IR Magazine Spring 2022
The independent voice of IR
<small>Is a globalized shareholder base the new virtual reality?
<small>What are the digital dividends and have bases really diversified globally?
Editor's note
Welcome back: we’ve missed you
Welcome back:
we’ve missed you
Getting the IR band back together
I’m still buzzing from the tremendous IR Magazine ESG Integration Forum – Europe held in London in early March. It was our first in-person event since November 2019 and a prelude to the packed calendar of forums, think tanks and awards ceremonies worldwide in 2022 and beyond as we eagerly return to the live experience.
The atmosphere at the ESG forum crackled with excitement as sometimes solitary IR, sustainability and governance professionals, many of whom had been working from home, resumed ‘in real life’ what is a big part of their job: learning from best-in-class experts, devising strategies and forging relationships to achieve their goals.
The forum was also my first opportunity to meet and greet members of the IR community, to find out what they do and how they do it, in my role as the new editor of IR Magazine. Thank you to all for such a warm welcome and I look forward to meeting many more of you at our global engagements.
From the macro to the micro. Personal engagement in the pursuit of best practice manifests at the one-to-one level, as we explore which mentorship schemes are running and what masters and apprentices really get from the exchange (see Mentoring: Friends with benefits).
Discover what the lasting legacy of the pandemic means to you, from dealing with a positive Covid-19 result on your roadshow (see Problem solver) and the bleeding-edge advances in sentiment analysis (see Mind your tone) to diversified shareholder bases (see Is a globalized shareholder base the new virtual reality?) and the importance of robust IR as globalization fragments (see Oh brave new world?).
We pull the curtain back on the factors driving retail investors in North America (see Selling the retail story), big tech in the City of London (see Teaching an old bourse new tricks) and governance rules for listed firms in Singapore (see Taking sustainability and diversity on board).
Find out who won at our prestigious IR Magazine Awards in South East Asia and Greater China (see Asia’s finest). They were held virtually in late 2021 – but we’ll be back in person this year. See you then.
Editor James Beech
Managing editor & chief copy editor Kathleen Hennessy
Senior reporter Garnet Roach
Senior reporter Tim Human
Contributors Lloyd Bevan, Alexandra Cain, Jeff Cossette, Laurie Havelock, Thomas Kudsk Larsen, Linda Montgomery, Sarah Welsh
Editorial advisory board Brian Christie, Janet Craig, Vlad dela Cruz, Gunhild Grieve, Catherine James, Ricardo Jiménez, Richard Jones, Jeannie Ong, Andrew Stephen
Founding editor Janet Dignan
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Careers
Mentoring: Friends with benefits
Careers
Mentoring: Friends with benefits
IR mentorship schemes will be a lasting legacy of the pandemic as IR associations develop ways to help build connections between often isolated members. Tim Human finds out how IROs are giving back, and what both master and apprentice gain from the partnership
At the best of times, investor relations can be an isolated role. IR teams tend to be small, often with just a single practitioner. There may be no-one else in the organization to bounce ideas off or simply chat about how the day went.
That isolation got worse for IROs – as it did for all employees – during the Covid-19 pandemic. From March 2020, home working became the norm, creating a new set of professional and personal challenges for IROs to deal with. It’s perhaps unsurprising, therefore, that IR mentorship schemes have taken off in popularity. Over the last two years, several IR associations have set up new programs, including the UK’s IR Society and NIRI’s New York chapter.
Mentorship schemes offer a valuable way for newer IROs to gain training and advice that may not be available inside their own company. Mentors also report many benefits of taking part, such as the satisfaction of helping others improve and the opportunity to reflect on their own career to date.
But making the programs work can be tricky, say IR associations. Matching the right mentor with the right mentee is vital. In addition, you need to provide sufficient structure to ensure the program runs well, but not so much that it can’t adapt to the individual needs of each pair.
Running a scheme
The Finnish Investor Relations Society (FIRS) has run a mentorship scheme since 2018. In its first year of operation, the program attracted 17 pairs – the equivalent of about 15 percent of FIRS membership at the time, says Tapio Pesola, member of the board of directors and senior IR adviser at Miltton Capital Markets. ‘That helped verify my assumption that there was a need for this sort of thing,’ he says.
Following the initial spike in interest, the number of pairs now stands at around six per year. 'The matching of mentees and mentors is actually a fairly straightforward process so even if only one mentee were to register, we could still start a program each year. I think it’s a good service for our members,' says Pesola.
FIRS’ program offers support through a professional trainer, as well as a WhatsApp group for mentors where they can share ideas. The association also organizes sessions where mentors and mentees swap partners to provide alternative viewpoints to the participants.
Pesola’s own experience of joining the IR industry showed him the value of such schemes. ‘I came to investor relations from communications, which I had done for 10 years,’ he explains. ‘I basically started from zero and had to build up knowledge of the stock exchange regulations and everything else. I did that by asking for advice from a lot of people. I think that’s how most people get started.’
What factors help to make a mentorship scheme run well? Getting the mentor and mentee matched up correctly is one of the most important tasks, say program organizers.
‘I have some experience of mentoring from both sides and it’s really individual what works,’ says Pesola. ‘Some people want to build skills or advance careers, others just want to discuss ideas and get some feedback. Some mentors are more structured in how they approach coaching, others are more off the cuff. The key thing is to understand what kind of help the mentee needs.’
You should also make sure mentors are motivated to take part, adds Pesola: ‘They have to have an interest in mentoring and finding the right approach for their partner.’
Another challenge is providing the right amount of support to each pair. ‘Mentor schemes are hard to do,’ says Gary LaBranche, president and CEO of NIRI National. ‘They can have too much structure – too many specific targets and goals – which makes people think of them as work. The other problem is when they are not structured at all, when there is very little guidance and you just put two people together. Finding the right combination is key.’
NIRI National has launched a new mentor scheme for 2022. While Covid-19 has reinforced the need for more connections between members, LaBranche says the project is also about supporting the association’s diversity goals.
‘The program stemmed from work done by NIRI’s diversity, equity and inclusion taskforce,’ he explains. ‘The task force recommended – and the board approved – several different initiatives, including the mentorship program. The program is not limited to diverse candidates, although we do hope to include many that represent diversity in the profession.’
In keeping with LaBranche’s aim not to be too prescriptive, many of the details will be left to the individual pairs to work out. ‘We’re taking a light approach to the structure,’ he says. ‘We ask that they connect with each other every month during the program. But they really get to decide the details of those events.’
Some mentors are more structured in the way they approach coaching, others are more off the cuff. The key thing is to understand what kind of help the mentee needs
Making connections
Maija Hongas, IR manager at Kojamo, took part in FIRS’ 2021 program as a mentor. Initially, she didn’t plan to join but a call from Pesola convinced her there was a mentee who would be a great match. ‘I thought this could be a very good thing for both of us,’ she says.
Her partner in the program, Valtteri Piri, legal and investor relations specialist at Citycon, was new to the IR industry and wanted to improve his knowledge and connections.
‘I thought the scheme would help me build my network and also give me some insight into working methods at other companies,’ he says.
While Hongas and Piri could not meet in person due to Covid restrictions, they quickly built an atmosphere of trust, which both say helped in getting the most out of the experience. ‘It’s been easy to discuss my experiences, which maybe I wouldn’t talk about in public,’ says Hongas.
‘I fully agree with Maija,’ adds Piri. ‘We had very open discussions. We settled on meetings approximately once a month, but we also had ad hoc meetings or coffee when I had something I felt it would be good to talk about at short notice. Overall, I felt it was useful to talk with Maija about what motivates me and how to find a good work-life balance, especially in the Covid environment.’
You don’t have to be perfect or know everything in order to be a mentor
Mentor benefits
When she signed up for the program, Hongas says she wasn’t sure what the experience would be like – she just hoped she could be useful. She was, however, surprised by the benefits she also received through the partnership. ‘I had the chance to reflect on my own career and way of doing things,’ she says.
‘Also, this has been quite a lonely period for someone with a one-person team. I felt like I had an additional team member right through our discussions. For me, this has been especially important during this time of isolation.’
Hongas has a message for people thinking about signing up as mentors: ‘You don’t have to be perfect or know everything in order to be a mentor. And you don’t have to have a specific goal or reason to participate. It’s much more about getting a partner with whom you can share your daily work, as well as bigger thoughts about your profession and career.’
LaBranche concurs about the value of being a mentor. ‘People who help mentor others, whether formally or informally, often report getting as much or more out of the experience as the mentees,’ he says.
‘I’m a mentor to four or five people. I encourage, I listen, I provide advice. But the process of being a mentor is also a process of self-reflection. You see the world through someone else’s eyes, and, in doing that, you can reflect back on your own experience.’
Careers
Six-month review
<img src="https://www.isnotdown.com/assets/pics/on24.png"width=100%
<I>
Nate Pollack, vice president of
investor relations at ON24
Former sell-sider Nate Pollack joined webcasting and virtual event platform operator ON24 in August 2021, just months after the San Francisco-based company raised more than $420 mn in its NYSE IPO, giving it a valuation of more than $3 bn.
Prior to ON24, Pollack had worked in IR at companies Stitch Fix, Forescout Technologies and Symantec. Before his move into investor relations, he worked on the sell side in equity research roles at Lehman Brothers, Barclays Investment Bank, ICAP, CRT Capital Group and Oppenheimer & Co.
What appealed to you about this role?
Working in IR requires you to truly believe in a company’s vision and strategy, and ON24’s role at the epicenter of tectonic changes in B2B sales and marketing was really fascinating to me. At ON24, IR also has a real seat at the table to help shape the strategic direction of the company and be a change agent.
You have a sell-side background. Why did you decide to move to IR and how do your sell-side skills benefit you?
I chose to move into IR because, while I loved the analytical part of my job on the sell side, I was seeking out a role that could have real impact.
My sell-side background benefits me a great deal, though: through it I gained the ability to go deep into financial statements, an intuitive understanding of markets and an appreciation of the nuances and value of developing relationships with investors.
Has the job lived up to your expectations so far?
Yes, working in IR has exceeded my expectations and has been incredibly rewarding. With any job, there are certainly highs and lows.
I knew investor relations could be challenging – for example, when you have to deliver unexpected and disappointing news to the market. But I’ve also felt an amazing sense of accomplishment seeing firsthand the results of our strategy.
What was it like to start a job during a global pandemic? How much of the position has been remote versus in person so far?
Starting a job during the pandemic was challenging at first but I have learned to adapt. To be a successful IRO, you really need to learn the business inside and out and I’ve found that the best way to do that is having coffee or lunch with, say, an engineer or a marketer to get a full download of – and free-flow conversation about – his/her area.
In-person meetings also help develop the relationships needed to be successful in the IR role, so when I started this job during the pandemic, I made an extra effort to connect virtually with as many colleagues across functions as possible.
ON24 is headquartered in San Francisco and we are still full-time remote working [as of January 2022]. I have managed to go into the office about two dozen times over the past six months, however, and I’m looking forward to getting to meet more people in person in the future.
What does your typical day look like?
While IR has its busy seasons, no two days are ever really the same. But most days for me start pretty early at 6.00 am or 7.00 am as I keep abreast of markets and pore through a variety of news sources. IR is a role where you need to be flexible because priorities can shift quickly – so while my morning could be filled with meetings, I might need to shift those to deal with a fire drill.
What’s been the biggest challenge and the biggest highlight in the job so far?
The market really came to us in 2020, driving 100 percent growth in our annual recurring revenue, and we went public on the NYSE in February 2021. While that 100 percent growth was fantastic, it brought a new set of challenges. I have been working hard to educate investors on the long-term vision of the company and why it will lead to durable growth.
The highlight of the job has been working with such an amazing and dedicated team that truly values diversity of opinion and continuous innovation. We have been around for 20 years but we are still founder-led and it still very much feels like a start-up.
Nate Pollack, ON24
Opening bell
When Trustpilot went public in London in March 2021, it became the first continental European company to list in the City since the UK left the EU
When Trustpilot went public in London in March 2021, it became the first continental European company to list in the City since the UK left the EU
Did Brexit come into Trustpilot’s IPO plans at all? Not really, says Derek Brown, head of IR at the Copenhagen-founded company that went public in London in March 2021.
Brown, who joined Trustpilot in November 2020 to take it through the listing process, says that while much was made of the Brexit effect when the company listed, ‘it didn’t really feed into our calculations and we certainly weren’t trying to make any political point by going public in London’.
Instead, London simply made sense. Too big for some of the other European bourses, too small for the US and with the UK as its biggest market, Trustpilot found its Goldilocks of listing venues in London. The City's strenuous listing requirements also tie in with something close to the heart of Trustpilot: transparency. In fact, that was another reason to go public in the first place, notes Brown.
‘When you go public, you open yourself up to a lot more regulation and scrutiny – particularly in London,’ he explains. ‘And we welcome that. It's a big plus for us in terms of our consumer brand: we’re public now – here are our reports and accounts, our sustainability report and transparency reports.’
Part of the Brexit fuss was also, no doubt, that Trustpilot was a company with choices. The company is interesting not only because of how fast it has grown – and the ‘viral network effect’ that fuels that growth – but also because of what it does, allowing people to review essentially any company or service. Trustpilot is a firm that sells software to businesses, but it is much more than that. It is a consumer brand, too.
‘If you walk across London, you will see Trustpilot emblazoned on the side of a bus or on a billboard,’ Brown says. ‘You see it on posters on the London Underground. If you watch television in the UK, you’ll see Trustpilot banners at the end of TV advertisements.’ He points out that this was another factor in choosing London as the company's listing venue.
