IR Monitor – 7th December 2022

This week’s news

U.S. companies targeted by far more activist funds in Q3 2022

According to FTI’s quarterly activism vulnerability report, U.S. stock markets continued to struggle in 3Q22 and early 4Q22, as investors revalued positions and rebalanced portfolios in response to further interest rate hikes. Given lower valuations, activist funds initiated considerably more campaigns during the quarter: 119, compared to just 87 in 3Q21. Healthcare & Life Sciences and Industrials were the most frequently targeted sectors, whilst Real Estate companies were targeted 43% more in 3Q22 than a year earlier. Surprisingly, activists focused more on smaller companies, as small and micro-caps represented 65% of all campaigns in 3Q22, compared with 52% in 2Q22. At an industry level, vulnerability rankings remained relatively stable, with only a few industries moving up or down substantially. Utilities and Real Estate both entered the top 10, whilst Telecommunications moved up two notches to claim the top spot this quarter. Meanwhile, the banking industry’s vulnerability declined in the period, dropping six spots to the eighth position.

What will IR look like in 2023?

From inflation, recession and supply-chain disruptions to the ESG backlash, new reporting regulation and shareholder activism, IR professionals are braced for a host of challenges in the new year. IR Magazine asked leading IROs how they plan to tackle these challenges. Victoria Hyde-Dunn, IRO at Informatica, outlined the challenges of reporting in a recessionary environment, suggesting that we may see some companies pulling quarterly or full-year guidance as was commonplace during the pandemic. According to Hyde-Dunn, whilst ESG is here to stay, there is greater appetite among European and Asian investors to hear about ESG efforts compared to their US counterparts. Irina Zhurba, head of IR at Mister Spex, warns that companies who have recently gone public may struggle to find their voice in a recessionary environment unless they leverage a proactive communications strategy. Pierre Bénaich, head of IR and media at Givaudan, highlights the benefits of using virtual platforms to engage with investors, but emphasises the importance of striking a balance between in-person and virtual events in order to maintain high levels of investor interest.

Weathering economic headwinds: what’s in the CFO toolbox?

The current economic environment has proven difficult for many corporates, and CFOs have had to deal with numerous challenges. With entrenched inflation, a strong U.S. dollar, and rising financing costs, headwinds are blowing harder than ever before. A WSJ piece summarises the various ways in which companies have managed costs, noting that zero-based budgeting remains particularly popular. As this approach requires finance executives to question and justify each line item on the P&L, it is said to be particularly beneficial for the bottom line on the short term. Other popular initiatives to bring down costs include paying down outstanding debt, optimising working capital, hedging against a strong U.S. dollar, and seeking strategic deal-making opportunities. The key for IR departments is expected to lie in communications that align these short-term initiatives with the longer-term corporate strategy. In a rapidly changing economic environment, this is becoming increasingly hard to do.

UK companies prepare for investor resistance on executive comp

Against the macroeconomic backdrop of the cost-of-living crisis and worsening inflation, leading shareholders have told the Financial Times that they expect UK corporates to exercise restraint over executive pay in 2023. Bonuses have reached record levels, boosted by easier targets set during the pandemic, with many staff also being offered inflation-related pay rises. However, London-based companies are also reportedly struggling to recruit both executive and non-executive directors, with UK pay at these senior levels falling far behind North America. Given these competing pressures, the FT notes that boards are finding themselves in the tricky position of needing to balance talent retention targets with shareholder demands for lower executive pay.

FTI Consulting brings you everything you need to know about Digital IR 

Technological advancements, most notably the rise of social media platforms, have fundamentally altered the flow of information between companies and investors. Despite these shifting trends, IR strategies have failed to adapt. Research by the Harvard Business Review has revealed that investors allocate 30% of their decision-making based on quality of leadership, making it increasingly important to consider the C-suite’s digital footprint. Thinking carefully about how and when leaders engage with investors, and on which social media channels, is key according to FTI. The recent rise of voting platforms for retail shareholders, who are more likely to source information from social media, reaffirms digital media as a critical communication channel. As demonstrated by the recent changes to Twitter, now more than ever corporates need to carefully consider their presence, activity and advertising on social media platforms. Whilst some believe that the digital sphere is becoming too complex to navigate, in fact a new wealth of opportunities has arisen. For more on Digital IR, contact [email protected] and [email protected].

And finally… the theology of capital allocation

We try to avoid theology in the IR Monitor but rabbi and philosopher Zohar Atkins has offered some intriguing thoughts on how God should tackle perhaps the most vexing of all IR challenges: capital allocation. This, after all, is arguably the primary job of any exceptional CEO. The rabbi comes up with some surprising answers and we consider only a few of them here. Monotheism can be considered the ultimate share buyback (as other sects are consolidated) while population growth can be considered a form of divine “hiring” (and population decline a form of “firing”). Atkins also has some cautionary words for those in favour of long-term planning. The best CEOs remain flexible; God doesn’t have a five-year plan but simply shows up each day to work and asks what the company needs that day.

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