IR Monitor – 27 September 2023

In this week’s newsletter:

• The “Big Mo” turns into big mush. ARM falls back to IPO price
• Market conditions fail to dent high pay, finds research from IR Magazine
• The London debate continues to rage. Conduit’s Nasdaq listing deals another blow to London. But elsewhere LSE Group chief hits back at ‘clickbait’ criticism of the City
• The global economy enters an era of upheaval, warns Bloomberg
• Investor-day flops: the case of SocGen
• And finally … Which CEOs have enjoyed the most jaw-dropping bonus payments?

This week’s news

ARM falls back to IPO price

FT Alphaville discusses the recent fluctuations in the stock prices of UK chip designer Arm, food delivery start-up Instacart, and marketing automation firm Klaviyo after their Initial Public Offerings (IPOs). The big momentum evident on the first day of trading has turned to mush in every case. In part this can be attributed to the limited number of freely tradable shares in each IPO and substantial allocations to cornerstone investors. According to the FT this  also raises questions about the potential drawbacks of stringent free float restrictions and the uncertainty surrounding the optimal free float percentage for an IPO. But, to parody Chinese Premier Zhou Enlai’s famous quote about the French Revolution, it may also be too early to determine the long-term impact of these low-float IPOs on the market.

Market conditions fail to dent pay

A study reveals that more than 70 percent of US chief executives received target or above-target compensation in 2022, a trend that remained largely unchanged from 2018 to 2022, despite significant economic volatility – all this according to the IR Magazine. The median pay-outs for CEO annual incentives at S&P 500 firms in 2022 were $1.41 million. The study questions whether boards and compensation committees are setting rigorous enough targets for CEOs. While the 2022 median is lower than in 2021, due to pandemic-related challenges, CEO pay across all market caps in the S&P 1500 experienced growth. The study highlights concern about payout rates consistently exceeding best practice guidelines, suggesting potential issues with performance plan design. It emphasises that payout rates should align with best practice thresholds, targets, and maximums.

The London debate continues to rage

David Schwimmer, the head of the LSE, has responded to criticism regarding London’s declining status as a global financial centre; he dismisses such concerns as “clickbait,” as reported in the FT. Schwimmer acknowledges the challenges, including reduced trading volumes, the loss of equity listings to New York, and a lack of initial public offerings. However, he argues that London remains a strong international financial centre and emphasises that the London Stock Exchange is the leading European stock exchange. Schwimmer remains confident in London’s financial position and points to opportunities for improvement, including upcoming reforms and initiatives such as trading venues for private company shares. But the challenges keep coming. British biopharmaceuticals company, Conduit Pharmaceuticals, has completed its listing on Nasdaq, with a valuation of $1.2 billion; this is a further blow to the LSE’s efforts to attract fast-growing companies to list in the UK, as reported in The Times.

The global economy enters an era of upheaval

From Wall Street giants like BlackRock to consumer titans like Coca-Cola and Tesla, one word has been coming up time and again on earnings calls and in corporate filings: “geopolitics”. CEOs and their lieutenants have used the word almost 12,000 times in 2023, reports Bloomberg – and it’s not just talk. Evidence is now emerging that all the discussions of strained international relations, and more than a decade of warnings over the end of an era of globalisation, are finally spurring corporations to pick sides with their capital. US-China tensions and the war in Ukraine have begun to swing investments towards like-minded countries, marking a new economic order shaped by where companies place their geopolitical bets. Those western multinationals that for years avoided geopolitics in favour of pursuing profits in less mature markets are now increasingly building the factories of the future in similarly minded nations. The “fragmented geopolitical landscape” – that BlackRock Chairman Larry Fink declared on the firm’s July earnings call as a new “structural” force shaping returns – is here to stay.

Investor-day flops

Last week Société Générale held its investor day; this was designed to boost shareholder interest yet appeared to backfire with the stock tumbling more than 12% on the day. According to the FT, it is hard to see the stock market’s response to SocGen’s efforts to reset perceptions as anything other than a disappointment. SocGen deliberately wanted to “change the mindset” among existing and prospective investors as new chief executive Slawomir Krupa takes the reins. Krupa is hopeful that the modest expectations he announced will be rewarded over the medium term, and confident that, in future, the bank will focus on “outcomes not promises”. Though it would be a mistake to expect immediate rewards from investor days, there is evidence that the way in which such events are conducted can make a big difference. They give prospective as well as existing shareholders an in-depth understanding of operations and future targets, and they are also a way to hold senior managers to account for their future performance. It may be a year or two before it is evident whether SG’s gambit pays off and whether it, or any other European bank, can buck the challenging environment . But the strategic focus, greater transparency and grounded realism that a good investor day should bring are certainly a good start.

And finally… Which CEOs have enjoyed the most jaw-dropping bonus payments?

A recent analysis in Roxhill Media of CEO bonus payments in the top 50 market cap companies over the past five years has identified Elon Musk as the CEO with the most remarkable average yearly bonus, amounting to $456.7 million. Musk’s substantial earnings were influenced by a massive one-time stock option bonus of $2.23 billion in 2018. Sundar Pichai of Alphabet secured second place with an average yearly bonus of $98.9 million. Lower down the list can be found a number of the usual suspects from Silicon Valley and Wall Street. The analysis highlights significant wage disparities between CEOs and their employees, raising some concerns.

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