Derek Brown, Trustpilot
While this duality is a big part of the firm’s success story, Trustpilot’s business model also created challenges when it came to prepping the IPO. ‘The messaging was a challenge,’ Brown recalls. ‘We needed to explain to people why they should be excited about this investment opportunity.’
But no one had researched the market for online reviews and the firm needed research to populate its prospectus. ‘We employed a firm of consultants and had it go off and define the market to figure out what it could be worth over time – and in a detailed way,’ Brown says. ‘We were able to offer some useful insights for people.’
That challenge continued into the coverage universe, too. ‘From an IR perspective, no one had ever seen a company like Trustpilot before – we were trying to explain the business but also trying to work out who to talk to in the analyst community,’ recalls Brown. ‘Is it software analysts, is it consumer analysts – or a combination of the two? That did affect coverage.’
The company was also following an ‘aggressive’ timetable for its listing, adds Brown, conscious of what he says was a ‘frothy’ IPO market at the time: ‘We were aware of one or two companies we thought might find it quite tricky to get IPOs done – and we wanted to get out ahead of them.’
He also points out that simply taking a private company – with a ‘private company mentality’ – into the public market is a challenge in itself, with Brown having to deal with everything from building an IR website to educating people about what it actually is that investor relations does. ‘We faced challenges and we overcame them,’ he says. ‘It was quite exhilarating when we got to the end of all that and finally went public.’
So what advice does Brown have after 'all that'? ‘To anyone contemplating an IPO, I’d say: make sure you have the best advice possible – and listen to that advice – but make sure you’re in control of the processes and of the messaging,’ he says.
Problem solver
What to do when a positive Covid-19 result casts a shadow over your roadshow plans
What to do when a positive Covid-19 result casts a shadow over your roadshow plans
In this regular article, we ask IR professionals how they would respond to a specific operational issue. This time, we proposed the following scenario: You’re mid-way through your first in-person roadshow since the start of the pandemic. You get a call from a fund manager you met yesterday to say she has tested positive for Covid-19. You, your CEO and CFO are all in a hotel room and are testing negative for the virus. What do you do?
Andrew Carter, director of IR at Rotork
Thankfully, this isn’t a situation I have been in, despite having completed several in-person roadshows in 2021, although it is a situation we prepared for each time in advance.
The first thing to do would be to inform any investors we met with later in the day that we could have been in close contact with a Covid-19-infected person prior to the meeting. The next step would be to contact our health and safety team to discuss the situation as that team is the most familiar with the latest government rules in place in different parts of the world.
Had this situation occurred in the UK after December 13 last year, the rules [at the time] said we could have continued our roadshow but that we would have to take lateral flow tests and register the results every day for seven days.
As an aside, had the situation occurred in the UK in the first two weeks of December and the positive case was confirmed as Omicron, we would have had to self-isolate for 10 days, which could have meant in the hotel. Given this, it is unlikely we would have then held the roadshow.
I value in-person contact and, assuming that the rules allowed us to continue the roadshow, I would be keen to do so, but I would also check in with our general counsel for advice.
If we then decided that continuing was the right thing to do, I would speak to the investors we are scheduled to see, to let them know the situation and that we are hoping to complete the roadshow. I would say up front that, while we believe our meeting would be in accordance with the rules, we would completely understand if the investor would prefer to take the meeting outside or move to virtual.
Andrea James, senior vice president of corporate strategy and IR at Axon
Given the general confusion we perceive on public health guidelines when exposed but testing negative, we would do the right thing by everyone involved, honoring each individual’s personal risk calibration.
Investors and managers calibrate risk-reward decisions for a living and are quite good at it, and risk tolerances vary. We would first ask our chief executive and CFO whether they feel comfortable continuing the roadshow. If not, the in-person roadshow would be over and we would switch to virtual meetings, or reschedule.
If management was game to keep going, however, we would reach out to the organizer of the non-deal roadshow, presumably a sell-side shop, and ask it to let each remaining roadshow participant know the exact situation and offer a virtual option.
Mutual respect and integrity are paramount and we would never regret the transparency.
Thomas Kudsk Larsen, senior vice president and head of communication and investor relations at Sobi
Working for Sobi, a biopharma company, we would always consider the safety of patients, colleagues and investors alike.
This is what we’d do: we’d inform the investors we are scheduled to see that day, either directly or via the organizing broker, that we had met with an investor yesterday who has now tested positive for Covid-19.
We would inform them that we ourselves are currently testing negative, but that we need to perform a new Covid-19 test to make sure we are not infected.
Depending on the city and country we are in, we’d familiarize ourselves with the local rules, guidelines and Covid-19 test locations. Some local rules may require isolation, for example, until a negative result is confirmed. Once we had found a suitable Covid-19 test location, we’d perform the new test – preferably a more reliable PCR test – and we’d then wait for the result before potentially continuing the live roadshow. Depending on the turnaround time, we might also inform investors scheduled for the following day.
If location allows, and while we await the result of the new Covid-19 test, we’d convert the planned meetings to virtual, but from separate locations, such as our hotel rooms.
We should be able to cover most meetings already planned because virtual meetings require less time between them than those on a live roadshow. The increase in meeting productivity is the silver lining from the unfortunate experience. IR people always have a plan B.
Steve Nightingale, director of investor relations at Britvic
It’s a situation all of us are likely to face over the next few years, as Covid-19 is not going to go away. Hopefully, in time, it becomes a manageable endemic and something we deal with in the same way as other viruses.
I think the first rule would be to ensure you are compliant with the local regulations as they change regularly and differ by country. That is essential and none of us should assume our way is the right way.
Secondly, I would contact the investors scheduled for upcoming meetings and let them know out of courtesy. They may have their own personal reasons – such as vulnerable relatives or personal anxiety – and prefer to switch to virtual. Testing each day as recommended would be the next step. Currently lateral flow tests are easily available in the UK but that could change in the coming months. Likewise, the approach to testing differs in other countries and may not be as accessible.
In the near term, I would take tests with me as back-up. Of course, your senior managers will have a personal view, with their own relatives and friends to consider.
The last two years have been surreal in many ways. For IR, the ability to meet people and discuss our company is at the heart of what we do and, while I consider myself hugely fortunate to have the virtual option, it is no substitute for the real thing.
The future is a hybrid world and we all need to take responsibility to achieve that. Otherwise, we may never leave the laptop!
Business of blockchain
How to engage the digitally
native next generation
How to engage the digitally native next generation
Linda Montgomery reveals what investor relations professionals can learn from DeFi and Gen Z investors
Digital assets are today’s burgeoning investment asset class dominated by a new generation of Generation Z and millennial investors, who may be causing a shift in conventional retail IR practices.
Since 2020, this global group of blockchain investors has diversified its Bitcoin and cryptocurrency portfolios to embrace decentralized finance (DeFi). These investors are buying, holding, lending and staking tokens – central to fueling use-cases and business models that make DeFi projects work. Tokens represent a tradable asset or utility that allows the holder to use it for investment or economic purposes. They are built on top of an existing blockchain network, most often Ethereum, and can serve a multitude of functions in DeFi mechanisms, such as governance and voting.
DeFi has ushered in new crowdfunding capabilities enabling companies – projects in blockchain parlance – to find buyers and liquidity for their tokens. This is done through initial distributed exchange offerings (IDOs) such as Uniswap, and initial centralized exchange offerings like Coinbase. Investors are seeking the long-term appreciation that owning an early-stage company’s token could bring, and using their token to participate in yield farming – a DeFi practice of staking or lending crypto assets to generate high returns or rewards in the form of additional cryptocurrency.
Explaining DeFi, tokens and IDOs
DeFi is financial software built on the blockchain that can be pieced together like money Legos to create almost any conventional financial service product, such as a trading exchange, derivative or insurance product. Since its debut in 2020, DeFi has grown to a total value of $180 bn at its peak in November 2021, according to DappRadar.
Blockchain companies conduct crowdfunding sales starting with conventional investor documents, such as a white paper and pitch deck. The token economic model specifies quantities of tokens issued, categories, vesting periods, lock-ups, and so on. Launchpad partners – similar to a broker-dealer or investment banker, both with their own investor community – are the first step in the presale, private sale stages until the IDO public sale. On the way to the public sale, marketing and community building are the top jobs for success.
Retail DeFi investors are Gen Z, loosely defined as age 24 and under, and millennial retail investors, aged 25-40. They are big users of social media such as Twitter and Reddit and communication platforms such as Telegram and Discord. They are part of a growing group of investors that view cryptocurrency as a viable substitute for fiat currency. Gen Z has grown up in an era of growing distrust of governments and traditional institutions: they like the anonymity, security and freedom offered by cryptocurrencies and the blockchain.
Digital asset investments are making many millennials wealthy. A survey of millennial millionaires by CNBC in late 2021 showed more than half (53 percent) have at least 50 percent of their wealth in crypto, and 83 percent of them own cryptocurrencies. This points to a fundamental shift in how retail investors approach wealth creation compared with the generation before them, which may still be blockchain-skeptical.
Community building
DeFi investors want to be engaged with the coins and companies they follow; they want to be part of a movement and a product they love. It is commonplace for a small blockchain to have up to three community managers covering engagement with communities across countries and time zones, to moderate all conversations on communications apps and set up and maintain the community policy.
The role of community manager in crypto goes far beyond simply moderating community engagement. It extends to maintaining a harmonized communication between the diverse network of investors, users and partners. Community managers have the responsibility to create robust growth strategies, engage with influencers and ambassadors, create educational content, listen to and gather investor feedback and be actively engaged in reaping returns for the blockchain.
Investor newsletters and traditional news media sources are old school and even email is a bit passé with these investors. They favor blogs for news, or podcasts. They watch YouTube influencers, or ask-me-anything sessions on Telegram. Simply social listening is not enough: more sophisticated AI and tools for sentiment tracking and entity mapping are needed to understand what’s being discussed – and who’s discussing it.
An economic moat is your business’ ability to maintain competitive advantage over alternatives. An IR moat is your team’s ability to create highly engaged and loyal long-term investors. Blockchain companies might have insights to pass on to IROs regarding the characteristics of these sticky relationships with the next generation of investors.
Linda Montgomery is a Toronto-based fintech and digital assets marketing executive and an IR professional
New tools promise to scan audio files of corporate events
to conduct sentiment analysis, reports Tim Human
Sentiment analysis has become a mainstream tool for investors. These days, when your earnings call transcript is published, AI models scan the text to identify which sections appear more positive or negative. The information can be piped straight into trading strategies or used as a basis for further investigation.
At the cutting edge of this work is an attempt to glean insight directly from the audio of the call. As we all know, how you say something can be just as important as – if not more important than – what you actually say. Around 40 percent of information provided by spoken words is conveyed through the tone, according to scientific studies.
One firm focused on this area is Helios Life Enterprises. The start-up provides sentiment analysis of the tone used by executives on earnings calls, looking at factors such as intonation, speed and volume. The results are then packaged up for buy-side clients, which are mainly quant firms at the moment, says Sean Austin, CEO and co-founder.
Individuals listening in to an earnings call may be able to pick up on this kind of nuance, notes Austin, especially those trained to look out for it. Technology, however, enables investors to stay on top of this signal across the whole market, by reviewing the thousands of public company calls released each quarter.
While tonal analysis can provide stand-alone information for investors, a common use-case is to compare the results with text-based sentiment. When executives use positive words, does their tone match up? Or is there a discrepancy, implying things are not going as well as they say?
The latter may have happened during the initial stages of the global microchip shortage, according to research carried out by Aiera, a sentiment analysis firm. In early 2021, IT executives used positive or neutral words to talk about chip supply issues, says the study, which incorporated analysis by Helios. But their tone was markedly negative.
The findings suggest ‘the positive language used by the executives was incongruous with their true beliefs about the state of their business… supporting the idea that IT sector executives were downplaying these associated risks,’ write the authors.
To help identify discrepancies in tone, Helios builds speech profiles for individual corporate leaders.
It even tries to distinguish between how people speak in different contexts – for example, on an earnings call as opposed to at an investment conference. Could such a detailed profile raise privacy issues?
‘As these are public events and corporate representatives, we don’t see it as an invasion of privacy but rather an enrichment of communication that can be done passively,’ says Austin.
‘The audio and tonal analysis platform does make personalized models to better understand individuals over time, which allows better analytics around the speech. We certainly have security and privacy laws in mind as we continue to advance what we’re doing for the world of financial services.’
The emergence of audio analysis gives companies another reason to consider machines, as well as humans, when crafting their message. Some issuers are already adapting their corporate reports to avoid falling foul of algorithms, according to one study.
Of course, public speakers – and those who train them – have always focused on delivery as much as content. As sentiment analysis extends to audio, however, matching your tone to your words will become even more important.
<sub>Comment</sub>
Oh brave new world?
Multi-award-winning IR professional <I>Thomas Kudsk Larsen</I> looks at some of the big trends driving change in investor relations, from the pandemic to the ESG focus and the impact of an increasingly fragmented world
Multi-award-winning IR professional Thomas Kudsk Larsen looks at some of the big trends driving change in investor relations, from the pandemic to the ESG focus and the impact of an increasingly fragmented world
Most companies have now reported their fourth-quarter and full-year 2021 results and many management and IR teams have post-results investor outreach under way. This includes February roadshows and March broker conferences before first-quarter preps kick off in April.
A few trailblazer countries like the UK and Denmark removed most Covid-19 restrictions in January as cases fell, with some others following in February, but others – Hong Kong, for example – have seen a surge in cases. By mid-February, German investors in Frankfurt were still working from their homes, and only about half of US investors have come back to their offices.
