IR Monitor – 8th June 2022

This week’s news

Why the Great Recovery is an IR renaissance 

As we emerge from the pandemic, IR Magazine asks what has changed in the world of IR. The appetite for in-person conferences is huge, and people are keen for the chance to talk In Real Life, but it seems virtual and hybrid meetings are here to stay. Prior to covid, virtual shareholder meetings were banned or tightly regulated across several jurisdictions. Now, firms have more options available to them and companies in the FTSE 100 seem to be plumping for a hybrid model, combining elements of broadcast with in-person events. Companies outside the FTSE 100, including AIM-listed firms, are more likely to still hold in-person meetings. The same story rings true in the US, where the smaller a company’s shareholder base, the more likely it is to return to IRL events.

Proxy advisers are losing their power 

Shareholder AGMs are becoming increasingly heated, with a record 592 environmental and social proposals filed in America this year ahead of AGM season running from May to June. Faced with the requirement to weigh in on an ever-increasing number of issues, fund managers often outsource this decision making to proxy-advisory firms. In the U.S. two firms dominate – ISS and Glass Lewis – the recommendations of which carry weight and shape the norms of corporate governance. Yet, according to the Economist, their power may be on the decline, now, for three key reasons. Firstly, share ownership is becoming more concentrated in the hands of giant asset managers, who have their own departments to manage corporate governance. Secondly, proxy firms are facing resistance from management, who are questioning the results of shareholder votes. Thirdly, regulatory bodies are becoming less proxy-friendly, as evidenced by the SEC’s rules requiring increased disclosure of potential conflicts.

Stocks fall, insiders buy 

This bear market has seen buybacks and director purchases at unprecedented levels, with $600 billion of equity buybacks expected in the first half, and insider buy-to-sell ratios running at their highest levels since 2012 in certain sectors. There are 219 US companies with a valuation of over $1bn which are currently sitting on cash worth 25% or more of their market cap. And, as reported in the FT, an update from JPMorgan indicates that without these record levels of corporate equity purchases, the US market correction would have been far worse. 2022 has already been the worst start to the year since the Vietnam war.

Diluted audit reforms ‘will not prevent a new Carillion’ 

The Times reports on comments made by Sir John Thompson, chief executive of the FRC who called the government’s overhaul of Britain’s financial reporting and audit regime a “missed opportunity”. The overhaul set out a range of measures that it claimed would help to reform the audit market, and would reduce the risk of sudden corporate failures, including a beefed-up corporate governance and audit regulator, tougher financial reporting standards and orders for companies to be clearer about the circumstances in which executives would lose their bonuses. Thompson called the reforms a “missed opportunity to improve internal controls in a proportionate, UK-specific manner” because they fell short of introducing a version of the reporting regime with which American investors would be familiar. He had wanted the government to introduce legislation similar to the American Sarbanes-Oxley Act, under which directors would have to make a formal statement declaring whether their companies’ internal controls were effective and operating effectively. The government plans are expected to be operational by 2024.

The virtue bubble is about to burst

Allison Schrager of the Washington Post suggests that we may be seeing the end of the virtue bubble which is not necessarily bad, because the virtue economy wasn’t making the world a better place. It may have even been making it worse. According to a recent survey from Schwab, 73% of participants claim personal values have become a bigger factor in how they make life decisions in the last two years with e.g. 82% saying their values impact their investing. But, Schrager contends, how much those same people are truly willing to pay for satisfying their values is unclear. It’s one thing to assert something on a survey; it’s another to choose to pay 20% more  for groceries. We needn’t mourn the fading of the virtue economy, however, as it was horribly inefficient. It takes time to research every company you might invest in. Indeed, keeping up with who is pure and worthy of your money or labour is a full-time job. Odds are that your virtue investing/buying/working wasn’t doing much good anyway. Instead, if you want to save the world, it’s better to buy whatever you want, invest in whatever company looks profitable, and work for the employer that pays you the most. Then take all those extra savings and give them to charity.

And finally … Why Chief Executive Officers shouldn’t take all the credit

Harvard Business Review has published research which shows the importance of the role of how CEOs present themselves – in both the good times and bad. Through an analysis of 23,000 media articles about more than 350 CEOs, the research found that when CEOs credit their strategic decisions for unexpected positive earnings, they are more likely to be blamed for negative results in the future (and more likely to be fired as a result). Conversely, when leaders are humble and take less credit for positive outcomes, they are less likely to be blamed or removed from their positions when earnings fall. This effect is primarily driven by a psychological phenomenon known as anchoring. When a CEO pushes the narrative that strategic choices, rather than external factors, are responsible for the company’s positive performance, analysts and board members are more likely to assume that negative performance later on is also the result of the CEO’s strategic choices — that is, their assumptions around who’s to blame for the negative performance are anchored in their initial attribution of credit. Thus, to avoid setting themselves up for failure, CEOs looking to achieve long-term success would be wise to get ahead of the cognitive biases that are likely to influence how they’re perceived. While it’s only natural to want to take credit when things are going well, the research suggests that a little humility up front will pay dividends if and when things start to take a turn for the worse.

Contact Us

To be added to the distribution list for the IR Monitor, or for further information on the dedicated investor relations team at FTI, please contact [email protected].