IR Monitor – 7th September 2022

This week’s news

We should stop bashing buybacks

Michael Mauboussin, from Morgan Stanley Investment Management, writes in defence of buybacks for the Financial Times. Buybacks are plagued by several myths: that companies use funds to buy back stock rather than to invest in their business (there is no evidence for this); that they create a “sugar high” for the stock price in the short run (in fact there are long run benefits, on average); or that buybacks are good because they add to earnings per share (when clearly they aren’t always accretive). Buybacks provoke rancour while dividends, their cousin if you will, are viewed more favourably despite the fact that, in both cases, the company is returning cash to stakeholders. Yes, bashing buybacks may have political appeal but Mauboussin suggests that They play an important role in facilitating the reallocation of capital.

Board pay limits may be scrapped

The government has moved one step closer to removing restrictions on non-executive director pay. Financial News report that, despite harsh criticism, the Department for Business, Energy and Industrial Strategy (BEIS) has drawn up a cost-benefit analysis on overhauling rules that prevent non-execs from being paid in shares of the firms they advise. BEIS suggest that the move could ensure directors are fully invested in the success of the companies they run, highlighting that if the company does well then so do they. At a time where many outside of the City are struggling to make ends meet, a spokesperson at the High Pay Centre think tank noted that that the move seemed like an “odd priority”. Meanwhile, a spokesperson at the Institute of Directors welcomed the move but interjected that it is “not appropriate for NEDs of large companies to receive incentive awards geared to the share price of corporate performance.” As it stands, the policy remains in the process of development and conclusions have not yet been reached or announced.

Should I travel? Investor engagement reconsidered by NASDAQ

Nasdaq report that while the pandemic made virtual meetings a standard feature of IR programmes, buying both time and financial efficiencies, IROs are now drawing their attention back to the quality of investor meetings. Valeria Ricciotti, head of IR at A&D company, Leonardo, argues that it’s about quality vs efficiency, with quality topping the scales in certain instances. Whilst both corporates and investors are now devising strategies on which meetings should be in-person versus virtual, it is important for corporates to ensure they are aligned with investor preferences in order to avoid turning up to empty meeting rooms. For investors, the importance of in-person meetings is being placed on capital market days, or headquarter/site visits, whereas quarterly results or post-results roadshows have now been relegated to strictly online only. In-person meetings now have a targeted focus of allowing attendees to better understand a company and get a real sense of the business.

Chief Executive Officers, not proxy cards, are what fuel activists 

BreakingViews report on the launch of new SEC rules that will change the way investors in US companies can vote for board directors. Previously, when activists proposed alternative directors for election at the company’s shareholder meeting, they had to send a separate voting card to investors with only their candidates on it. New rules, approved last year by the SEC, say companies must include dissident nominees on the same voting card as their own. Shareholders no longer have to choose between one group or another but can mix and match. It means that activists won’t have to try so hard to get shareholders to pay attention and could make it easier to put a potential board member up for election. But the change could be subtle. Many companies already let holders who have been around for more than 3 years propose a director for election but it hardly ever happens.

Stuart Kirk: ESG must be split in two

Stuart Kirk contends in the FT that ESG’s flaw is that it has carried two meanings since inception. One meaning is how portfolio managers, analysts and data companies have understood ESG investing for years. That is: “taking environmental, social and governance issues into account when trying to assess the potential risk-adjusted returns of an asset.” Most funds are ESG on this basis. And the second meaning is how most people think of ESG — trying to do the right thing with their money. He proposes on the one hand a designated range of ESG-input funds – where E, S, and G are considered as inputs into an investment process and, on the other, outputs, or goals, to maximise. This, he says, would dissolve the most common complaints and a bright future for both forms exist if each make sense on their own terms.  Keep conflating the two, however, and large areas of the ESG landscape will not make sense nor can the necessary debate occur for the industry to advance.

If only there had been an edit button…

Twitter has started testing an edit button for its tweets internally, with the aim of gradually offering it to other users “in the coming weeks.” Practically, users will see a button to edit a tweet but must be quick on the draw: the function expires 30 minutes after the tweet is sent. Inspired by the news, Dealbook share some memorable gaffes and #fails. One prize-winning entry from the world of IR: in February this year, online payments company Affirm tweeted that it had just completed ‘another greater quarter’ and shared highlights of its financial results well before its scheduled reporting date.

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