The IR job is global – capital markets are global – but while Covid-19 is a worldwide infectious disease, countries have responded individually. As an IRO, you cannot operate the same way as you did in the past. What works in London with some investors won’t work in Germany. The idea of a global, US or European roadshow is irrelevant when rules and reopenings differ by country.
These national responses to the pandemic confirmed a trend that had already been under way for a few years: the world has become less integrated, less global. Governments stockpiled vaccines for domestic use, populations in some countries were offered a second booster vaccine while many people were, and still are, yet to get their first. The UK completed its departure from the EU. Russia invaded Ukraine.
The financial markets, and with them the IR profession, have been major beneficiaries of globalization. It’s made our jobs easier to do, but the trend is now reversing, creating more fragmentation again.
The financial markets, and with them the IR profession, have been major beneficiaries of globalization – but the trend is now reversing
Taking ESG seriously
Change was under way before the pandemic hit. And we will eventually put Covid-19 behind us, even if the world is a more volatile place by then. What the pandemic has done, though, is accelerate a number of existing trends, among them ESG, and IR people will also be left with the reality of ESG commitments and cost containment. Despite the challenges, however, ESG remains a big development opportunity to grow the IR curriculum and learn how to help your firm climb the ladder of increasing cyclicality.
During the pandemic, CFOs loved the lower cost of doing business, with travel and activity costs going down in particular. This did not have any material impact on many businesses, so why not keep travel and activities permanently at the new, lower level? It helped many companies keep some level of profitability with lower revenue during the pandemic, and chances are slim that costs will be allowed to grow again as the world reopens.
We must now ask whether, in the past, people really traveled because of business necessity, or because of entitlement or tradition? Several firms have also made commitments to reduce their carbon footprint – and travel is an obvious place to start. IR people need to take ESG seriously, through the company as a whole, but also in the way they conduct their own business.
This again feeds into the new at-least-partly virtual reality. March has several broker conferences: Credit Suisse in London is virtual, Barclays in Miami is live and Carnegie in Stockholm has a choice between on-site and virtual.
The brokers that are able to handle events where some participants are there in person and some only virtually will come out stronger from this period; hybrid is also the likely future for IR interactions. If you have the budget and it's possible to batch several activities into a full week in the US, then you go – but not for just one conference in Miami like we used to do.
The value of good IR remains as important as ever
What all this change means is that, if anything, good IR is more important than ever. I recently met a contact who joined a new company last year. The company had announced its fourth-quarter, full-year results and provided guidance – a 2022 outlook – at the same time. A year earlier, the company had lost 9 percent on the day of its 2021 outlook and a further 5 percent over the next week of trading.
This new IR person recommended a different approach to providing guidance: scrap revenue and earnings targets in absolute amounts – why would the firm guarantee currency rates? Instead, the new IR person wrote a guidance paragraph for results that moved the company outlook to use constant exchange rates, while describing its critical success factors.
In a world of increasing uncertainty and challenges to how IR is conducted, public companies… need a steady hand in the IR chair
The company is in an investment phase and heading into results, and consensus had higher earnings numbers than what the company’s plans would suggest. But describing the need to continue spending on R&D and sales and marketing to improve the long-term value of the company landed the guidance well with investors and sell-side analysts. Recommendation upgrades followed. A week after the 2022 guidance, the share price was up.
What this shows is that in a world of increasing uncertainty and challenges to how IR is conducted, public companies and their shareholders, potential investors and sell-side analysts need a steady hand in the IR chair to help provide counsel and pilot the company through choppy waters.
The value of good investor relations has increased. It’s in higher demand than ever before. IR is becoming more complex again, with new and forgotten challenges, but that’s good for continued learning, development and the ability to grow in the job. These changes are good for the IR profession, and for people who made IR their career choice.
<sub>Cover story</sub>
How the pandemic has shaped share registers
The acceptance and adoption of virtual investor meetings is the pandemic’s enduring legacy for listed businesses around the world. This has made it easier for companies to attract global shareholders to their register, but has it resulted in a more diversified shareholder base? <I>Alexandra Cain</I> investigates
How the pandemic has shaped share registers
The acceptance and adoption of virtual investor meetings is the pandemic’s enduring legacy for listed businesses around the world. This has made it easier for companies to attract global shareholders to their register, but has it resulted in a more diversified shareholder base? Alexandra Cain investigates
No one will be surprised to read the stats on in-person meetings from last year: according to IR Magazine research, limitations on human movement as a result of the pandemic led to a substantial reduction in one-on-one, in-person meetings between companies and investors.
The results show that companies held just a handful of face-to-face meetings with investors in the past year: an average of 11 globally, representing just 7 percent of all meetings during 2021. This number would be even lower were it not for Asian firms, which held an average of 20 in-person investor meetings in the past year, compared with six held by European companies and just three by North American firms.
Instead, there was a stunning shift to online: virtual meetings accounted for 14 of every 15 meetings with investors in the past year. What impact, if any, did this have on the way companies reach out to, and interact with, existing and new shareholders?
Shifting registers
There was certainly movement in global investor allocations to listed assets through 2020 and 2021. But with so much going on in the markets, it’s hard to point to how much of a role the online meeting revolution played in that change.
Lucas Scheer, president of LS Global Advisors in Japan, notes that virtual meetings and videoconferences were rarely used in the country pre-Covid. Although this has changed completely, the attraction of foreign investors to US companies has always been there.
‘Virtual meetings were frowned upon [in Japan] due to security concerns and general corporate policies prohibiting them,’ Scheer explains. ‘The pandemic means foreign travel to Japan is still highly restricted. My clients have realized they must allow for virtual videoconferences so we can have the conversations and communication we need to have with investors, given that in-person travel is limited. In Japan, virtual conferencing and communications probably have been brought to the forefront 10 years earlier than they would have been without Covid.’
Scheer adds that while the US investor base has attracted more foreign ownership through the pandemic, it’s not just due to the rise of virtual communication. ‘That’s helped, but the US is also the most attractive place to invest money, which means there has been a concentration of capital in US businesses and more foreign capital going into US businesses,’ he says.
In the same vein, Ross Moffat, head of IR at Australian supply chain software firm WiseTech, agrees virtual meetings have made outreach easier, but demurs when asked whether this has led to a change in the shareholder mix on the register. ‘What it has enabled is broader outreach and more efficient use of management’s time,’ he says. ‘Investors still go through the same thorough process to make their investment decisions, no matter whether meetings are virtual or in person.’
Lucas Scheer, LS Global Advisors
IR Magazine’s research points to a dilution of domestic investors in US companies through 2021. The percentage of shares held by local investors in US businesses dropped from 88 percent in 2020 to 84 percent in 2021. The data shows the vast proportion of listed US businesses remain in the hands of institutional investors, which hold a 69 percent interest in listed US companies, down from 71 percent in 2020.
Similarly, two thirds of the equity in European companies is held by institutions in the region, with just under a quarter held by North American investors. These figures are largely unchanged year on year. By contrast, Asian investor ownership in businesses in this region has become more concentrated through the pandemic, rising by 12 percent as North American and European investors left Asian companies’ registers. Just three in 10 shares in Asian companies are held by institutional investors.
In France we saw investors sell international shares and use the funds to buy domestic assets
A strong dollar
There are opportunistic reasons for the movement within shareholder bases, especially as international institutional investors took advantage of opportunities to buy well-priced shares when markets first plunged at the start of the pandemic.
‘BlackRock is a good example. When many investors were selling, we saw BlackRock buying, picking up a lot of value. That was really interesting in the initial stage,’ says Patrick Mitchell, managing partner of market intelligence firm Investor Update.
‘In some cases, hedge funds near the top of the register were supportive. Those that had been on a register for three or four years topped up their shareholding, because they understood the market downturn was transient and felt comfortable supporting the company, even if it had shut down for several months.’
In many instances, shareholder bases have completely turned around over the past 18 months as investors sought to repatriate capital to their home markets, he adds. ‘For example, in France we saw investors sell international shares and use the funds to buy domestic assets, although this varied greatly from company to company,' he says.
'Some companies were truly tested and businesses that were heavily impacted by the restrictions suffered the most, with shareholders selling down stock. Others, such as technology businesses, benefited as investors increased their allocation of funds to these firms. So it’s not like across the board investors pulled money back home, the fast money took advantage of market conditions and long-only funds didn’t. It really wasn’t like that.’
Mitchell notes that during this time, many listed businesses’ share registers became more diversified. ‘Rather than the top 20 shareholders controlling between 40 percent and 60 percent of the company, now often the top 20 shareholders control less than 50 percent of the business, which is positive in the long run,’ he explains.
‘The number of investors on the register has gone up for most listed firms, in some cases dramatically. Investors don’t want to place too many big bets in a risky situation like a pandemic, so they’re diversifying across a broader set of investment options.’
Michael Miller, director of investor relations advisory for market intelligence firm IHS Markit, says his experience suggests EMEA and Asia-Pacific investors increased portfolio allocations to North American firms over the past two years. At the same time, among North American asset managers, there was a drop in portfolio allocation to international holdings.
‘While we can only speculate about the impact of virtual meetings relative to other factors, this does suggest that European and Asian investors have been able to regularly meet with North American companies,’ Miller says. ‘Further, they have had enough confidence throughout the pandemic to increase their holdings in these firms.’
Louis Cordone, senior vice president of data strategy at professional services firm AST, says that while the pandemic may have prompted a rise in foreign investors taking positions in US companies, this is a trend that has been in place for a decade.
‘Covid-19 has had an effect, but the strength of the US dollar is another component of international investing,’ he says. ‘Investors are seeking access to growth and a mature market, but they also took advantage of an opportunity to buy into that market when the US dollar index fell during Covid.’
Mark Loehr, OpenExchange
The ESG factor
Although many factors play into the movement of any one company’s share register, the extraordinary shift to virtual meetings during the pandemic has changed investor behavior forever, says Mark Loehr, CEO of videoconferencing firm OpenExchange, especially because virtual allows investors to check in on companies more frequently.
‘Our experience suggests investor attendance for some of the biggest conferences is up by 40 percent versus the pre-Covid era when physical conferences were the norm,’ he notes.
OpenExchange handled 180,000 virtual meetings and 595 conferences in 2021 between companies, banks and investors, many of which were international. In 2020 this figure was 100,000. In 2021 the firm was also involved in 24,000 non-deal roadshows and 14,000 investor days.
Loehr says virtual meetings are here to stay, in part because they provide a better return on investment for investors and executives in terms of allocation of their time. Live streams allow investors to watch from a distance and get to know a company before meeting management. This also helps them to develop a body of knowledge about a business and to ask more informed questions when they do meet.
‘CEOs recognize they can accomplish much of their investor outreach from their own time zone and office,’ says Loehr. ‘They’ll still do some special conferences, but not nearly as many as before. The buy side also really appreciates the ability to manage its time and not be on planes as much. But there is an audience of smaller investors, as well as smaller companies, that prefer one-to-one, physical meetings, so preference for virtual meetings is not universal.
The number of investors on the register has gone up for most listed firms, in some cases dramatically
‘We’re definitely seeing a change in investor behavior around AGMs, particularly if you can tie the virtual meeting into the voting process. A lot of people go to ballrooms, but not much really happens; it’s more a chance to say hello to management. These are likely to go virtual within the next two to three years and be more interactive because it is a somewhat closed environment in that ballroom.’
OpenExchange’s data is borne out by corporate experience. Victoria Hyde-Dunn, vice president of investor relations for cloud data management business Informatica, says the widespread shift to virtual meetings means there is now more opportunity to engage with current shareholders and target new investors.
‘We can now cover more cities, use a broader set of executives and reduce travel spending to the cost of a virtual meeting platform,’ she says.
Hyde-Dunn notes that this has also made it easier to engage a broader range of contacts, including sell-side corporate access and direct outreach to and from the buy side, especially in Europe. She agrees virtual engagement has been a great approach for check-ins and information-gathering.
‘From a relationship-building perspective, it also helps to bring new investors up to speed on your company and your story, and builds strong relationships with investors through frequent contact,’ she adds. ‘Seeing and understanding body language can help build a long-term, trusting relationship and you can accomplish this virtually.’
Nevertheless, she acknowledges an element of ‘Zoom fatigue’, partly due to the need to accommodate time differences when talking to investors in different regions.
But there’s another element at play. ESG has also been a Covid winner, with the focus on sustainability massively increasing over the past 18 months or so. Virtual meetings now play a significant part in companies' desire to reduce their environmental footprint to help meet ESG targets and wider stakeholder expectations.
‘Some of the biggest global fund managers in the world say that by around 2030, they are only going to invest in companies with net-zero emissions,’ Loehr says. ‘And one of the ways you can dramatically cut your carbon footprint is to cut out air travel. Increasingly, investors are going to look askance at management teams that bring three or four people across the world just to see them.’
New IR skills
Companies will continue to be flexible in their approaches to investor engagement through 2022 and beyond.
‘Whether in person or virtual, IR teams will need to ensure they are providing adequate information and management access to both domestic and international investors,’ says Miller, who adds that IHS Markit’s research indicates most IR teams expect to return to at least some in-person investor engagement this year, depending on travel and other restrictions, company policies and executive team preferences.
We can now cover more cities, use a broader set of executives and reduce travel spending to the cost of a virtual meeting platform
Hyde-Dunn says there is a desire to have a hybrid approach this year, involving virtual and physical meetings with corporates and investors.
‘At the end of last year, a number of corporates restarted physical roadshow plans and conferences, although some went virtual at the last minute,’ she notes. ‘So far in 2022, we’ve been invited to a slew of in-person tech conferences, all in the US. Conferences will follow state and local protocols, requiring proof of vaccination and booster shots, plus a negative Covid test before the event.’
