IR Monitor – 4 December 2024

In this week’s newsletter:

• Decoding AI disclosure: How Europe’s largest companies report on AI. Some proprietary research from FTI Consulting in collaboration with Trinity College Dublin
• Macy’s touted a metric that ended up being juiced for years: the company has described it as a multimillion-dollar employee plot to manipulate the numbers
• Dealing with investors can be easier in the shadows: UPS and Northvolt show the public and private market disconnect – The Financial Times has the story
• London should take a chance on Shein’s fast-fashion IPO: the risks in the business and governance of the fast-fashion group do not justify rejecting a UK listing – John Gapper 
• NIRI and Korn Ferry announce IR study results: this popular report includes comparative information on remuneration in the world of investor relations
• And finally … the Middle East’s biggest investor relations event takes place in Abu Dhabi next week. FTI will be there: get in touch if you would like a meeting

This week’s news

Decoding AI disclosure – how Europe’s largest companies report on AI 

Last week, FTI , in collaboration with Trinity College Dublin, published its unique research project analysing how the 50 largest European companies disclose information about their use and governance of AI. The aim of the study was to investigate whether companies are communicating effectively, and transparently, about their AI practices. The findings reveal significant disparities in AI disclosure practices. While 42 companies detail their AI use cases, far fewer provide comprehensive information about their governance measures. Even fewer companies disclose critical governance measures like AI audits or key performance indicators (KPIs). Eight companies emerged as leaders in AI disclosure, including Allianz, AstraZeneca, Deutsche Telekom, GSK, Mercedes-Benz, Prosus, RELX, and Zurich Insurance. In addition to quantitative analysis, the report offers qualitative insights into best practices, showcasing what exemplary AI disclosure looks like through illustrative case studies. Crucially, the study will enable companies to benchmark both their communications and internal practices against industry standards and peers, with tailored recommendations. 

Private vs public valuations: the accounting divide under fire 

This week, the FT reported that the SEC fined UPS $45m for overstating the value of its freight business, Overnite Corp. Internal analyses suggested the unit was worth less than $1bn in 2019 and 2020, but external advisers were provided projections valuing it at $2bn. The issue surfaced when UPS sold the division for $650 million in 2020, resulting in a $700m charge that wiped out a third of the company’s shareholder equity. Meanwhile, Goldman Sachs has faced criticism (but no fine) for marking the $900m investment in battery maker Northvolt, held by its PE business, at overly optimistic values earlier this year, only to write it down to zero most recently. The case highlights concerns over the lack of transparency in private equity valuations, particularly since the end of the era of ultra-low interest rates. While public firms like UPS face strict reporting requirements already, valuation rules in private capital too are increasingly coming under fire. 

Macy’s faces scrutiny over hidden delivery costs – Bloomberg

Macy’s Inc. has uncovered a significant accounting issue involving a former employee who concealed $154mn in delivery expenses in 2021. Bloomberg reports that while the sum is a small fraction of the retailer’s $4.36 billion delivery costs over the period, the revelation has delayed its latest earnings release. Uncovered during quarterly reporting preparations, the concealed costs highlight potential lapses in Macy’s financial controls. While the company has declined to provide details, the incident casts a shadow on its cost-cutting efforts, a key focus under CFO Adrian Mitchell. And with the company’s auditor KPMG declining to comment, the incident has sparked speculation about a possible SEC investigation and triggered broader questions about accountability within the company’s financial systems. 

London should take a chance on Shein’s fast-fashion IPO – the FT

The risks in the business and governance practices of the fast-fashion group Shein do not justify rejecting a UK listing, according to John Gapper in an opinion piece for the Financial Times. In June, Shein filed initial paperwork taking it a step closer to listing on the London Stock Exchange. Despite controversies over the Company’s working practices, Gapper sees no sufficient reason for the FCA to reject Shein’s listing. The letter sent to the FCA by the law firm representing Stop Uyghur Genocide, which has campaigned against forced labour in Xinjiang, does not seem to carry enough evidence that a Shein IPO would breach financial markets rules. Meanwhile, investors might think the cost arbitrage on which Shein built its business could soon be squeezed due to Donald Trump’s future tariffs. Investors may also hesitate to invest in Shein given Donald Tang’s 37% stake. While noting the many risks, Gapper suggests that Shein “fits the bill” as recent reforms in the UK were designed to rekindle listing activity. 

$276,000 – the average US IR salary  

NIRI’s Investor Relations Career Trends Survey Report, which includes data compiled from IR professionals between May and July 2024, reports that IR is growing in scope, becoming more prominent within organizations, and enjoying increased compensation levels. Nearly 80% of respondents manage responsibilities in addition to investor relations, up from 62% in 2022, with the top secondary roles being competitive intelligence and ESG/Sustainability. 61% of respondents said that the IR function has been elevated within their own companies, with the most held title being vice president, continuing a steady rise over the past five years. IR professionals are enjoying increases in salary as well, with 54% of respondents earning a base salary of $276,000, an increase of 14% from 2022. The survey also yielded a bit of career advice: respondents reported “strategic mindset” and the “ability to manage ambiguity” as the most critical skills in the profession. And overall, IR professionals are feeling good about career prospects, with 87% feeling “very optimistic” or “somewhat optimistic”. 

And finally … the Middle East’s biggest IR event takes place in Abu Dhabi next week. 

The Middle East Investor Relations Association (MEIRA) is set to host its biggest-ever Annual Conference & Awards ceremony, taking place for the first time in Abu Dhabi at the Conrad Etihad Towers Hotel on December 11-12, 2024. The event will bring together over 600 attendees, 100+ local and international investors and 50+ speakers. Centred around the theme ‘Bridging Opportunities: Accelerating IR in the Middle Eastern Capital Markets,’ the conference aims to highlight the vital role that IR plays in connecting regional capital markets. This year’s edition will feature over eight keynotes and panels on cross-exchange trading, global market dynamics, ESG, Islamic finance, and regional growth. Attendees will also gain access to 18 workshops covering themes such as AI-driven stakeholder communication, integrated reporting, navigating regulatory compliance and digital transformation in IR among others. 

For further information on the dedicated investor relations team at FTI Consulting, please contact [email protected].