IR Monitor – 7 February 2024

In this week’s newsletter:

In this week’s newsletter:

• “This lazy trope that New York is the right market for everybody is wrong”: an audience with Mark Austin from Latham & Watkins in Financial News
• What the voices of female executives reveal on investor calls. A new study, cited in the Financial Times, finds that how they speak can predict poor company performance
• IR teams embrace LinkedIn for investor communications. Some departments have set up specific IR pages on the platform, reports IR Magazine
• AI is reshaping financial forecasts and disclosure: commentary from Fortune
• The recent Delaware ruling against Musk’s $56bn pay package should be a warning : make sure you’ve got some truly independent directors. 
• And finally … Dick Bove has written the final obituary for the analyst: “Research is dead”

This week’s news

“This lazy trope that New York is the right market for everybody is wrong”

Mark Austin from Latham & Watkins is well versed in the issues bothering the London Stock Exchange, having conducted three reviews of the market’s listing problems. His new project is putting together the ultimate elevator pitch for the London stock exchange. The Capital Markets Industry Taskforce’s report — which sees Austin joined by the likes of Schroders boss Peter Harrison, LSE chief executive Julia Hoggett and Barclays group head of strategic policy Katharine Braddick, among others — is due to be published in the upcoming months. He told Financial News that he finds the current narrative of New York as the default listing choice “lazy and also just wrong.” Austin has solid arguments to back up his elevator pitch: London is already a more liquid market than anywhere else in Europe, and you can list and report in any currency. He is also helping hammer out the final details of the ‘intermittent trading venue’, which the government’s Edinburgh Reforms mooted to bridge private and public markets.

What the voices of female executives reveal on investor calls – the FT

In a recent study cited by the Financial Times, academics analysed earnings call transcripts and recordings for 2,993 US listed companies between 2010-2019 for so-called “uptalk” — rising intonation at the end of a declarative phrase. Usually said to be exhibited by women, uptalk is often associated with positive attributes, such as being friendly, but it can also be a signal for analysts to downgrade their predictions. Interestingly the study found that to be a rational choice – there was a strong link between female uptalk and worse-than-expected performance in the next quarter, a link that wasn’t found for their male counterparts. The same study looked at the impact of the MeToo movement finding that while female uptalk after 2017 was still perceived negatively, male uptalk was seen as a positive signal by the market. “One of the consequences of a movement that was intended to achieve greater social justice for women was to reward men who exhibited female-typed speech patterns,” the study suggests.

IR teams embrace LinkedIn for investor communications

Whilst we’re not quite at the point of using social media as the sole method to release financial information, IR teams are increasingly looking for ways to connect with their stakeholders in more personal and engaging ways. IR Magazine points out that a decade ago, the conversation was all about Twitter, Facebook and niche networks like StockTwits. Today, IR teams have turned to LinkedIn, which benefits from having registered users who post in a personal and professional capacity, meaning the conversation is usually civil and well-informed. What’s more, posts and interactions can lead to connections, in turn opening the door to new buy-side or sell-side relationships. If that wasn’t enough to get IR team interested, it’s perceived as a way to connect with the up-and-coming generation of investors. A 2022 study of US investors by the FINRA Investor Education Foundation found 60% of 18-34 year-olds use social networks to source investment info, compared to 35% of 35-54 year-olds. The shape of things to come?

AI is reshaping  forecasts and disclosure

Fortune reports that the days of relying entirely on traditional financial metrics are now gone as AI has come to the forefront of financial analysis. AI is helping analysts predict market trends through its ability to dissect the financial health of companies at lightning speed and accuracy. Natural Language Processing (NLP), for instance, sifts through vast amounts of text–reports, filings, news stories, transcripts of audio and video clips, and social media posts to provide analysts with a more nuanced understanding of industry sentiments or company performance. In turn, companies and their representatives have become increasingly careful of the language they use, ensuring what they say does not fall out of line with market expectations. Use of AI also comes with substantial risks – deepfakes, misinformation, and high-tech scams present a serious risk to corporate earnings especially if they manipulate and distort the narrative. Only by taking a proactive stance and continually engaging with stakeholders on performance can a company strengthen its security and protect itself from the risks AI poses.

Make sure you’ve got some truly independent directors

Martin Peers from The Information highlights the importance of independent directors following the Delaware Court’s decision to rescind Elon Musk’s $56 billion Tesla pay package from 2018. The deciding factor in Judge Kathaleen McCormick’s decision was that the directors at the time the package was decided were, in one way or another, beholden to Musk. Tesla’s board is now expected to consider devising a new pay package for Musk, taking into account the court’s decision. Musk’s social media activity has added complexity to the situation, with his recent X posts claiming that he needs a 25% voting stake in Tesla and suggesting the possibility of more radical actions, like reincorporating Tesla into another state.

And finally… “Research is dead” 

In an interview with the Financial Times Dick Bove, a banking analyst with more than 50 years’ experience, reflects on the lessons learned throughout his career. Bove describes successes, like when he accurately described the mortgage market as a ticking time bomb in 2006, whilst also remembering big misses, like when he believed that the Federal Housing Agency would take Fannie Mae and Freddie Mac out of conservatorship. In addition, upon reflection on the analyst role and how it has changed over the course of his career, Bove describes how analysts have gone from “the very highest rank in the industry to being at the lowest rung in the industry”, reaching a situation where nobody thinks they need them and a realisation that it is  traders were the most integral part of profit generation within banks. In his own words: “research is dead as a driving factor in the market”

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