Conversely, Moffat doesn’t expect a return to pre-pandemic global roadshow practices any time soon. WiseTech held virtual meetings for domestic and international shareholders for its most recent profit announcement in February.
‘It’s difficult to predict when in-person meetings will start up again,’ Moffat says. ‘Potentially it could be in the second half of the calendar year, depending on borders.’
It isn’t just about the easing of restrictions, though – IR professionals have streamlined the way they manage meetings and roadshows, picking up new skills along the way.
Toby Langley, executive general manager of investor relations at accounting software pioneer Xero, suggests it may be prudent to continue to expect the unexpected. ‘We have started conducting some meetings face to face with domestic investors,’ he says.
‘But greater use of virtual interactions will remain part of the Xero IR program and help to make us more efficient. There are several new tools and skills that we have picked up that are simply too useful not to use as part of our approach to engagement.’
Victoria Hyde-Dunn, Informatica
<sup> <i>Advertisement feature</i> </sup>
<h3>The future of engagement
Did shareholder bases
become more international
as a result of virtual meetings?
Did shareholder bases become more
international as a result of virtual meetings?
Virtual meetings made it easier, at least in theory, to set up meetings with international investors. But how much did shareholder bases change in reality? And if they meaningfully changed, what does that mean for investor engagement during the next year, when there is an expectation that we will return to some regular cadence of in-person meetings, but could still face restrictions on international travel?
Without providing a binary answer that prevents you from reading on, the short answer to the question posed is ‘not really’. From any perspective, we believe virtual meetings have had very little impact on international ownership.
International shareholders have always been there and have grown steadily in line with the ability to buy and sell shares across the globe. But it’s clear that the ecosystem, issuer behavior and embedded market practice before Covid did not actively meet all shareholder needs. The consequence of this gap was a lowering of governance worldwide because shareholders who could not travel to company meetings either for personal or logistical/cost reasons may not have been able to exercise all their rights as owners of the company.
If we take this article’s point to the extreme: do virtual meetings mean those who cannot travel easily domestically (for whatever personal reason) to AGMs now hold more shares than in the past? Again, the answer is 'no'.
Virtual meetings have, of course, enabled improved governance overall as they allow more opportunity for those who cannot attend physical meetings to still be present. At Proxymity, we fully support all future AGMs having a virtual element, even if they are also held in person. This would be a positive outcome for both issuers and investors.
Importantly, the move to digital has not only enhanced the actual meeting via virtual attendance but also the meeting processing. New technology and ways of working – such as Proxymity’s digital investor communication platform – have provided a significant improvement in the quality of governance for both issuer and investor by offering real-time announcements direct from issuers, immediate voting and better disclosure, resulting in improved transparency, accuracy, simplicity and speed.
The ecosystem, issuer behavior and embedded market practice before Covid did not actively meet all shareholder needs
Drivers to change the industry ecosystem
International ownership has occurred due to many factors beyond Covid and the acceptance of virtual meetings. This is not to dismiss the importance of virtual meetings but, once Covid started to bite, issuers realized very quickly that the infrastructure to engage with shareholders wasn’t quite there.
Two years on, it’s now clear that the market ecosystem structures for ‘virtual’ governance had not kept up with how shares were held by people or institutions around the world. We know from our clients this caused issues where shareholders, both domestic and international, could not easily cast a vote or attend meetings.
Many company secretaries and lawyers were left to scour local law to see whether virtual AGMs were technically legal. Shareholders were faced with a dilemma of travelling in a pandemic to make their voice heard, and those who couldn’t, wouldn’t or were faced with meetings behind closed doors, were disadvantaged. Even more concerning is that companies might not capture a true reflection of their shareholders’ views and wishes.
Sometimes it takes a compelling world event like Covid to underline the required change in a market, change that Proxymity has been leading to improve the investor and shareholder ecosystem for issuers, investors and the intermediaries that service the chain of custody.
Using native digital technologies to enable accessibility, visibility and speedier decision-making, how and where a shareholder holds shares is now, in 2022, significantly less important. Improved governance where issuers and their investors are truly connected is now possible, as it should be in a connected world.
Examples of this change include Proxymity providing real-time announcements direct from issuers, increased voting time for investors and higher voting pre-meeting, as well as greater engagement at meetings as proven by UK-based international retailer M&S, where attendance has increased massively for AGMs with virtual attendance.
Whether domestic or international, the advent of virtual AGMs alongside digital proxy voting and shareholder disclosure means remote shareholders are no longer inactive ones.
Supportive legislation driving transparency
One of the key trends we have seen at Proxymity, especially in Europe, is the importance of and desire for transparency between issuers and investors. Fueled by the revelations in the Panama Papers and other information from Wikileaks, as well as public opinion forming on investors that do not share support for a company’s ESG initiatives, this trend has manifested in the form of new legislation around the world.
In Europe, the deployment of the Shareholder Rights Directive II (SRD II) is part of this solution, and corporate compliance with it is only one of many reasons why issuers and shareholders, along with the rest of the ecosystem, should connect digitally on a single platform. For example, if more issuers with dual country listings adopted a digital approach, they would be helping to remove barriers and increase voting participation.
A secondary benefit of SRD II – and one we know is of more importance to the companies we serve – is beneficial owner voting. This is a benefit enhanced by the Proxymity platform, which provides real-time visibility of the investor and the votes being cast. Issuers can be confident which shareholders are attending and voting, and engage with them pre-meeting if necessary: it's a game changer for an industry used to operating a fragmented, largely analogue environment.
Combining technology, processes and legislation
The drive for better governance to attract international shareholders is not only down to technology and new processes, however; these have to be in place, but good legislative frameworks are needed, too.
Covid provided a catalyst to move voting and meetings from an industrial society to a digital one. There is still a lot to do as some markets have historic ecosystems or legislation that block good governance. But better governance does, and will, attract investment from investors globally. To meet this objective, issuers and investors must work together, along with their custodians, not just domestically, but also worldwide to demand technology fit for the digital society.
Proxymity is ready, alongside the providers of virtual meetings, to support the whole ecosystem with efficient disclosure, digital proxy voting and shareholder transparency for all.
About Proxymity
Proxymity connects the world’s ecosystem of issuers, intermediaries and investors digitally in real time, bringing unprecedented transparency, efficiency and accuracy to traditional paper-based processes. Our global solutions give public firms confidence that their AGM/EGM agendas are transmitted as ‘golden source’. As the leading investor communications platform, we provide scalability, efficiency and full compliance, and promote enhanced corporate governance by improving communications between issuers and investors and making it easier for intermediaries when servicing their clients.
We are backed by the industry's leading financial institutions: BNY Mellon, Citi, Computershare, Deutsche Bank, Deutsche Börse HSBC, JPMorgan and State Street. For more, please visit https://proxymity.io/.
<sup> <i>Advertisement feature</i> </sup>
<h3>IPO readiness
What every board and compensation committee should know and do before going public
By Brian Lane, Joe Mallin and Tara Tays
What every board and compensation committee
should know and do before going public
By Brian Lane, Joe Mallin and Tara Tays
With the increase in IPO activity in 2021, it seems a private company not yet contemplating a public offering is a rarity these days. The process of transitioning from a private to a public company takes significant effort across essentially all of a company’s core functional areas over an extended period – often at least six months and, in many cases, closer to a year or longer.
From a talent and compensation program perspective, the core tenet of rewarding executives and employees for driving business results will remain but there are several key compensation program features and governance-related practices to consider when making the transition.
1. Compensation philosophy
We regularly encourage our clients to adopt and codify a compensation philosophy. A well-documented compensation philosophy includes the primary objectives of pay programs covering the purpose of each component, a statement on desired competitive positioning and external market comparators.
This extract will provide the key questions to ask when planning for an IPO. To understand Pay Governance's detailed perspective, please refer to the full article from which this extract has been taken.
Compensation philosophy
Objectives: What are our guiding principles and objectives?
Elements: What pay elements will we use to drive business and talent strategies? What is the appropriate pay mix?
Frame of reference: How do we define our competitive market for talent?
Competitive position: What is our targeted level of competitiveness? Should our competitive positioning vary by pay element?
Peer group
Selection criteria: Which are the key characteristics of our company that should be reflected within our peer group – industry, revenue, market cap, headcount, profitability, geographical footprint, and so on?
Peer group use(s): Should we have more than one peer group (for example, one for understanding competitive pay levels and one for incentive and related governance practices)?
Sample size: How many peer firms are appropriate to provide robust competitive information?
Established public vs recent IPOs: Should our peer group include recent IPOs, established public companies, or a mix?
2. Executive pay considerations
With respect to total compensation, the change in ownership structure can have a direct impact on the level of pay required to maintain competitiveness for some positions.
While not always necessary, an IPO provides an opportunity to revisit pay levels to better align with business and talent priorities and ensure appropriate compensation for any expansion of position responsibilities. For example, responsibilities for certain positions within the finance and legal functions can increase with an IPO due to additional reporting requirements and may thus warrant higher compensation levels.
Cash pay
Competitiveness: Are our current cash pay levels representative of competitive public company levels, and do they reflect our go-forward compensation philosophy?
Adjustments: If below market, when is the right time to implement pay adjustments – at IPO or at the first annual merit cycle as a public company? All at once or over time?
Equity awards
New paradigm: Public companies predominantly use an annual grant cycle for making equity grants. Are we prepared to shift our thinking to an annual grant approach based on grant-date dollar value?
Competitiveness: How do we define competitive equity awards as a public company?
3. Equity program strategy
The primary executive pay change for companies going public is the shift in approach to equity awards. While there are several differences between private and public equity practices, a key difference is award timing:
- The prevailing equity strategy for private companies is event-based awards – larger/multi-year awards made at hire, promotion, major company milestones – with a focus on targeted aggregate ownership
- For public companies, the prevailing strategy is annual equity grants with a focus on delivering a targeted grant-date dollar value or, in some industries, a vesting dollar value.
The most important compensation consideration in going public, therefore, is determining the long-term incentive (LTI) strategy. LTI awards represent a key component in attracting/retaining talent and are usually a significant component of overall compensation. During the IPO-readiness phase, LTI plan design and allocation of shares for future grants is highly important. Plan designs and mechanics can take many forms depending on industry and company-specific factors. The governing LTI plan documents tend to remain broad and allow for flexibility to change designs and award types over time without needing to amend the LTI plan.
IPO awards
Purpose: Should we reward a select group of employees for their IPO-related contributions or more broadly recognize all employees?
Eligibility: What criteria will be used to determine recipient award size – affordability, employee level, retention risks, and so on?
Award design: Should the IPO award vehicle and design differ materially from the annual LTI award approach?
Post-IPO LTI/equity strategy
Objectives: What are the objectives of the LTI program?
Market practice: What types of awards do our competitors use?
Eligibility: What criteria will be used to determine eligibility?
Award design: What vehicle(s), vesting conditions and award terms best align with our business and talent strategies? Should our approach differ by employee level?
LTI plan document
Timing: When should the company seek board approval on the go-forward plan document?
Share pool and usage: How many shares should be available for grant? What are appropriate levels of dilution at IPO and post-IPO? Should the plan include an evergreen provision?
Plan provisions: For many of the provisions common within an equity plan document, the key questions are of balance between
– flexibility to account for growth and expectations from shareholder groups on shares reserved
– what should be included in the governing document and what can be handled via grant agreements
– appropriate protections for the company (such as restrictive covenants) vs the award recipients (such as termination coverage)
Key provisions to pay specific attention to include evergreen refresh, share recycling methodology, board of director grant limits, termination provisions (treatment of unvested awards upon termination without cause, voluntary termination, death, disability, and other forms of termination), change in control protection and shareholder approval for option repricing
4. Reviewing severance coverage/termination policies
Severance benefits and termination treatment is another area typically discussed before going public. In addition to creating policies to align with market competitive practices, such policies can also be used to attract and retain key executive talent.
Severance/change-in-control benefits
Documenting benefits: Should severance provisions be included in employee agreements or as a stand-alone severance policy?
Termination events triggering benefits: What benefits will employees receive upon termination for cause, death, disability or without cause? Should the company’s termination benefits vary by employee level?
Defining non-change-in-control (CIC) benefits: Should a cash benefit be defined as salary only or salary plus annual incentive? If annual incentive is included, how will it be defined? What multiple will be used to calculate the cash severance and how will the multiple vary among different levels of executives? What will happen to unvested equity? If stock options are granted, what will the exercise period be for vested awards upon the termination event? Will health and welfare benefits continue to be provided?
Defining CIC benefits: Similar questions to the above with the added discussion of whether benefits should be enhanced in any way if qualifying termination occurs post-CIC
Conclusion
The IPO journey can range from six months to as long as two years or more and it is never too early to start planning. Compensation programs are one part of the overall IPO process.
Early planning, reliable and experienced partners and a commitment to making decisions in an efficient, effective and timely manner can help the process run smoothly. Thoughtful and early planning can take the stress out of what is likely an exciting time for employees, management, investors and directors and support the all-important transition to public company status.
About Pay Governance
Pay Governance is an independent firm that serves as a trusted adviser on executive compensation matters to board and compensation committees. Our work helps to ensure that our clients’ executive rewards programs are strongly aligned with performance and supportive of appropriate corporate governance practices. We work with more than 400 companies annually and have a team of nearly 70 professionals throughout the US with affiliates in Europe and Asia with experience in a wide array of industries, company life cycles and special situations.
