IR Monitor – 9 October 2024

In this week’s newsletter:

• Harvard Business Review makes the case for more company insiders on boards; empirical studies have found no connection between independence and performance 
• Criticism of the FTSE 100’s composition is ‘lazy’ and ‘not true’. Speaking at The Times Tech Summit, the London Stock Exchange’s CEO says that reforms to encourage investment in growth companies and reforms to listing rules make the market attractive
• Playing politics in the boardroom harms financial returns warns Forbes
• Organisations consistently underspend on IT security. IR Magazine recently spoke, on condition of anonymity, to an IR Officer with first-hand knowledge of a major cyber-hack. This is what one cyber-security expert had to say by way of a response
• CEOs turn to podcasts to control their message, reports the FT. They can offer listeners (who typically include investors) an unfiltered view of the person running the company
• And finally … more balanced delivery cadence: absurd corporate language from AML

This week’s news

Harvard Business Review makes the case for more company insiders 

The Spencer Stuart Board Index, a global executive search platform and leadership consulting firm, analyses the shifting composition & governance practices of S&P 500 company boards. As of 2023, 85% of directors were independent but, with few exceptions, empirical studies found no connection between board independence and company performance. Until the 1970s, corporate boards were dominated by “inside” or “non-independent” directors – people employed by or affiliated with the company in some way. Studies show independent directors don’t outperform insiders in controlling executive pay or replacing poor CEOs and may increase the risk of corporate misconduct. Research on nearly 300 financial firms during the 2007 – 08 crisis found firms with more independent directors performed worse. All of this suggests boards should rethink the value of inside directors, who bring deeper company knowledge and a long-term stake in success. The lesson? Independence alone doesn’t guarantee competence—sometimes, it’s the insiders who bring the real insight. 

Criticism of the FTSE 100’s composition is ‘lazy’ and ‘not true’

Dame Julia Hoggett, the chief executive of the LSE, has dismissed  the characterisation that London’s markets are outdated and unattractive to growth companies. She has countered the idea of the FTSE 100 being a “museum”, calling it a lazy narrative. The belief that UK stocks trade at a discount relative to international peers has been at the heart of criticism of UK markets amid a period which has seen a dearth of flotations as well as many de – listings. A shortage of high value technology stocks on UK markets is seen as one of the reasons for under-performance of UK markets. Responding to “lazy” comments from Sir Martin Sorrell, she argued that UK markets are just as capable of supporting high-growth companies as US markets, citing examples like Raspberry Pi, the computing company, and its recent success. Hoggett acknowledged that UK investors had been slow to embrace tech, but claimed that reforms are addressing this. 

Playing politics in the boardroom harms financial returns, warns Forbes

Companies are quick to herald the triumphs of ESG investing, boasting about slashed emissions and alignment with climate goals. A recent example cited by Bloomberg appears to demonstrate that social investing is working without knowing the impact that these investments had on the fund’s returns. Wayne Winegarden, in Forbes, offers a reality check: ESG investments may come at a detrimental cost. He argues that ignoring financial metrics in favour of ESG goals violates the fiduciary responsibilities of beneficiaries. Winegarden cites CalPERS- a strong advocate of ESG investing –  as an example, showing its ESG-focused investments under – performed compared to more traditional portfolios. He warns that ESG, while well-intentioned, introduces risks, reduces diversification & ultimately impacts returns over the long term. While ESG sounds like a win-win, focusing on social and environmental goals over financial returns risks breaking fiduciary duties & could leave retirees & taxpayers footing the bill. In the race to embrace ESG, companies might be celebrating a bit too early. 

Organisations consistently underspend on IT security

Data security is a critical yet underfunded domain. In light of a recent IR Magazine anonymous interview with an IRO experiencing a first-hand cyber-attack Neil Hare-Brown, CEO of STORM Guidance shared his insights on the dangers of doing cyber-security on the cheap. Organisations who suffer from cyber-security incidents typically only spend less than 1% of revenues on IT. There has been a rise in the number of attacks on organisations in recent years, with the growth of ransomware as a service enabling a wider pool of lower-skilled hackers to penetrate cyber security defences. Cyber-criminals are now focusing more on data breaches than pure ransomware as companies have improved their backups, instead taking private data and leaking for reputational  damage. As many companies are unaware of the data they hold, it is more difficult to gauge the damage after a breach. While AI could help streamline data recovery, the best defence remains encryption. If encrypted data is stolen, it becomes unreadable and less valuable to hackers. Cyber-criminals often take data in small quantities to avoid being detected; however if caught out, deals can be negotiated to stop a data breach into the public domain. 

CEOs turn to podcasts to control their message, reports the Financial Times

Business podcasts have become a powerful tool in IR and corporate comms. Podcasts provide a more engaging, direct and authentic platform for professionals, notably CEOs, to communicate with investors, customers and stakeholders. Through the podcast medium, CEOs can control the narrative, offering a deeper insight into their business and personal motivations, in a relaxed, informal environment. This highlights the individual’s expertise, builds trust and connects with audiences on a personal level which can help the company’s image and attract talent. Podcasts offer an alternative and additional channel to complement traditional media. Whilst the format allows more freedom for executives, it can of course lack the accountability and scrutiny present in conventional media interviews. 

And finally… more balanced delivery cadence: a wonderful new entry for the dictionary of absurd corporate language

Jargon can make a lot of things worse including investor relations. Following supply chain issues at Aston Martin, CEO Adrian Hallmark made the comical blunder of describing delays as a “proactive decision to strategically re-align our production plans to optimise efficiency and achieve a more balanced delivery cadence in the future”. This wonderful announcement somehow slipped through multiple hands at Aston Martin, providing some corporate jargon gold for cynical readers. Not such a laughing matter for AML whose shares have fallen by 97%.

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