IR Monitor – 29 November 2023

In this week’s newsletter:

In this week’s newsletter:

•   Fear not – equity is far from cancelled. The angst over supposed ‘de-equitisation’ is misplaced in the opinion of Stuart Kirk, writing in the Financial Times 
• OpenAI: Sam Altman’s return as CEO cements the failure of the ChatGPT owner’s attempt at shareholder-second capitalism in the view of Breakingviews
• ESG matters: Why long reports and a framework overload are still Investor Relations Officers’ chief headaches. The same issues have been aired by corporate issuers for much of the past decade. IR Magazine asks what can be done
•  Asos ditches diversity targets in bonus scheme, reports The Telegraph. The online retailer changes criteria in favour of profits in a sign that ESG may be faltering
• Earnings season: brutal but doesn’t need to be this bad. A message to US corporates
• And finally … Is a leather jacketed CEO a sell signal?

This week’s news

Fear not – equity is far from cancelled.

In the FT, Stuart Kirk pushes back against the notion of “de-equitisation”, arguing that the fears of those who cite falling IPO numbers as evidence of equities “shrivelling up” are misplaced. He suggests that we should measure the health of equity markets on shareholder returns, rather than the volume of shares in circulation or the number of publicly listed firms. By this metric, the outlook is markedly different: in the last two decades, the FTSE 100 has risen 70 per cent in nominal terms whilst the market capitalisation of American shares has quadrupled. The confusion of primary and secondary markets is at the crux of this. In Kirk’s view, new business creation is critical whether it be public or private, and measures like encouraging investors to sell overseas equities to buy local ones will have little effect.   

OpenAI and the failure of shareholder-second capitalism

Shareholder capitalism reigns supreme at OpenAI, Breakingviews reports, as biggest backer Microsoft throws its weight behind Sam Altman to reinstate him as CEO. The AI developer’s charter sits at odds with the typical profit-motivated company and includes a pledge to “stop competing” if a competitor surpasses the business in its aim to guide the development of safe AI. Microsoft’s support for AI, on the other hand, relies on moving forwards as quickly as possible with new technology. The Sam Altman saga demonstrates that the theoretical principles which govern OpenAI may prove little more than an ideal. As it grows, it is Microsoft which provides the infrastructure allowing the company to function so successfully. As the article suggests, while humanity cannot say when its interests are endangered Microsoft can & OpenAI’s charter did not seem to pass the test.

ESG: long reports and a framework overload are still IRO headaches

Reporting on their recent ESG Integration Forum, IR Magazine reflects on the ESG communications challenges which persist even as the sector shifts and develops. Whilst senior management teams are now well-aware of paying heed to ESG considerations, there are two key issues which remain a gripe of IROs. Firstly, reports are too long – whilst data is important, there is limited benefit to compelling corporates to compose 300-page documents annually, nor is there much appetite amongst investors to read them. The second issue concerns the overpopulated regulatory marketplace, with several different frameworks competing for attention and limited guidance on which to prioritise. Whilst some market regulators, as in Brazil, have made the decision for businesses, it remains difficult to decide which ‘standard’ is the right one. For Laurie Havelock at IR Magazine, the answer lies in choosing one metric & working to make it as substantive as possible.

Asos ditches targets in bonus scheme

Last week, the British fashion giant ASOS announced it would be scrapping the diversity target criteria for executive bonuses, instead shifting its focus to profits and share price. ASOS is working to curb significant losses amid decreasing sales, which skyrocketed to almost £300m in the latest financial year, up from £32m the previous year. Explaining the shift away from diversity objectives, CEO José Antonio Ramos Calamonte highlighted the need to refocus on profitability and take the necessary steps for ASOS to return to growth. While moving away from short-term ESG targets, ASOS will now include diversity measurement in its LTIP scheme. This could potentially impact the vesting of shares for executives if notable progress isn’t achieved over the next three years. This move reflects a broader trend in the commercial sector, where companies are increasingly facing pressure from investors to re-prioritize profits over social and environmental goals.

Earnings season is brutal, but it doesn’t need to be this bad

In a recent MarketWatch article, Ciara Linnane sheds light on the missteps companies are making as the Q3 earnings season ends. From neglecting to add a clear table of key metrics in the initial press release to omitting crucial numbers and inundating reports with excessive non-GAAP figures, the pitfalls are clear. Consider 3M Co., a Dow Jones Industrial Average veteran, which released earnings reports that failed to identify net profit, or Yum Brands Inc., whose initial release had no net income and no revenue number. Ciara’s best practice takeaways emphasize that while companies might reduce information in press releases to cut costs, compromising on expenses for shareholders is a risky move. After all, they’re part-owners of the company, and clear quarterly earnings are a crucial part of due diligence. Furthermore, when significant news accompanies earnings, such as job cuts or executive changes, companies should avoid burying it at the end, as this will only raise questions about motive and transparency.

And finally … Is a leather jacketed CEO a sell signal? Lex asks an important question

In the latest Lex newsletter, Jonathan Gutherie delves into the world of Nvidia, the US chip giant and shares a humorous anecdote where one reader has suggested that the CEO’s iconic leather jacket might be casting a shadow on the company’s stock price. Despite Jensen Huang, the CEO, previously being quite measured, he’s now making bold claims that Nvidia’s chips will make AI “bigger than the internet.”  Despite their substantial $1.2 trillion market cap, Nvidia still faces the challenge of living up to such claims. Fortunately, Nvidia appears to be running things conventionally, with the CEO firmly in control. However, Lex argues their destiny is somewhat intertwined with OpenAI, which has had a rollercoaster week (see story 2). Then there’s Intel, late to the AI scene but attempting to go head-to-head with Nvidia’s H100. All of which might support an old rule of thumb at the Financial Times: a business is heading for trouble, the FT reckons, when a male boss sends pictures of himself in black leather to the pink newspaper.

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