Contact us
Brian Lane: brian.lane@paygovernance.com
Joe Mallin: joe.mallin@paygovernance.com
Tara Tays: tara.tays@paygovernance.com
<sub>Reporting</sub>
The human touch
Stakeholders are pushing companies
to talk more about issues like
employee engagement, health &
safety and diversity, equity &
inclusion, reports <I>Tim Human</I>
Stakeholders are pushing companies to talk more about issues like employee engagement, health & safety and diversity, equity & inclusion, reports Tim Human
Aside from climate change, the ESG topic that has garnered the most investor attention over the last two years is human capital management (HCM). During that time, the Covid-19 pandemic and global racial justice protests have pushed social issues firmly into the spotlight.
Institutional investors, as well as other stakeholders, have demanded greater assurance that companies are caring for and managing their workforces effectively and respectfully. In response, businesses have rethought the way they report HCM information, providing greater detail and expanding the use of KPIs. But investors continue to push for additional disclosure.
History of HCM
HCM is a fairly broad term that covers the different ways in which companies acquire, train, manage and look after their employees – and how those factors contribute to the performance of the business. And while there is no doubt about the value HCM provides, it has not traditionally been an area where companies provide a great deal of information externally.
Why is that? Firstly, HCM activities are competitively sensitive: they are a key part of a company’s strategy to attract and retain the best talent. In addition, companies are often cautious about releasing data on employees, such as breakdowns by gender or diversity. They may not have the data available. They may also be worried about the reaction releasing such information could bring.
But politicians, regulators and investors have helped to push HCM up the agenda, leading to more details arriving in the public domain. For example, the UK government commissioned the Hampton-Alexander Review in 2016 to increase the presence of women on FTSE boards and senior management teams.
A year later, State Street Global Advisors (SSGA) began its Fearless Girl campaign, with the aim of putting pressure on portfolio companies to add more female directors.
In 2020 the outbreak of Covid-19 threw unprecedented light on the way companies manage and support their employees. Executives began to discuss the health, safety and wellbeing of staff in a way that had never been done before. Later that year, the killing of George Floyd sparked global anti-racism protests and led to an increased focus on how companies can support a fairer and more diverse society, including through their own employment strategies.
Leahruth Jemilo, Corbin Advisors
‘Ask CEOs about their most important asset and they will say it’s their people,’ says Leahruth Jemilo, head of ESG advisory at Corbin Advisors. ‘This was true five years ago and it’s true now. But the difference is that HCM topics like diversity, equity and inclusion (DE&I) now share space in the minds of the C-suite, alongside environmental topics like greenhouse gas emissions. The days of paying lip service to HCM topics are gone.’
Ask CEOs about their most important asset and they will say it’s their people
Global practices
For US companies, a notable change in human capital reporting came in 2020 when the SEC made amendments to Regulation SK. Under the changes, public companies must now disclose in certain filings:
-
A description of the registrant’s human capital resources, including the number of people employed by the registrant
-
Any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).
Following the update, PwC analyzed the impact on company filings. Looking at more than 2,000 Form 10Ks, it finds that 89 percent include quantitative and qualitative metrics on HCM, 75 percent mention the impact of Covid-19 on HCM and 66 percent include information on DE&I.
The researchers point out that most of the information provided on Covid and DE&I is qualitative. ‘Many companies did not include measures or objectives related to diversity at the management level, and the quantitative DE&I metrics disclosed primarily include the total number of employees and gender percentages,’ they write in the report.
Turning to the UK market, a recent report produced by creative consultancy Radley Yeldar investigates how companies disclose on DE&I. The study finds that the number of FTSE 100 companies putting out a stand-alone diversity & inclusion report has roughly doubled over the last year – albeit from a low base – from 7 percent to 13 percent.
More broadly, the research finds that companies are using a wide range of channels to disclose their DE&I information, including the annual report, sustainability report and employee business updates. Researchers also detect nervousness around the subject, however: just 53 percent of companies that report on DE&I disclose their DE&I strategy.
‘While our research uncovered several challenges around DE&I reporting, it’s clear there is a sense of hesitancy when it comes to communicating around DE&I accountability; that saying the wrong thing or publishing less-than-flattering figures may incense the general public,’ says Sharn Kleiss, head of employee experience at Radley Yeldar.
‘That’s why striking the right balance between data and storytelling, evidence and inspiration, is so important to effective communication.’
Sharn Kleiss, Radley Yeldar
With investors demanding more information on human capital, HR executives are starting to find themselves drafted in to help with not just corporate disclosure, but also investor events and presentations. ‘For investor days, HR executives have a role in the agenda to elevate the discussion on talent to be more strategic. Topics include DE&I, talent management and leadership programs,’ says Jemilo.
‘We are also starting to see more instances where they discuss company culture and highlight it as a key differentiator or competitive advantage. More broadly, when we look at investor presentations, HR executives are weighing in on some of the content that is collected. For instance, if there is a section on talent management or CSR, our clients often have HR weigh in on key strategic initiatives and proof points.’
There is a sense of hesitancy when it comes to communicating around DE&I accountability
Making changes
Given the varied ways companies think about this issue, there is no obvious best practice approach for reporting on HCM. Even the SEC’s rules for public firms on the topic are vague, leading to a wide range of reporting techniques.
For companies that want to improve their approach, there are two broad areas that really matter, says Jemilo. The first is the details. ‘To go beyond ‘checking the box’ on human capital, companies should put pen to paper and craft specific, measurable, meaningful, forward-looking goals – for example: by 2025, we will increase the number of women in executive leadership from 19 percent to 25 percent,’ she suggests.
The second is accountability. ‘Companies should consider how they are going to reach those goals and who is going to be held accountable,’ Jemilo continues. ‘Board and executive-level accountability is critical – for example, hiring people to head up DE&I, having them report directly to the CEO and having them provide regular updates to the board about DE&I goals and progress toward those goals.’
Speaking at the IR Magazine ESG Integration Forum – US in December last year, Jana Croom, chief financial officer at Kimball Electronics, offered advice to companies about getting started with their human capital and DE&I reporting.
‘You have to think about where you can have movement,’ she said. ‘What might be a quick, easy win? What might constitute some longer-term goals?’
Croom said a good place to begin is by making sure you have a diverse candidate pool for different roles, describing this approach as easy to implement and measure. Next, companies should record, in cases where there was a diverse candidate pool, how many times a diverse candidate got the job. Third, businesses should plan changes over the long term, while being mindful of which goals are truly achievable.
For example, Croom said a business might aim for a certain proportion of diversity within the senior management team over a five-year period. ‘But if you have an executive team that is set, doing a great job and not ready to retire – and you’re not going to fire the members – you won’t hit that goal,’ she said.
Another simple way to assess progress is looking at your ‘say-do’ ratio, noted Croom: ‘What did you say you were going to accomplish as an organization? And did you accomplish it? That’s really binary – either you did or you didn't. If your say-do ratio is low, go back and examine what you are saying.’
HCM topics like diversity, equity and inclusion now share space in the minds of the C-suite, alongside environmental topics like greenhouse gas emissions
Growing demands
Investor expectations on HCM continue to grow, a fact underlined by the annual letters released by some institutional investors in January this year. The relationship between a company and its employees got a special focus in the closely watched 2022 letter to chief executives from BlackRock’s Larry Fink.
‘No relationship has been changed more by the pandemic than the one between employers and employees,’ he writes, saying staff now have different expectations, such as additional flexibility, higher pay and more meaningful work.
Fink included in the letter a series of questions for CEOs to ask themselves about the way in which they manage their workforce, indicating the information the world’s largest asset manager would like to see in future corporate disclosure.
‘What are you doing to deepen the bond with your employees?’ he asks. ‘How are you ensuring that employees of all backgrounds feel safe enough to maximize their creativity, innovation and productivity? How are you ensuring that your board has the right oversight of these critical issues? Where and how we work will never [again] be the same as it was. How is your company’s culture adapting to this new world?’
SSGA also has a special focus on human capital in its 2022 letter on proxy voting.
Penned by CEO Cyrus Taraporevala, the letter says the investment giant will expand its existing gender diversity policy in two ways: in the 2022 proxy season, all holdings will be expected to have at least one female board member; and in the 2023 season, boards will be expected to have at least 30 percent female directors where the company is listed on a major index in the US, Canada, UK, continental Europe or Australia.
‘In each instance, we are prepared to vote against the chair of the board’s nominating committee or the board leader should a firm fail to meet these expectations,’ writes Taraporevala.
The best defense against activism over social issues is to build and report on ESG programs that truly enhance corporate value, says Jemilo. More broadly, companies need to be ‘offensive-minded’ on human capital issues, given the topic’s unprecedented strategic importance.
‘Corporate valuations are increasingly driven by people-led innovation and there is a war for talent,’ Jemilo says.
‘In such an environment, companies have to rethink their hiring strategy. Many are forced to go back to the drawing board and ask how fulfilling the corporate purpose can be linked with team members’ own life purpose, and what makes them happy? The answer often helps them build a lasting hiring brand.’
<sup> <i>Advertisement feature</i> <sup/>
<h2>The social media
dilemma for
investor relations
By Thomas Samuelson,
CEO and founder of BRON
The social media dilemma
for investor relations
By Thomas Samuelson, CEO and founder of BRON
Individual investor influence over the trading volumes and price direction of listed companies is increasing. From GameStop to Tesla, individuals are become more interested in owning stocks than ETFs.
Social media can mean many things to many people. For IR, it should mean greater disclosure and exposure, as well as the best way to reach and organize individual investors.
In 2022 more than 95 percent of American citizens aged 13+ are active in social media and more than 50 percent of individuals say they use social media to find information. But only a small percentage of IR departments are embracing this new medium. Why? Incorporating new work habits is always challenging and social media remains misunderstood. IR budgets are stretched and the perception could be that social media is too time-consuming and the need to ‘dumb’ down content for individuals would be an additional burden.
All these concerns are valid, and yet there are many reasons to embark on a social media journey.
First is disclosure: in 2013 the SEC included social media as a Reg FD-compliant disclosure method. Monthly active users on social media dwarf traditional media ratings, making social media imperative to an integral component of corporate governance and transparency.
If an investor relations goal is to increase corporate brand awareness, then using social platforms could be the most efficient and effective way. Educating investors on your investment story is made easier with the deployment of social media. Another goal could be to drive traffic to an IR website.
The time is now
Email and newswires are no longer effective. The use of AI in all major financial media outlets discourages IR content from reaching investors through its embedded selective process.
The sheer volume of email and the aggressive use of email filters have rendered email marketing/distribution ineffective. Meantime, the use and engagement of social platforms is only growing, with no signs of slowing down. Investors are weary and tired of biased research, fake news and misleading data.
They need more effective ways to access corporate information. Direct outreach to both institutions and individual investors is a must – and social media is the only way to efficiently execute this strategy.
Jumping into social media can seem overwhelming at first but developing a strategy can help make the transition stress-free. Some key decisions should be: establishing the right platforms, assigning and training specific people to manage daily activities, incorporating more video content into IR activities, integrating the IR website and making sure content is mobile-friendly.
Measuring the ROI of the IR budget
Today, measuring the return on investment (ROI) from distributing IR content through traditional PR newswires, email, broker research and via the investor relations website is very difficult, if not impossible.
Analytics on most social platforms make studying the ROI of an IR budget easier and more transparent, thus allowing IR professionals to allocate capital more efficiently while educating both shareholders and potential investors on the corporate brand.
BRON is the first social network community of investors and listed companies. It aggregates all IR content and makes for a better investor experience. Using more than one social platform is a must and we hope that incorporating the ideas around social media that are discussed in this article will help transform the way companies communicate with investors, which are looking not only for alternative research but also for alternative ways to access content.
BRON is positioned to be an integral tool to help IR professionals embrace social platforms.
About BRON
BRON is a digital information and communications bridge for the financial community. Its investor network gives listed companies an unbiased place to share content and interact with stakeholders. Listed companies can now update both institutional and individual investors in one easy-to-use platform, as well as create unique interactive content not available from traditional news outlets. All company content is available in real time and on demand. BRON is available for mobile devices from the App Store and Google Play, as well as on the desktop.
<sub>Regional focus:
North America</sub>
Selling the
retail story
It’s the diverse group of shareholders on everyone’s lips, emerging from the pandemic as confident, nimble and empowered. But what are the factors driving today’s retail investor, and how are IROs responding? <I>Sarah Welsh</I> finds out more
Regional focus: North America
It’s the diverse group of shareholders on everyone’s lips, emerging from the pandemic as confident, nimble and empowered. But what are the factors driving today’s retail investor, and how are IROs responding? Sarah Welsh finds out more
It could be argued that today’s retail investors have the best of most worlds: they can invest for little or no fees, have access to the same information as their institutional investor peers, enjoy a plethora of new technology at their fingertips and can shift between day trading and long-term investing to suit their portfolio ambitions.
This new sense of freedom is not only driving retail investors’ enthusiasm to invest, according to Jason Rechel, head of IR and corporate development at Chicago-based Sprout Social, but is also fundamentally blurring the lines between retail and institutional investors as never before.
‘Retail investment has been democratized,’ he says. ‘The barriers to stock ownership are minimal – trading fees have come down, many brokerages have opened up the ability for investors to own fractions of shares, and changing workplace dynamics mean retail investors have a greater ability to trade during market hours.
‘Couple this with the spread of information on social media and the market has changed dramatically. In many cases, individual investors have the same access to information as institutional investors, and no barriers to share ownership. This is fundamentally different from any other time in the history of the market.’
Young blood
As outlined by Rechel, the growth of commission-free trading apps, such as Robinhood or Fidelity’s retail offering, has removed a great number of obstacles to investing and introduced an entirely new generation of investors to the market.
