IR Weekly – Monday 8th June

Welcome to FTI Consulting’s IR Weekly newsletter.

This week we look at how one CEO put the principles of ESG into practice when turning down $250 million of US government funding during the pandemic. Sticking with the theme of ESG, we shine a spotlight on the increasingly important role of the ‘S’ – how companies treat employees, customers and society. Next, we explore how social media influences an investor’s holdings in a company before looking at the impact of leadership changes on a company’s performance and its share price. We then turn to the proposed changes to trading hours at the LSE before finally examining the backlash to the recent redesign of their website.

This week’s news

Why one CEO returned $250 million of relief funding

In a week when many British companies were criticised for their use of government funding, Harvard Business Review looked at why one American CEO chose to return $250 million of government funding during a pandemic that is putting a strain on almost every business. DaVita, a US chain of kidney treatment centres, received the funding as part of the Health Care Enhancement Act, a US government relief package which delivers money to qualifying companies. CEO Javier Rodriquez explained that although the company’s costs have increased dramatically due to Covid-19, he recognised that government resources are finite and other healthcare organisations were struggling to a far greater extent than DaVita. While they certainly qualified for the funding, did they really need it? After years of debate over ESG and corporate responsibility, Rodriquez concluded, “We’re at a unique time in which CEOs need to act.” Both investors and analysts appear to have supported the decision to return the funding.

Spotlight on the ‘S’ in ESG

Panellists on last week’s Deutsche Bank’s “Governance Trends and Implications for the 2020 AGM Season Under COVID-19” webinar covered several key areas, including the increasing prominence, during the pandemic, of the sometimes forgotten ‘S’ in ESG. How companies treat their employees, customers and wider society during COVID-19 is certainly on investors’ radars and looks to be post pandemic too.  The treatment of employees extends to executive management teams too and, importantly, their remuneration. Awarding bonuses or pay rises, even if your company has performed well during COVID-19, is tricky to justify, but almost impossible to justify if a corporate has taken government money of any kind to keep afloat. Finally, a time of crisis is when a Company needs its Board to rally the most, for some, the pandemic has demonstrated that many NEDs are so over boarded that they cannot rally at all. All of these topics are sitting firmly on the global agenda this AGM season.

Influencing investors: social media and the corporate response

Many companies agonise over how best to respond to social media in a way that will limit reputational damage and a negative share price reaction. A recent study by Michigan State University, reported in IR Magazine, suggests that investors’ stockholding reaction to social media differs according to their investing style. Quasi-indexers, investors with a diversified portfolio and low turnover, are more likely to increase their holdings in light of positive sentiment on social media. Negative commentary rarely prompts any reaction. By contrast, transient investors with high portfolio turnover and short-term investment horizons are more likely to sell shares in response to negative conversation on social media. With this in mind, companies should assess the composition of their shareholders before developing any social media strategy.

Changes at the top may not be the key to recovery

The Financial Times looked at the dizzying changes in FTSE 350 boardrooms this year, with over 232 board level moves in April alone and 16 CEO departures announced already for 2020. Corporate leaders also appear to be just as eager to cast around for a new role during the Covid-19 crisis as ever before. The FT pointed out that turnover of company leaders rarely, however, leads to recoveries in share prices and the bottom line even in normal times. Research by Morgan Stanley following a record rise in boss turnover in 2013 concluded it takes a good two years before shareholder returns improve.

Shorter days for traders at the LSE

The Evening Standard weighed in on the potential shift in the City’s trading hours to a friendlier 9AM start, with a survey carried out by the LSE showing traders are mostly in favour. Traders are looking forward to a more easy-going morning schedule and don’t think the move will hurt liquidity in the markets – but the plan has one crucial hurdle still to go, as Europe’s other exchanges would have to move their hours in line with London’s and aren’t so enthusiastic.

And finally… chaos by design

The LSE website has recently seen a redesign, much to the chagrin of The Times this week, who bemoaned the difficulty in finding announcements and argued that retail investors would struggle to find key information. Platforms and websites often receive a backlash when they unveil redesigns, before everyone forgets what the old version was like, so it remains to be seen whether the LSE’s new look will be so easy to get used to.

Upcoming conferences

22nd European CEO Conference, Exane BNP Paribas (virtual) (9 – 11 June)

41st Annual Global Healthcare Conference, Goldman Sachs (virtual) (9 – 11 June)

Gaming Conference, Berenberg (virtual) (11 June)

European Capital Goods CEO Conference, J.P.Morgan (virtual) (11 – 12 June)