IR Monitor – 25th January 2023

This week’s news

What institutional IR can learn from retail engagement: thoughts from FTI

The rise of retail investors has presented IR teams with a challenge: understanding and engaging a diverse and disparate audience across a range of channels and media. This has prompted some IR teams to add new tools to their kit, allowing them to enhance their understanding of perception drivers, onboard data and technologies for digital targeting, and think differently about how to land strategic messaging as regards company performance and priorities. These ways of working should not be limited to IR departments with a large or particularly vocal based of retail shareholders. Instead, IR teams should adopt these tactics to create more and more meaningful touchpoints with current and potential institutional investors as well. Read our full article here.

The Ticker Podcast – Why are Asian IR budgets lagging behind?

As IR budgets slowly recover in the US and Europe, the IR Magazine team asked why Asia is lagging behind in its latest Global Investor Practice Report. The report aims to uncover the story behind global figures, which don’t necessarily paint a complete picture on their own. On the surface, the average budget seems to have almost recovered to pre-pandemic levels. However, upon closer examination it becomes apparent that while North America and Europe’s budgets have fallen in line with market expectations, Asia is continuing to see budgets typically half the size that they were in 2019, calling for a different approach to IR in the region. The report has figures on how many meetings companies were held with investors, giving an insight into how the in-person/ virtual balance is shaking out, or shook out in 2022. In Asia, an average of 14 1-to-1 meetings in person with investors were held over the last 12 months, which may be a consequence of extended nationwide restrictions. This being said, both in Asia and globally, the report found that companies are holding 75% of 1-to-1 meetings virtually. The team at IR Magazine predicted that it is likely that over 50% of similar interactions are going to remain virtual going forward.

Bad earnings season could be good

Bloomberg’s Jonathan Levin argued last week that a bad earnings season could benefit stocks – as companies manage investor expectations in the wake of declining net earnings. Following a third quarter that saw one of the highest rates of negative earnings surprises of the previous decade, investors will be keen to ensure that the next quarter proves less disappointing. Levin notes that 2023 consensus EPS in the US have been cut by almost 8% by sell side analysts, with the bulk of the cuts occurring post Q3 2022, and that post Q4 2022 earnings revisions could cut 2023 EPS by another 5%. Earnings season is potentially a chance for companies to air their dirty laundry and for analysts to cut their 2023 outlooks (preferably in a mild way). Gradually, expectations aren’t quite as hard to beat any more and a foundation might even be built for a new bull market.

Activists set for new wave of attacks 

The Times has cautioned British boards to prepare for increasing levels of investor activism. A recent report found that 235 new campaigns had been initiated by activist shareholders globally in 2022 – the largest number since 2018. 60 of these initiatives were in Europe with 38% of European targets being in the UK – making it the “market of choice” for activists. By directing their energy and money towards companies that they see to be undervalued or badly managed, these shareholders use their stake to advocate for a change in strategy or sale of the business. Despite the economic insecurity of 2022, activists’ activity has increased, with no indication this trend is likely to slow down as we move further into 2023. The report also highlights that “swarming”, where multiple shareholders together push for company change all at once, is becoming increasingly common and is intensifying the pressure on boards.

Boards behaving badly – watch out

The Chief executive of Norges, the manager of Norway’s largest sovereign wealth fund, arrived at Davos last week with one clear message for companies: boards need to sharpen up. Tapping into a sentiment growing amongst many investors, Nicolai Tangen wrote in the FT of the need for boards to exercise effective oversight of management, particularly surrounding the issues of ESG investing and executive pay, with voting practices increasingly holding boards to account. “ESG is not politics”, Tangen asserts, responding to the sustained ESG backlash that has arisen most notably in the United States. Considerations surrounding ESG risk and opportunities ought to play a crucial role in strong and sustainable investment decision making. On executive pay, Tangen notes the rising cost of living to emphasise the need for checks on “corporate greed”, ensuring that remuneration remains in line with value creation.

And finally… Hot air, cold climate: CEO activism at Davos may have peaked

While Davos has long been seen by chief executives as a prime opportunity, Andrew Edgecliffe-Johnson predicts in the FT that, at this year’s World Economic Forum, executive activism may have reached its peak. Execs who arrive at Davos in the hopes of showcasing their ESG targets and ambitions now face far-reaching criticism. In light of this, he highlights a question that has begun to float around Davos: Are CEOs positioning themselves on issues that are simply too politically divisive? A recent paper from the BCG Henderson Institute think tank argues that the risks that business leaders face in being trapped by polarising political issues are such that “non-involvement” ought to be the default strategy. The article notes the recent remarks of Leo Strine, former chief justice of the Delaware Supreme Court, urging companies to focus not on the contentious but on the inoffensive – issues such as paying a living wage and non-discriminatory hiring. Accordingly, CEO activism at Davos may be soon replaced by a return to engagement with their core constituents – the investors.

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