Previously most often the domain of wealthy and older investors, retail share ownership today is just as likely to be populated by young investors of average income, accessing wealth-building opportunities on the go, regardless of location or time zone.
A Deutsche Bank survey in February 2021 revealed that nearly half of its respondents said they were investing for the first time, with 61 percent being under the age of 34. The same survey also found that half of all 25-to-34-year-olds were planning to spend 50 percent of their stimulus checks – their state-provided economic aid payments in the wake of the pandemic – on stocks, far more than the 16 percent of those aged over 55.
Around half of the shareholders at Vancouver-based entertainment company Thunderbird Entertainment Group are retail investors. The company’s shareholder base reflects the predisposition of many retail investors to invest with emotion, in brands that they like and identify with.
Captive audiences created by the pandemic have also worked in the company’s favor, as Jennifer McCarron, Thunderbird’s CEO, notes.
‘There is a parallel between the recent surge in retail investors and my industry, and it involves a confluence of elements that creates an environment to enable growth,' she says. 'In many respects, the pandemic served as a lightning rod for both. This is because the world was under lockdown and people had more time to simply consume information and content – whether for work, interest, entertainment, escape or investments.
Jennifer McCarron, Thunderbird Entertainment
In many cases, individual investors have the same access to information as institutional investors,
and no barriers to
share ownership
‘Our business model as a media company has vast distribution into the general population, which of course also attracts new retail investors. Those investors who love and follow our shows typically become shareholders of the company.’
Social status
IROs looking to engage effectively with the retail investor certainly shouldn’t neglect their social media. Figures indicate that the appetite from potential investors to research and obtain financial information and tips online shows little sign of dwindling since the Reddit GameStop phenomenon seen last year.
Take TikTok as an example. With more than 1 bn users worldwide, it is most often perceived as a channel for lifestyle, humor and dance routines, but is fast becoming a mecca for financial advice. Videos tagged with the hashtag #moneytok have had 10.6 bn views on the platform – more than #tacotuesday or #gossip.
And according to a survey conducted last year by financial advice website MagnifyMoney, nearly a quarter of investors aged 18 to 40 – and 41 percent of those aged 18 to 24 – have looked for financial advice on the platform.
Newcore Gold is a mining exploration company based in Vancouver with a retail investor base of around 30 percent. Speaking about the importance of social media for the company, Mal Karwowska, vice president of corporate development and investor relations, says: ‘I think digital and social media have grown in importance as a forum for connecting with retail investors. This was especially true during Covid-19: as more people spent more time in front of their screens, digital media was an increasingly effective tool for building brand awareness.
‘We may not be able to measure the immediate impact of one tweet on a company’s value, but we have seen improved brand visibility, which aligns with the longer-term goal of being focused on building an engaged community of followers.’
Sprout Social is also embracing the retail investors’ appetite for social media. ‘We take it as fact that the vast majority of retail investors seek out information on companies on social media and, given the volatility that has occurred over the past several years, institutional investors now do so as well,’ Rechel says.
‘We want to make sure our investor messaging is consistent across all channels, especially social, and ensure that investors can access all the information they need about us in the way that best suits them.’
Mal Karwowska, Newcore Gold
We take it as fact that the vast
majority of retail investors seek out
information on companies on social
Conscious investing
In today’s market, ESG credentials are a given key driver and metric for success for companies of all sizes. People want to work for, buy from and invest in firms that put their money where their mouth is when it comes to being socially and environmentally responsible.
Research from GlobeScan carried out in 2021 found that 39 percent of retail investors around the world say they have invested with ESG in mind, and that half (51 percent) of US retail investors have done so. ‘I think retail investors first and foremost want outsized returns,’ says McCarron. ‘That being said, they also want to support a company with a team they feel engaged with and one that has strong ESG measures in place.’
Marty Palka, chief intelligence analyst for investor relations at technology giant Cisco Systems, agrees. With a 28 percent retail shareholder base, the large cap has recently repositioned its ESG communications to include its purpose work.
‘Retail investors want to profit from their investments but they are also driven by the desire to invest in socially responsible companies that can make the world a better place,’ Palka explains. ‘This year, we changed the name of our CSR Impact Report to the Cisco Purpose Report. This is bringing together our CSR reporting and the purpose work we are mapping and putting into operation across the firm.’
Marty Palka, Cisco Systems
Retail investors want
to profit from their
investments but they are
also driven by the desire
to invest in socially
responsible companies
Talking tactics
So how should IROs adapt to engage with the retail investor, if they haven’t already done so? For Karwowska, traditional methods can be mixed with more modern approaches to satisfy retail investors’ appetite for information.
‘I still think the ‘historical’ ways of marketing – in-person conferences, phone calls, releases, and so on – are very important tools when it comes to increasing retail investor ownership but it is important to adapt and be innovative,’ she says.
‘Social media and providing investors a way to connect with a management team virtually – for example, via Zoom – is a growing aspect of marketing that can improve a company’s retail shareholder base.’
Thunderbird’s communication tactic is to target both investor groups, as McCarron explains: ‘We make ourselves available and communicate to everyone through conference calls, regular news updates and participation in investor conferences that attract both retail and institutional investors.’
It’s worth remembering, however, that despite the recent growth in retail and all of the new options available to these investors, retail investing is not a new concept. Many long-established companies have a loyal retail investor base that has stood the test of time and has been ground-breaking in its own right – something Palka points out.
‘Many of our individual shareholders are long-term investors who have held the stock for decades,’ he says. ‘As a group, retail shareholders were among the first to request Cisco to issue dividends years ago. Now, at our most recent financial results, we announced increasing our dividend pay-out for the 12th time.’
Perhaps the final word on what drives retail investors is best summed up by McCarron as she comments on the freedom and independence that this group of shareholders seems to thrive on: ‘Today, more than ever, people want to make their own decisions in life, and this is no different for investors. Many people want to manage their own assets rather than having third parties manage investments for them.
‘The average retail investor is more sophisticated and has access to more information, allowing him or her to do his or her own due diligence at a faster pace – and allowing for swifter decision-making regarding investments.’
The proxy cost impact of the retail boom
Reports of spiraling costs have been rife as brokerages charge companies for the proxy engagement of massive increases in investor numbers. Critics of the system point to the fact that many retail investors now hold very small numbers of shares, or even fractions of shares that ultimately add up to one or more whole shares. This, in theory, means a company could pay four lots of proxy distribution costs for just one share if four people owned a quarter-share each. Furthermore, brokerages might even give away shares as promotional rewards, so companies could be paying to send proxy information to those with no demonstrable interest in the company.
To tackle the problem, the NYSE submitted a proposal to the SEC to end proxy fees for managed accounts with small numbers, or fractional ownership, of shares. The new rule, Rule 451A, ‘prohibits member organizations from seeking reimbursement, in certain circumstances, from issuers for forwarding proxy and other materials to beneficial owners'. Additionally, the ruling bans fees for five or fewer shares, as well as fractional shares, for managed accounts.
In a letter to the SEC last year supporting the NYSE proposal, Marathon Oil Corporation said its proxy fee bill for one brokerage in 2020 was 2,402 percent higher than in 2019, representing distribution to 3,051 percent more stockholders than just a year earlier.
Another letter to the SEC, this time from Catalyst Pharmaceuticals, reports that from 2019 to 2020, the number of its shareholders with one of its retail brokers grew by more than 2,000 percent. Incredibly, Catalyst said its proxy distribution bill increased from around $12,500 to approximately $234,000 – something the company attributed directly to the retail broker’s promotional activities.
<sub>Regional focus: Europe</sub>
Teaching an old bourse new tricks
As part of a drive to attract big tech to the City of London, UK listing regulations have been relaxed – with a number of reviews potentially delivering more changes. But some of the headline tech listings over the last 18 months have struggled to win or maintain investor backing. <I>Garnet Roach</I> investigates
Teaching an old
bourse new tricks
As part of a drive to attract big tech to the City of London, UK listing regulations have been relaxed – with a number of reviews potentially delivering more changes. But some of the headline tech listings over the last 18 months have struggled to win or maintain investor backing. Garnet Roach investigates
Last year was a success for London in many ways. The London Stock Exchange (LSE) raised more equity capital than the Amsterdam and Paris exchanges combined, and the most equity capital raised outside of the US and Greater China.
The City of London also attracted many of the types of companies it has been trying to tempt for years: 39 percent of IPO capital raised came from tech and consumer internet listings. London hosted its first special purpose acquisition company, too, when Hambro Perks raised £150 mn ($204 mn) in November. The venture capital firm is now looking for a tech target.
That Hambro Perks could list a blank-check company in London was part of a raft of modernization plans taking place as London tries to shake its old school image: across the FTSE 350, there are 26 technology and consumer internet firms, while the FTSE 100 is still heavily populated by the Old Boys of the bourse.
The UK’s Financial Conduct Authority (FCA) noted in a paper published at the end of last year that although 2021 had been ‘positive’, with around 50 admissions to the Main Market between January and October, the London IPO market had been slow to recover after the financial crisis.
The number of listed companies in the UK has fallen by about 40 percent from a recent peak in 2008. Between 2015 and 2020, the UK accounted for only 5 percent of IPOs globally.
But this is a new London, looking to attract growth in a post-Brexit, post-pandemic world. And things are changing as listing rules get a shake-up, with the City now boasting names like Darktrace, Oxford Nanopore Technologies and payments firm Wise.
New rules, new listings
The UK Listings Review was completed in 2020, the Kalifa Review of UK FinTech published early 2021. The FCA published its Primary Market Effectiveness Review at the end of last year, reducing free float requirements, upping the minimum market capitalization threshold and allowing dual-class share structures.
Other reviews have been happening at the same time: the UK Treasury’s consultation on its Wholesale Markets Review, a consultation on the UK Prospectus Regime and the FCA’s work on changes to the Mifid II regime as it applies in the UK.
Charlie Walker, who heads up equity and fixed-income primary markets at LSE Group, says he is seeing a very pragmatic approach to what needs to be done. ‘These reviews are essentially asking, How do we make sure London is fit for purpose?,’ he says. ‘Just because there are rules that have existed for a long time, it does not necessarily mean that they are fit for the future.
‘Take free float, for example. The 25 percent requirement was more achievable when you did not have companies growing as large in the private space as they do today. Requiring a company to sell sometimes multi-billions of pounds worth of stock, on a single day of an IPO bookbuild, is not always in its interest – or that of the wider market.’
Charlie Walker, LSE Group
A dual-class duel
Then there are dual-class shares. Food delivery firm Deliveroo is certainly the most notable firm to take advantage of London’s unequal voting rights option in its now infamously poor IPO.
Many institutions publicly declared they would not be buying the company’s stock before it went public at the end of March 2021, with criticism aimed at Deliveroo’s slim profit margins and labor practices, as well as its share structure.
At the time, UK fund manager Legal & General Investment Management (LGIM) cited the enhanced voting rights enjoyed by Deliveroo founder Will Shu as a reason not to buy into the IPO. Deliveroo’s decision to give Shu preferential shares meant it had to list on the standard segment rather than the premium market when it went public, despite being slated to become one of the UK’s biggest stock market debuts for a decade, with estimates of a $12 bn valuation.
LGIM, which manages around £1.3 tn in assets, reportedly wrote to the FCA strongly recommending that companies with unequal voting structures be excluded from FTSE indexes.
‘It is important to protect minority and end-investors against potential poor management behavior that could lead to value destruction and avoidable investor loss,’ it said in a statement at the time. When approached by IR Magazine, the fund manager declined to comment further and said the firm’s stewardship team did not have ‘a huge desire to speak on this’.
For Nathan Long, senior analyst at retail investment shop Hargreaves Lansdown, part of the issue is the comfort level of UK investors that really hadn’t had to price a company like Deliveroo before. ‘Whereas in the US, they’re probably more used to price discovery around that form of corporate governance, that form of tech stock,’ he notes.
But he also points to the ‘immense pressure on asset managers to be responsible stewards’ across a range of ESG topics, including voting rights. ‘That is already happening but this pressure is only going to grow,’ Long says. ‘I can understand why institutional investors are focused on that.’
Despite the criticisms leveled at Deliveroo’s share structure, the FCA consultation on the issue found broad support to allow dual-class shares on the premium segment, and that change came in at the end of last year. Walker argues that the move isn’t as radical as it might seem.
‘Dual-class shares have always been permitted on the standard segment – that has not changed,' he says.
'But the FCA’s changes allow dual-class shares on the premium segment in a limited and proportionate way. They can only be held by directors of the company (often founders), and can only be voted to prevent an unwanted takeover or an attempt to remove the director.’ It is worth noting that the UK has been something of a takeover hotspot in the past 18 months or so.
Any premium segment enhanced shares are also time-limited. ‘It’s a stepping stone,’ adds Walker.
Nathan Long, Hargreaves Lansdown
The dividend criticism
Of course, there are many factors that affect whether or not a company chooses to go public at all – and if it does, where it chooses to list. One criticism that has been much-written about is the appetite for dividends among UK pension funds.
‘In the UK, even in technology, you still get loads of income investors – whereas actually, what’s healthy for the market is to have more growth investors that in turn demand management teams drive growth,’ says Stephen Kelly, chair of Tech Nation, a UK body that provides coaching and other support to help tech start-ups grow. The argument is that if companies are weighed down by the need to pay dividends, they’ll be paying out cash to investors that could otherwise be reinvested to drive growth.
Stephen Kelly, Tech Nation
‘We need to start talking about how we get British fund managers weaned off the dividend addiction and into supporting companies with a growth strategy,’ Kelly says.
