic for both companies and investors. This week we begin with a visit to Holland, where Shell has announced its exit strategy and a plan to set up tax residence in the UK. Moving to the boardroom, IR Magazine has looked at how a board can navigate investor relations to set everyone up for success. Staying inside the boardroom, The Economist has also suggested that companies put their money where their mouths are by creating mission statements with true impact. After this, we report on the 10% drop in CEO pay as the ESG criteria prioritised by shareholders results in executive pay changes. On to wider board issues, Dealbook has commented on changes to proxy voting which will give shareholders the power to choose directors from competing slates of nominees through the newly dubbed ‘universal proxy cards’. Finally, a case study of style over substance; we round up with a look at a behavioural study which suggests that the IR officer should pay more attention to the imagery in the deck.
This week’s news
Shell’s Dutch exit raises questions
The Financial Times has unpacked Shell’s decision to set up tax residency in the UK, breaking its ties to the Netherlands. The complicated history between the company and the country began in 2005 after an Anglo-Dutch merger saw Shell set up tax shop in Holland. The unfolding tale of woe is multifaceted involving climate activism, whereby a court ruled that Shell had to cut more emissions by 2030, coupled with the enduring issue of Holland’s tax code and, in particular, the 15% withholding tax on share repurchase schemes. This last tax also played a role in Unilever’s decision to abandon Rotterdam and become a solely UK business. Other Anglo-Dutch companies and investors will no doubt be wondering if they have chosen the ideal domicile.
How do boards add value amid Covid-19 challenges?
To succeed in the wake of Covid, boards must prioritise oversight and strategy, says IR Magazine. A good starting point is reviewing the board’s agenda which should be a process of reflection carried out regularly. From there, the feedback loop must expand to senior management whose invaluable insight is more likely extracted via verbal interviews than via pen on paper; interviews may be time consuming but they can encourage a more truthful and expansive answer. Board members should also be connecting outside of the boardroom and actively contributing to discussions around strategy from day one. Covid should not be an excuse to refocus from long-term growth to short-term survival; it is an opportunity to strengthen positioning and come out ahead. When companies are surprised by activist shareholders, it’s often because management and the board don’t have a good idea of what investors are thinking and what their critical issues are. The board needs to empower IR professionals with a clear mandate for investor dialogue, allowing them to get shareholder support for the company’s long-term strategy.
The meaning of mission statements
The Economist has investigated the role mission statements play in informing investors’ decisions to buy into a company, arguing that even the most verbose statements send important signals. They can shed light on a company’s priorities and goals – important information when one considers the voting power that founders wield. Moreover, to understand the importance of mission statements, it is illuminating to see which entities do not have them e.g. Special Purpose Acquisition Companies (SPACs). Most SPACs do not have a mission statement stating, with refreshing honesty, that their main goal is shareholder returns. Contrast this with WeWork’s nonsensical mission “to elevate the world’s consciousness”. However, the Economist concludes that even guff has meaning; mission statements are not just fluff pieces insulating the meatier company fundamentals; if read closely, they can give key insights into management’s thinking and reveal who some of a company’s most important stakeholders are.
FTSE 100 CEO pay drops as investors flex muscles during pandemic
The Financial Times has reported on the near 10% drop in CEO pay as companies relent to shareholder pressure. A report published by PwC, analysing companies’ annual reports, has demonstrated that ESG criteria are playing an ever-greater role in determining pay policies. During the 2021 financial year, the median total remuneration for a FTSE 100 CEO declined by 9% to £2.9m. This has led some executives to caution that the trend towards lower pay could impede listed companies’ ability to recruit the very best people, especially given that privately owned businesses can still offer leaders higher rewards. Last week, the IA advised businesses in a letter to be mindful of pay levels, stating that it would seek clear explanations for any increase in remuneration. It is clear that as businesses emerge from Covid they will have to approach the issue cautiously in order to appease both executives and shareholders.
The Universal Proxy Rule is not universally loved
The S.E.C has announced its plans to shake up proxy voting as reported in The New York Times. It revealed a new rule that will see shareholders who vote by proxy given the power to pick and choose a variety of directors from competing slates of nominees through new ‘universal proxy cards’. This, it is argued, would enable investors to elect board members based on who would be the best candidate rather than who has nominated them. This forms part of the organisation’s efforts to allow shareholders greater input. However, the changes have faced backlash from corporate defence advisers who claim that this gives opportunity to activists who could potentially put forward a considerable number of nominees (in the hopes that a few would gain the sufficient number of votes to be elected). It would also make it easier for smaller funds to run campaigns to elect corporate directors.
And finally… soothing nature images…
Citing a behavioural finance paper, Bloomberg has investigated the effect of emotional imagery on investor behaviour. During the experiment, participants were shown a set of nature-related and non-nature images throughout a number of investment decisions. The report found that positive imagery significantly increases, while negative imagery significantly decreases, investment although strictly speaking imagery does not provide any further information pertinent to the investment and it should be ignored by investors. Moreover, exposure to nature-related imagery results in significantly higher investment compared to non-nature imagery. Time to include soothing nature images in your deck.
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