IR Monitor – 2nd March 2022

This week’s news

Public markets set for a comeback?

Public markets are back in according to the FT’s John Plender. Despite the gains made by companies supported by private equity, Plender sees an opportunity now for reversal. The driving force behind the decline in listed companies (by some 30,000 since 2005) has been the relaxation of monetary policies following the financial crisis. However, central banks have begun the process of reversing them, leveraged buyout firms risk significant damage to their balance sheets now and Plender argues, with private equity’s generally higher leverage, that increasing interest rates will tip the scales in favour of public equity.

Sell-side reports play important role in building case for activism

According to recent research, sell-side reports play a key role in supporting the case for hedge-fund activism against public companies.  By creating an ‘activism dictionary’ and comparing this against sell-side reports, researchers Amy Chen and Thomas Shohfi have found that pre-intervention sell-side reports contain ‘significantly more activism dictionary content’. Shohfi has explained to IR Magazine that whilst the reports may not advocate for activism in themselves they contain content which can be used by activists. He went on to say that, ‘activists can use what sell side has said previously as external confirmation that management’s policies need correction’. Indeed, nearly a third of activist letters to company management contain some reference to sell-side reports. On the other hand, despite the challenges that activists pose for IR teams at target companies, the SEC’s proposed Schedule 13D filings are sure to make building such campaigns more difficult in the future.

Proxy Season Preview Webinar 

Last week we attended a Glass Lewis webinar on the upcoming proxy season. Among the issues on the agenda were gender, diversity and inclusion (DE&I) and remuneration. Glass Lewis has advocated for more nominations of female committee chairs and for increasing the number of directors from BAME backgrounds. On the matter of executive remuneration, COVID-19 continues to be a key theme with companies adapting their policies with the introduction, by some, of new metrics to determine compensation. These include the introduction or an increase in the weighting of non-financial metrics. ESG was also distinguished as another key focal point for the coming year with climate change and human capital management highlighted as key areas. Questions were raised about how companies can work to retain the best talent as well as meet US employment policies relating to matters of sexual harassment which have become increasingly important. The webinar also highlighted the positive contribution of the Investment Association in driving the move to align incumbent executives’ pension contribution rates with the wider workforce.

Central Bank of Russia bans shorting

Short-sellers are clearly the ones responsible for the collapse in the Russian stock market. Investment Week has reported on the news that the Russian central bank has ordered brokers to cease short sales that allow traders to bet against the value of Russian shares. This is against the backdrop of growing anticipation of an economic fallout following the country’s invasion of Ukraine last week. As of 24 February, the MOEX had dropped by 45%, the FTSE was down by 3% and Frankfurt and Paris indices were also down 3%.

Shareholder capitalism is best

The good news is that Investor Relations Officers should be concentrating on investors (rather than on that more nebulous group the “stakeholders”). Geoffrey Owen, in his latest opinion piece for the Financial Times, has argued that shareholder capitalism is best for society. He believes that this is how resources in society are used most productively for everyone. In recent years, with public expectations regarding company values intensifying and the need to make ‘stakeholder-friendly’ decisions increasingly dominating boardroom agendas, Owen’s opinion may seem controversial. He disagrees with the idea that companies should replace shareholder-based capitalism with the priority of achieving broader social objectives, although he does agree that it is good for companies to have a purpose that is about more than ‘maximising shareholder value’. But he believes firmly that removing shareholder pressure from company operations would weaken a source of dynamism in the market economy. As preoccupations with ESG values consistently rise, Owen’s opinion may come as a worrying set-back for some, and a welcome tonic for others.

And finally … Is it time to ditch the branded vest? How companies are gifting

It may be time to give away all those mugs and pens to investors. Employees don’t want them anymore. The work-from-home revolution has forced companies to get imaginative with the ways in which they treat their employees, according to Protocol. In a hybrid world, taking prospects or employees out for lunch and happy hours has become complicated. Branded pens and rucksacks are not on-trend anymore. Instead, sending out gift cards, alcohol, and food items are the most popular gifts. Even home décor items like candles and blankets are being given as rewards, or experiential gifts like zipline tickets, skydiving and pottery classes.  A few companies have taken the practical route and gifted COVID-19 tests…it seems some employees are getting a better deal than others.

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