IR Monitor – 25 October 2023

In this week’s newsletter:

• On the institutional side, the tyranny of ESG has run its course, claims Bloomberg
• On the corporate side, however, it may be a different story: more than 50,000 companies to report climate impact in EU after pushback fails, reports the Financial Times
• What makes a great IR leader? A discussion on IR leadership, hosted by the IR Society 
• Are America’s CEOs overpaid? asks The Economist. Investors do not seem bothered
• CEO humility has its advantages, suggests John Authers in Points of Return
• And finally … how to describe entering Chapter 11. We continue our occasional series on great IR euphemisms with the case of Rite Aid Corporation

This week’s news

The tyranny of ESG has run its course

According to the annual ESG Attitudes Survey published in Bloomberg, the number of Investment Companies considering ESG factors has decreased from 60% in 2022 to 53% in 2023, and this is partially due to companies prioritising performance. If investors were already skeptical about ESG claims from funds, the increase in greenwashing renders it all the harder to make efforts towards greener investments. It is a lot easier to feel pro-ESG when it’s making you a big pile of money as it was three years ago. It is more difficult to invest in ESG when a company is underperforming. ESG is both extremely important and nothing special. Good companies have always considered environmental, social and governance factors, but it is now pretty obvious that the ESG game was as much as a function of luxury interest rates and fund manager marketing as anything else, suggests Merryn Somerset Webb. If it can’t make you money, it can’t last. 

More than 50,000 companies to report climate impact after pushback fails

From political debate to practical implementation, the FT reports how the far-reaching Corporate Sustainability Reporting Directive (CSRD) overcame right wing and liberal opposition to accept the new rules. This is a victory for CSRD supporters as the standards will require multinational companies to start reporting on the impact of climate change and sustainability issues, rather sooner than later. Listed companies will have to comply with the new regulation from the start of January 2024, with around 50,000 entities to comply with CSRD from next year. The sustainability reporting standards come amid a wider pushback against ESG investing in the US and Europe. However, the commission claims to ensure a high level of alignment with other international reporting standards (GRI and ISSB), making a smoother transition for companies to report, and levelling the playfield globally. 

What makes a great IR leader? 

Last week, your FTI correspondents attended a panel discussion on IR leadership hosted by the IR Society. Industry experts discussed what makes a great IR leader and emphasised the need for flexibility when it comes to new technologies, market trends, and shifts in organisational culture. According to the discussion, personality, and softer skills – such as effective communication, authenticity, and networking – are becoming more important to IR roles. The concept of effective leadership without a formal team is also booming which implies that individuals in various roles can exhibit leadership qualities even if they lack direct reports. The panel concluded by discussing the impact of AI on Investor Relations. While there was some divergence in opinion from the speakers, we live in a world where messaging has become increasingly automated, and where machines turn out similar responses. This means that individual opinion and counsel will only become more valuable to investors and companies.

Are America’s CEOs overpaid? 

Amid a cost-of-living crisis and high inflation, The Economist reaffirms that America’s bosses are certainly well compensated. A normal S&P 500 boss earned more than $14m last year, according to figures from MyLogiq, a data provider. This is 250 times as much as the average worker, a clear and pronounced difference; but it seems that America’s big institutional investors are too focused on what share of the CEO’s pay is tied to the firm’s performance to be overly bothered. Some argue that the role of a CEO has become harder, and investors think a good boss is worth that sum. The difference in payroll between the US and the European market comes because of less competition for executives in Europe, and a more egalitarian attitude. But the European way contributes to slower economic growth and inability to attract executive talent according to the report.

CEOs humility has its advantages

A humble CEO is good, argues John Authers in Bloomberg’s Points of Return, and has been proven to help analysts keep the faith in lagging companies. The key take-away for leaders looking to up their game is the use of “external explanations” which claims that factors beyond the company’s control are driving results, rather than “internal explanations”, which are grounded in what the company itself is doing. After bad results, the humble offer internal explanations while those not prepared to admit responsibility blame external factors. Moreover, deflecting responsibility for unfavourable performance swings analysts’ judgments more negatively than CEOs taking credit for favourable performance. However, caution should be exerted to ensure excessive humility is not perceived as insincere. The balance, shows the original study by Skarlicki et al., lies in convincing analysts that CEOs have a better and more trustworthy grasp of how the company is performing, through a modest – but not too modest – approach.

And finally … Great IR euphemisms

Rite Aid Corporation has given a masterclass in the power of positive thinking as it announced the restructuring plan that will enable the company to “increase its financial flexibility [and] execute on key initiatives” – all good things! Jeffrey S. Stein has been appointed as CEO and Chief Restructuring Officer, and he looks forward to being “even better able to deliver the healthcare products and services our customers and their families rely on”. The press release, titled “Rite Aid Takes Steps to Accelerate Transformation and Position Company for Long-Term Success” does an entertaining (if slightly overenthusiastic) job of announcing a move to bankruptcy.

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