IR Monitor – 28 June 2023

This week’s news

Investor relations and corporate affairs are on a collision course for the same leadership role – Broome Yasar

Leading executive search firm Broome Yasar argues that the rise in influence and remit of corporate affairs could precipitate the function’s own undoing, as more large and medium-sized organisations are looking to hand their corporate affairs remit to the head of investor relations. The biggest catalyst for this shift, argues Broome Yasar, is the increasing need for investor relations professionals to weave a company’s narrative into their communications. This has blurred the lines between the purpose of IR and corporate affairs, their only difference now being the audience. Take sustainability and ESG, for example: these are hot topics despite there being no settled answer as to where they should sit within an organisation. CEOs may see these topics as market issues, given the influence they can have on the share price, suggesting that investors may prefer to see IROs owning the narrative. In short, the role of investor relations is fluid, and must reflect market need even if this means taking over the responsibility of a company’s brand and reputation from corporate affairs.

IR Magazine: some best practices on how to avoid greenwashing

This year, greenwashing has been named an enforcement priority by Australia’s regulatory body. Fittingly, the Australasian IR Association annual conference held last month gave IROs, sustainability and governance professionals the chance to learn about greenwashing accusations and how to avoid them. IR Magazine has summarised the event. In particular, the session offered insights into the best ways that organisations can maintain authenticity of disclosures, which involves establishing clear and measurable sustainability targets. While the laws in the ESG regulatory landscape have not changed, the session argued that the relationship between sustainability issues and financial risks & opportunities have. This means that such issues are far more material for organisations. If IROs are left with one learning, it’s that organisations must always back up ESG-related claims with strong data.

The ‘poison pillars’ that impede shareholder activism

This week, Forbes outlined the four “poison pillars” preventing shareholder activism – obstacles faced by activists when trying to affect change in public companies. Companies obstruct change by portraying activists as “short-termist” while ignoring their own poor track records. Companies also use a broad definition of “independence” when it comes to independent directors, claiming their board is impartial while some of these directors may have connections or bias towards the company’s management. Instead of considering activist-proposed candidates with sometimes better experience and skills, companies often put forward their own hand-picked directors to make it appear they are “refreshing” the board. And critically, companies seem to spend significant amounts of cash to defend themselves against activists, effectively using shareholders’ money to protect existing management positions and prevent meaningful positive change, according to the author.

Investors are putting America first 

The Wall Street Journal reports that investors are showing renewed interest in US stocks, which have been outperforming their international counterparts, with the S&P 500 rising 14% compared to an 8% increase in the MSCI All Country World ex USA Index since the start of 2023. In contrast, global equity funds have experienced the biggest weekly net outflow since October 2022. The enthusiasm for U.S. stocks is partly fuelled by the growing interest in artificial intelligence, with tech stocks like Nvidia, Meta Platforms, and Tesla experiencing significant gains. Other factors contributing to the appeal of the US include consumer spending, a strong labour market, and hopes of the Federal Reserve ending its interest rate hikes. The Economist takes a more strident tone this week arguing that Americans love American stocks but they should look overseas.

Masayoshi Son is back

After a period of relative quiet, SoftBank CEO Masayoshi Son is making a comeback reports the Financial Times. The Nasdaq’s recent surge and SoftBank-owned chipmaker Arm’s filing for an IPO both suggest renewed momentum for the tech industry. Son’s presence was “missed” by the FT Alphaville team during this time, and his return eagerly anticipated. Son’s series of thought-provoking slides presented at SoftBank’s annual shareholder meeting are eccentric as ever. After starting with the philosophical question, “What is Mankind?”, the presentation focuses largely on AI, assimilated to “some type of mutant or superhero type of guy” by Alphaville. More interestingly for the author, Son also discusses Arm’s promising performance ahead of its planned US listing. Noting that the EBITDA figures presented were adjusted, unaudited and not exactly consistent in terms of the treatment of certain cost items, the article eventually cautions readers that “paying some defence with its financial data may be warranted.”

And finally … Happy Birthday Adam Smith

This month we celebrate the 300th birthday of Scottish genius Adam Smith, arguably the greatest economist of all time. Smith is perhaps best known for the “invisible hand”, the unseen force that moves the free-market economy and miraculously enables the best interests of society as a whole to be fulfilled through individual self-interest and freedom of production & consumption. But Smith also understood that markets are not perfect, and he identified the “agency problem” – something which has troubled companies and investors for hundreds of years. As the great man put it: “The directors of joint-stock companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same vigilance with which the partners in a private partnership frequently watch over their own.” Happy Birthday Adam!

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