The dividend issue might not be the barrier to listing some see it as, however. On the LSE, around 35 percent of the shares that are held on the exchange are held by UK fund managers – 65 percent is international.
Of that 35 percent, some will be income-focused. This means that although it is a meaningful pool of capital, it’s still the minority of the pool of capital. What this often means in practice is that an appetite for dividends is something established companies are more likely to see as an issue when they have to pay out to investors rather than reinvest to try to drive growth.
The challenge is moving away from income to growth. For new companies coming to market, however, investors know what they’re getting – these companies can just market to non-income investors.
Kelly also points to multiple other factors affecting listing choice – such as which market is most important to the firm. Denmark-founded Trustpilot (see Opening bell) and Canadian firm Alphawave are examples of how the very nature of tech firms often means their target market might not necessarily be where they were founded, he says.
‘While it will always be the case that some companies will choose Nasdaq or the NYSE to tap into the huge US market,’ Kelly says, ‘for the first time, we’re seeing London not only as a magnet for UK companies, but for EU companies and North American companies, too.’
The idea of tech
For Long, part of the problem in the UK – as highlighted by the FCA – is not only that tech companies have been typically choosing the US over the UK, but also that companies have been choosing to stay private for longer. ‘That makes it really hard for individual retail investors to take advantage of those opportunities,’ he notes. So how do you encourage more growth companies to go public? And to do so in London?
Long sees the rule changes, particularly around dual-class shares, as going a long way to attracting the sort of firms that feel strongly about maintaining control, but says perception is also part of it.
‘One of the things we’re mindful of is that if you think about tech firms, they’re kind of synonymous with Silicon Valley,’ he says. ‘That’s where everyone’s successful, that’s where it’s all going on.
'There’s almost a prestige. And I wonder whether, because tech firms traditionally list in this US tech hub, that becomes almost the automatic position. Companies look to list in the US because that’s where everyone else is. That will take time to shift – but there’s got to be a tipping point.’
You’ve got mail
While retail is booming in North America – IR Magazine research indicates that in the past year alone there has been a 3 percentage-point rise in individual share ownership, now standing at an average 17 percent of the shareholder base – the same hasn’t necessarily happened elsewhere (see Selling the retail story). The research doesn’t separate out UK findings, but in Europe retail share ownership remains unchanged year on year, at 11 percent.
In the UK specifically, Charlie Walker, who heads up equity and fixed-income primary markets at London Stock Exchange Group, cites retail as an example of where regulations have not kept pace.
‘Retail inclusion is a good example of where rules could be updated,’ he says. ‘In the UK, a company has to have its IPO open for six days if it wants to offer to retail investors. We think that dates back to when people used to post prospectuses via Royal Mail; you had to allow time for people to receive a document and then read it. Nowadays, that’s actively deterring companies from including retail investors.’ Something to add to the review pile.
<sup> <i>Advertisement feature</i> </sup>
Accelerating progress
for the IR community
IHS Markit is now part of S&P Global
Accelerating progress for the IR community
A transformational merger
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Our software and integrated solutions power trillions of transactions every year, helping customers drive new efficiencies, cost savings and reduction in business risk. Our experts partner with customers to make sense of the volume and velocity of data in today’s economy, provide around-the-clock support and customize our solutions to solve the most complex business challenges.
An expanded offering for IROs and corporate teams
With our combined offering, investor relations departments and corporate teams can effectively monitor the financial markets, their corporate peers and their company performance while working to obtain and retain shareholders, optimize stock valuation and decrease volatility.
Our expanded capabilities for investor relations cover the complete spectrum, allowing you to:
- Understand and monitor key drivers of profitability, organize and present financial results to stakeholders, anticipate the road ahead and prepare for what’s next
- Know the ‘why’ behind the purchase and sale of your stock on a real-time basis and recognize activist activities sooner with advanced analytic technology and analyst expertise
- Gain unparalleled insight into critical topics like ESG performance, net-zero, energy transition, sustainable financing, regulatory compliance and more
- Leverage investor targeting solutions to define, target and engage compatible investors, and measure and report on results
- Track IR activities and interactions and use the data to optimize and report on their impact
- Use IR services with our alliances that round out our suite of products and services for investor relations: webcasting, IR websites, news distribution and virtual communications for annual meetings, investor days, earnings releases and analyst briefings.
Continuity of leadership, focus and conversation in the IR community
From Ipreo to IHS Markit to S&P Global, the issuer solutions leadership team, client service and analyst and product innovation teams will be a key part of the expanded organization.
The experience, knowledge and relationships of our people within the IR community – from both sides of the former organizations – will remain and continue to partner with our customers and be part of industry conversations. We are committed to making customer experience as seamless as possible, with no disruptions to service.
A complementary suite of solutions
Expert advisory solutions: Our advisory solutions include global markets intelligence, perception analytics, investor targeting, ESG advisory solutions and corporate governance.
Platforms for IR workflow: S&P Capital IQ Pro allows IR professionals to stay on top of the markets, peers and company performance. Capital Access, our next-gen IR platform, is built on a target-meets-measure workflow to drive end-to-end IR strategy and execution with rich data, proprietary algorithms and a global network of market participants.
Key data and topics on the issues that matter most to you
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The breadth of our combined data covers key developments, transactions, customized content, ownership data, ESG analysis, S&P Capital IQ Estimates, climate credit analytics and ESG news & insights. Industries include technology, media & telecommunications, energy, retail & consumer, metals & mining, fintech and real estate.
Our team is ready to talk to you. Please contact your S&P Global Market Intelligence representative, client adviser or customer service representative (from former IHS Markit or S&P Global Market Intelligence). Or visit us at our new web page dedicated to our new combined IR offerings for more information: https://www.spglobal.com/marketintelligence/en/campaigns/issuer-solutions
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– Kelly McGeehan, head of the issuer solutions group at S&P Global Market Intelligence
About us: IHS Markit, now part of S&P Global
We provide our customers with the world’s foremost datasets, platforms and workflow solutions – serving the largest banks, asset managers, custodians, corporates and hedge funds. With the combined power of S&P Global and IHS Markit, IR departments and corporate teams can effectively monitor the financial markets, peers and their company performance while helping to obtain and retain shareholders, optimize stock valuation and decrease volatility. For more information, visit us at Issuer Solutions | S&P Global Market Intelligence (spglobal.com)
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Empowering
issuers with
analytics and
insights
By Ari Scheer and Generation IACP Inc.
Empowering issuers with analytics and insights
It’s time to empower you. As an IRO, CFO or CEO, you need direct insight, on demand, that provides a concise, accurate picture of your market.
A great IR team must be able to assist the C-suite with the challenges faced in navigating capital markets by obtaining awareness and engagement with the investment community. In addition, the most successful IR teams are ready to respond to the increased demands from shareholders by obtaining a granular understanding of their stock activity, market trends and sector news.
The issuer services team at Generation IACP believes information is meaningless without context. Our process is designed to provide you with insights via instant communication, ongoing dialogue and detailed reports into the trends and activity on the stock and sector so you can be empowered to act proactively.
Our team of professional traders understands how important the combination of trading, data intelligence and communication can be to help guide any issuer. Insights are gained through our trading activities as active market participants competing for order flow. This competition can help narrow the difference between the price to buy and the price to sell, which increases liquidity and dampens volatility.
Furthermore, our trading team is focused on continuously gathering and analyzing market data, allowing us to quickly communicate and report any irregular activity and/or change in market sentiment so you can tactically engage the market. We work strenuously to ensure the C-suite and its capital markets team are able to contribute to the decision-making process with facts that are derived from your market, the hub of all information.
The investment landscape has changed dramatically and the speed of change has made markets more complex, but Generation IACP’s experienced issuer services team provides clients with the support and tools to help them continuously progress in their corporate development.
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Generation IACP
Generation IACP Inc. is an independently held investment dealer based in Toronto, Canada, and is a member of the Investment Industry Regulatory Organization of Canada, the TSX Venture Exchange, the Canadian Securities Exchange and the NEO Exchange, as well as a participating organization as such term is defined in the rules and policies of Toronto Stock Exchange.
<sub>Regional focus: Asia</sub>
Taking sustainability and diversity on board
<I>Alexandra Cain</I> looks at recent efforts to introduce new governance rules for Singapore’s listed companies
Taking sustainability
and diversity on board
Alexandra Cain looks at recent efforts to introduce new governance rules for Singapore’s listed companies
Several new corporate governance measures are slated to be introduced in the Singaporean capital markets in coming years, with investors increasingly concerned about their assets’ climate change disclosures and board diversity policies.
Singapore Exchange (SGX) launched a consultation paper on climate change and diversity disclosures last August. In it, Singapore Exchange Regulation (SGX RegCo) set out a roadmap for climate-related disclosures to be mandatory in issuers’ sustainability reports, as a result of heightened investor demand for this information. The disclosures will be based on the TCFD reporting requirements. The consultation process is also exploring assurance of sustainability reports and one-time sustainability training for all directors.
At the same time, SGX RegCo is proposing to introduce enhanced board diversity rules that would require issuers to have a board diversity policy and provide disclosures on related targets, plans and timelines in annual reports.
These changes are being introduced ahead of expected mandatory climate change disclosure rules being developed by the new International Sustainability Standards Board (ISSB), which was created in November last year by the IFRS Foundation in association with the International Accounting Standards Board.
ISSB’s objective is to deliver a comprehensive, global baseline of sustainability-related disclosure standards, providing investors and other capital-market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
Harold Woo, IRPAS
Harold Woo, president of IRPAS, notes the consultation process has involved SGX putting forth a list of 27 proposed ESG metrics. ‘While not mandatory, these metrics may be used by issuers in conjunction with their sustainability reporting,’ he says. ‘The exchange has also proposed a data portal where investors can access ESG data in a structured format as reported by issuers in accordance with aligned metrics and disclosure requirements.’
Commenting on proposals around the assurance of sustainability reports, Woo says the consultation process is exploring how listed Singaporean businesses can demonstrate whether reported data is accurate and complete. ‘Issuers may also choose to have their sustainability reports assured through external auditors or an independent assurance services provider,’ he adds.
Woo points out that financial markets need high-quality and transparent sustainability disclosures, in particular on climate change, so that market participants can price and manage climate risks more effectively.
Fung-Leng Chen, vice president of investor relations at Singaporean real estate investment trust Frasers Centrepoint Asset Management, says corporates know there is no turning back when it comes to enhanced sustainability reporting: ‘You either need to comply to stay in business, or you may have to face the harsh reality of being marginalized as the competition moves forward.’
All issuers must report climate information on a comply-or-explain basis in their sustainability reports from the financial year starting in 2022. Climate reporting will be mandatory for issuers in the financial, agriculture, food and forest products and energy industries from the 2023 financial year, and for the materials and buildings and transportation industries from the 2024 financial year.
Sustainability in practice
Jaclyn Yeo is head of sustainability reporting at DBS, which already has a well-developed sustainability reporting practice. ‘The primary objective of our sustainability report is to convey our sustainability efforts, whether it’s a job well done or in tracking against our targets,’ she explains. ‘It shows where we stand and how much more work needs to be done to get to where we want to be.’
Yeo says the report’s target audiences include investors, regulators and the public. The climate-related information reported is guided by the TCFD framework, against which DBS has been reporting since 2018. She uses the climate change risks to which the business is exposed as an example of how the firm approaches reporting.
‘We follow the TCFD recommendations for identifying, assessing and measuring climate change risks,’ she says. ‘We recognize climate change as one of our material risks from both a financial performance and an environmental standpoint. We report against our high-impact sectors and publish the corresponding public footprint of these sectors.’
DBS has also reported a weighted average carbon intensity since 2018 and publishes a related narrative to explain this measure.
It continues to examine how to better support its more carbon-efficient customers and help customers on their decarbonization journey. In addition, the business constantly refines how it collects and measures the data for its sustainability report.
‘We are continually exploring new approaches,’ says Yeo. ‘For instance, we have installed new metering protocols across our operations that are located in spaces not owned by DBS. These include new energy and water meter scales and measuring devices. This system allows us to close the gaps when it comes to water and energy use across markets including China, India, Indonesia, Hong Kong and Taiwan, in addition to Singapore.
‘These markets all have different utilities environments and unique local infrastructure, which makes data collection and verification very challenging. We have to make sure the information we collect is comparable across the markets. We leverage technology such as self-sensor metering to scope our carbon emissions compilations.’
Yeo says investors are increasingly interested in how the business reports its carbon emissions, and they are becoming more sophisticated in their ability to analyze this information.
‘There is a much deeper understanding of ESG risks now,’ she points out. ‘Investors are using some of our public disclosures to substantiate their own analytics. Some investors also collect emissions information from third-party independent public sources such as ratings agencies to conduct their own assessment.
'But they also like to speak to the companies directly to better understand the associated climate risks and opportunities across their portfolios. It’s interesting to hear investors change their perspective and talk about the opportunities in this space.’
Jaclyn Yeo, DBS
Rising interest
It’s worth noting that there are different levels of sophistication when it comes to investors’ ability to decipher ESG data. At one end of the scale are investors with dedicated ESG teams and at the other end are analysts who have had ESG aspects added to their responsibilities. Overall, however, the level of interest and questioning is rising.
DBS is a member of the Net-Zero Banking Alliance, which requires a high level of engagement with its customers to determine suitable decarbonization pathways and create realistic milestones as the bank works toward net-zero carbon emissions by 2050. It sets medium and longer-term goals, with intermediary targets set every five years from 2030 onwards.
