IR Weekly – Monday 14th September
Welcome to FTI Consulting’s IR Weekly newsletter.
In this week’s edition, we assess how 2020 has rung the changes for IPOs in more ways than one, with direct listings and SPACs adding to remote roadshows as a trend that looks set to stick. Next, we look at the plight of AIM investors, with Covid-induced dividend suspensions and cuts having driven down total payouts this year. Moving on, we discuss whether bankers are likely to continue working from home or if the ‘new normal’ will look rather like the pre-pandemic status quo. Next we look at whether Milton Friedman’s principle of shareholder primacy stands up 50 years on before turning to the disparity between businesses cutting dividends rather than executive pay (Friedman would be angry about this). For our final story, we examine the launch of the new Long-Term Stock Exchange.
This week’s news
2020 has been a year of change for IPOs
The Financial Times discussed how IPOs will look very different after 2020, and not just because of the pandemic. While Zoom roadshows and remote IPO marketing look set to stay in some fashion post-pandemic, the rise in popularity of direct listings and SPACs – covered extensively in this newsletter – are further developments in the world of IPOs with which those involved in listings will need to contend.
AIM stocks haven’t been spared the income drought
The Daily Mail’s money pages looked at new research from Link Group, which shows that dividends paid by AIM-listed companies will fall by at least a third in 2020 to approximately £873m – in a best-case scenario. The drop follows a record year in 2019, when AIM stocks paid out £1.33bn to investors in the junior market. Link Group estimates payouts could be as low as £698m, which would represent a 48% drop on last year, so investors will be hoping that the Covid-induced dividend drop will reverse itself soon.
Finance workers have reached the end of their tether with working from home
When it comes to the future of work in the banking sector, business as usual thinking will be a powerful force, according to Bloomberg. While some flexible working will likely be here to stay, banks are keen for roles such as trading, risk & compliance and IT to remain in the office as much as possible, while senior managers and new starters alike will be expected to be in the office to share and receive wisdom, respectively. Some of the earlier, more grandiose statements on the move to WFH may have been overblown. UBS, one of the world’s biggest institutional investors, sees as many as a third of its employees working remotely at any one time; a huge shift, no doubt, but a far cry from earlier predictions that most (or even all) investors might work remotely.
Fifty years of Friedman
In honour of the 50 year anniversary of Milton Friedman’s seminal 1970 essay (“The Social Responsibility of Business is to Increase its Profits”), the DealBook team at The New York Times hosted a webinar to discuss whether his doctrine of shareholder primacy still stands up today. Joey Zwillinger, co-CEO of Allbirds, and Leo Strine Jr, former Delaware Chief Justice, who wrote a response to Friedman’s essay in the New York Times and participated in the webinar, disagreed. While profit is important for a business to fulfil its obligations including to its employees, it doesn’t mean that its responsibility to society has to be sacrificed. Businesses need to use their judgement to balance their duty to shareholders with their duty to society. However, The Financial Times’ Moral Money noted that Friedman still has his advocates. Hester Peirce, Republican SEC commissioner insists that companies perform best when they have a “singular focus”. Trying to please too many groups will lead to worse outcomes for everyone. Professor Steven Kaplan also maintains the relevance of shareholder primacy. ESG should only be prioritised if failing to do so threatens profits.
Dividends cut before executive pay
Research shows that businesses in Spain, Italy, the Netherlands and the UK were more likely to cut dividends than executive pay this year, according to a report in Financial Times. Over half of Spanish businesses examined cancelled, postponed or reduced dividends while less than a third opted for a temporary reduction in executive pay. This disparity has proved a point of contention with many shareholders calling for executives to share the financial burden of Covid-19. Despite this, shareholder revolts over executive pay have in fact fallen compared with 2019. Investors may be willing to overlook the issue this year as companies try to deal with the economic fallout from the pandemic. However, one UK-based asset manager insisted that investors would be closely monitoring the relationship between remuneration and dividends next year.
And Finally … the Long-Term Stock Exchange is open for business
On 9th September, the Long Term Stock Exchange (LTSE) officially opened for trading, reported Bloomberg, after facing a series of delays caused by the pandemic. Founder Eric Ries is seeking to create a public market designed for trading stocks of companies focused on long-term results – a challenger to the established exchanges NYSE and Nasdaq Inc. Ries is unphased by the possible impact of economic uncertainty on the IPO market, insisting “We put long-term right in the name of the company, so we’re in no rush”. The LTSE itself may be one of the companies that lists on the LTSE.
Conferences
Berenberg Energy Conference, 15 September (virtual)
RBC Capital Markets Global Industrials Conference, 15-16 September (virtual)
UBS Global Renewables & Energy Transition Conference, 15-16 September (virtual)
Credit Suisse 33rd Annual Basic Materials Conference, 15-17 September (virtual)
Cantor Fitzgerald Global Healthcare Conference, 15-17 September (virtual)
UBS Best of Switzerland Conference, 15-18 September (virtual)
Contact us
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