‘We are working toward publishing our emissions by absolute amounts and by intensity, because that allows us to better track this information and compare our data across different sectors. And we’re looking to release our assessments in the first half of 2022,’ says Yeo.
Cherine Fok, director of sustainability services and KPMG IMPACT at KPMG in Singapore, says when it comes to climate change disclosures, companies should be guided by industry standards for governance and professional ethics. ‘A true and fair view of the companies’ affairs should be made transparent, with accountability being key,’ she says. ‘Business leaders should also stand ready to defend or refine their climate disclosures when any of their underlying assumptions are questioned or scrutinized.’
Fok agrees that technology is integral to climate data collection, particularly as ESG crosses sectors and disciplines and impacts the value chain. ‘But companies should take care not to over-rely on these solutions, which should act more as information depositories and facilitation tools,’ she warns.
‘There is a need to build expert knowledge and a deep understanding of the contexts in which data collection and verification takes place.’
Companies that dare to challenge the Old Boys' Club mentality are looked on more favorably
New board diversity rules
Woo says most SGX-listed large-cap firms already have a board diversity policy. SGX is proposing to mandate that issuers have a board diversity policy disclosed in their annual reports including targets, accompanying plans and the timeline for achieving the stipulated board diversity as well as a description of how the combination of skills, talents, experience and diversity of directors on the board serves the needs and plans of the issuer.
‘More and more Singaporean firms can demonstrate board diversity,’ Woo says. ‘While board diversity metrics including skills, knowledge, experience and age are important, a diversity policy must address gender to be credible. Among the SGX proposals are questions on whether such a policy should include gender and whether the proportion of women’s board and senior management representation should be disclosed as part of the ESG metrics.’
A 2021 report by Grant Thornton shows women hold 33 percent of senior management positions in Singapore. Data published by Singapore’s Council for Board Diversity in December 2020 indicates women hold about 18 percent of board seats in the top 100 companies listed on SGX.
‘Ten companies appointed first-time female directors in the first six months of 2021. It won’t be long before more large caps have female directors,’ notes Woo. He explains that gender-diverse boards are now a key voting consideration for major fund managers, including AXA Investment Managers, BlackRock, Fidelity International, Legal & General Investment Management and State Street Global Advisors.
Gender diversity is also being measured by the likes of the UN’s Sustainable Stock Exchanges and Bloomberg’s Gender-Equality Index. ‘Firms that don't address board gender diversity risk being shunned by those that own and direct capital,’ Woo adds.
Jeannie Ong, group chief investor relations officer at communications service provider MyRepublic, says companies with board diversity tend to challenge conventional wisdoms: ‘Companies that dare to challenge the Old Boys' Club mentality are looked on more favorably.’
Jeannie Ong, MyRepublic
Diversity supports sustainability
A key part of DBS’ sustainability report is its diversity policy. Yeo says the firm welcomes SGX’s mooted new rules requiring listed companies to have a board diversity policy in place, as well as disclose diversity targets and their accompanying plans and timelines for achieving these targets. While the new rules are still to be finalized, it’s expected they will be implemented in the next few years.
‘We expect this will level the playing field and encourage more diversity, which will help businesses develop more skills and experiences to support longer-term value creation,’ says Yeo, adding that DBS has received investor questions around its board diversity policy in the past. ‘This is clearly a focus for investors,’ she says.
DBS has removed female directors over the past few years to meet requirements to periodically refresh board members and welcome new ones. Investors want to understand these board changes.
Fok notes that Singaporean companies have demonstrated a more formalized approach to board diversity and have become more willing to have difficult conversations about diversity and inclusion. ‘There is often a healthy appetite for respectfully challenging perspectives, and board members give due respect to divergent views,’ she points out.
Beyond recognizing a diversity of skills and background, Singapore and countries around the world are also paying attention to other aspects of board diversity, such as age and race.
These discussions reflect evolving societal expectations and boards must understand and adapt to these societal issues and concerns to remain relevant.
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<h3>The changing investor engagement landscape
By John Nunziati, IR partner at Q4
The changing investor engagement landscape
By John Nunziati, IR partner at Q4
The IR community is wrapping up another quarter of virtual interactions amid the latest Omicron surge. For most IR professionals, this marks the second anniversary of remote work.
To understand how the past two years’ events are impacting investor engagement, we can look at some current data and trends.
Investor conferences
At Q4, our team has been monitoring publicly announced global IR-related events (primarily sell-side sponsored investor conferences). Our most recent data shows that more than 50 percent of Q2 events are expected to be held in person. This increases to 70 percent in the second half.
An emerging best practice is incorporating a hybrid or fully virtual event backup plan if a quick pivot is needed. A recent example of this was the January JPM Healthcare conference that shifted to a virtual format as Covid surged. This approach also applies to company investor days, with 40 percent of them already being planned as virtual (based on press releases from the past six months).
Shareholder changes
To better understand the impact of this shift to virtual interactions, we looked at the ownership trends of 15 companies that collectively represent $10 tn in market capitalization. The companies were chosen to comprise a cross-section of market cap, industry and share performance. The Q4 team compared reported pre-pandemic ownership from December 2019 with 2021 year-end levels, net of share price change. European shareholder ownership increased slightly, but not enough to be exclusively attributed to a higher level of virtual interactions.
International travel
Planning for travel to meet investors abroad is still very much country-dependent. The uncertainties of rapidly changing Covid restrictions make international travel extremely hard to plan and high risk to execute.
Rather than postponing these meetings with foreign investors, it's more prudent to use virtual interactions and unique investor events to foster and nurture those relationships.
Implications
Looking forward, perhaps Covid will become like colds or flu: an environment we live with and manage around. That discussion is best left to medical experts but it is unlikely that investor relations will fully return to what used to be ‘normal’.
Before the pandemic, dialing in to earnings calls, post-earnings follow-up phone calls and webcasts of investor days or annual shareholder meetings were routine. These all continue to be standard practice, and now often include video.
Previously, sell-side conferences, non-deal roadshows and company site visits were almost exclusively carried out in person. A return to these being done entirely in person is unlikely. Corporations and institutions have internalized the benefits of reduced travel costs. Sell-side banks that can offer large in-person or hybrid events are segmented from smaller firms that may offer only virtual events. Geographic constraints have been substantially reduced.
Buy-side firms are still determining return-to-office strategies with portfolio managers and analysts looking to balance in-house with remote interactions. Management teams value the productivity benefits of interacting virtually so travel dedicated exclusively to IR may be deprioritized.
For IR teams, this requires a shift in emphasis and skills. Making virtual meetings effective demands increased focus on targeting and advanced qualification of participants. IR teams will need to take on increased responsibility for knowing current travel restrictions and understanding the risk that they might change.
IROs will need to find opportunities to leverage key executives’ operationally driven travel. They will have to better understand and adapt to the style preferences of their management and their audience, knowing the communication platform, camera-readiness and participant identification preferences of all participants.
They will have to navigate group hybrid meetings that remain the least-effective option despite the technology improvements that have been implemented. As the environment continues to evolve, investor relations professionals must continue to adapt.
About Q4
Q4 is a leading capital markets communications platform provider that is transforming the way publicly traded companies, investors and investment banks make decisions to efficiently discover, communicate and engage with each other. The Q4 end-to-end technology platform facilitates interactions across the capital markets through its IR website products, virtual events solutions, capital markets customer relationship management solutions and shareholder and market analytics tools. The firm is a trusted partner to more than 2,650 public companies including 50 percent of the S&P 500. Q4 is based in Toronto, with offices in New York and London.
Research Report
Earnings Calls
<sup>Co-sponsored by</sup>
<img src="https://messagebank.com/wp-content/themes/messagebankMain/images/logo.png"width=49%<I>
and<sub>
<img src="https://smart.openexc.com/v2/imagebucket/openexc.com/OE-Logo.png"width=60%<I>
Introduction
Who did we survey?
Earnings calls form a major part of the IR calendar at most publicly listed companies. They are a key means by which senior management can present to and interact with the wider investment community, accounting for the current fortunes and future direction of the business.
This report looks at three areas related to earnings calls. Firstly, we examine the process of setting up the calls, particularly with regard to use of video and whether prepared remarks by management are pre-recorded or presented live.
This report then investigates engagement within the calls themselves, who provides input from the corporate side, involvement in the Q&A section and how investors typically interact with the call. Lastly, we look at how both companies and investors evaluate the call, what they find particularly useful and what mistakes investors commonly encounter in earnings calls.
The views and practices of both IR professionals and the investment community are represented in this report. Findings are taken from the IR Magazine Global IR Survey conducted from Q4 2021 to Q1 2022 and the IR Magazine Global Investor Survey conducted in Q4 2021. This report uses the term IRO to represent IR professionals in general and ‘investor’ to represent members of the investment community, both buy side and sell side.
Findings in this report from both IROs and investors are broken down by geographical region. Data from investors is additionally separated into buy side and sell side, while IRO data is broken down by market capitalization. For the purposes of this report, market cap is defined as follows:
Small cap <$1 bn
Mid-cap $1 bn-$5 bn
Large cap $5 bn-$30 bn
Mega-cap >$30 bn
IRO respondents
Total IRO respondents: 289
Investor respondents
Total investor respondents: 142
Editor
Lloyd Bevan
Research
Ash Govender, Ariah Varcianna
Managing editor & chief copy editor
Kathleen Hennessy
Design and production executive
James Noden
Setting up an
earnings call
Pre-recording prepared
remarks and use of video
Setting up an earnings call
Recorded remarks
A quarter of companies pre-record their prepared remarks in earnings calls. Although not widely practiced in any region, North American companies are most likely to pre-record their remarks and Asian companies are the least likely to.
Similarly, there is no great enthusiasm for companies of any size to record the prepared remarks before the earnings call. Large-cap companies see 27 percent pre-record their remarks while mega-cap companies are the least likely to pre-record remarks, with just 17 percent doing so.
Do you pre-record the prepared remarks for earnings calls?
Reasons for/against pre-recording remarks
We asked IROs why they decided to record or not record their prepared remarks for earnings calls. Those who pre-record their remarks often mention how it reduces stress on the day. Some note that this is the management’s preference while others state that it creates smoother logistics.
The main reasons why the majority do not pre-record their remarks are time and logistics constraints, as well as the fact that the messaging may not have been drafted in time to pre-record. Often it is the preference of executives to be up to the minute and spontaneous on the day. Many respondents say it is simply that they have always done it live and some IROs actually express the desire for remarks to be pre-recorded.
Recorded remarks: Investor view
A clear majority of investors do not want prepared remarks to be pre-recorded, with more than seven in 10 saying it is important for them that these statements are given live, including more than a third who say this is very important. Just 19 percent think it’s of no real importance whether these remarks are live or not.
Views differ among North American investors compared with European and Asian investors. A minority of North American investors view live remarks as particularly important in earnings calls. More than a third think it is not particularly important to have live remarks, with 28 percent saying it is not at all important.
Live remarks are more of a concern for the sell side, with more than three quarters viewing live comments as important and four in 10 considering them to be very important. This compares with less than two thirds of the buy side registering the importance of live remarks, and fewer than three in 10 viewing them as very important.
How important is it for you that the prepared remarks are given live, not pre-recorded?
Video earnings calls
Three in 10 companies use video for their earnings calls. More than half of Asian companies use video, as do 47 percent of Europeans – but in North America using video for earnings calls is practically unheard of.
Just over a third of mid-cap companies use video for their earnings calls, while among mega-caps just 14 percent do so. This is less than half the average for all cap sizes.
Do you use video for your earnings calls?
Video earnings calls: Investor view
More than half of investors say they consider having video with earnings calls important, with 21 percent describing it as very important. Slightly more than a quarter consider it to be of no real importance, with 18 percent indifferent to the issue.
Just over a third of North American investors think it is important to have video with prepared remarks, with more than four in 10 considering it to be of no real importance. This is in marked contrast to Asia, where seven in 10 investors view video as important, compared with just 13 percent who consider it not very or at all important.
How important is it for you that the prepared remarks are given with video, not just audio?
Earnings call engagement
Management input and audience interaction
Management input
The CFO typically has the most influence in preparing remarks for earnings calls, closely followed by the CEO. Just over four in 10 IR respondents cite the CFO as the individual who has the most input in preparing for earnings calls, compared with 36 percent who say it is the CEO who takes the lead.
In North America the CEO typically has the most input, while European companies are the most likely to have key input from the CFO and the least likely to have the main input from the CEO. The likelihood of key input coming from the CEO diminishes as company size increases, with the CFO more likely to hold the reins as market cap rises.
Who provides the most input when crafting the prepared remarks for earnings calls?
Management input: Investor view
Investors are most interested in hearing from the CEO during earnings calls, followed by the CFO. When asked to rate how interested they are in hearing from different individuals in the company, 89 percent of investors are very interested in hearing from the CEO – giving a rating of 8+/10 – including 60 percent who are extremely interested, giving a perfect 10 score.
This compares with 83 percent of investors who say they are very interested in hearing from the CFO during an earnings call, with 48 percent being extremely interested. Interest in hearing from the COO or chief IRO is much lower, with just under half the respondents expressing a strong interest in hearing from the COO and less than a quarter expressing the same interest in hearing from the chief IRO. A quarter of investors say they have no particular interest in hearing from IR during an earnings call.
How interested are you in hearing from the following groups during an earnings call?
Interaction with earnings calls
When asked how they interact with earnings calls, 85 percent of investors say they listen to them live. Just under six in 10 read the transcript of an earnings call, the same percentage as those who read analyst notes on the call. More than half – 54 percent – listen to the recording of the call, while just 5 percent of investors don’t follow earnings calls at all.
North American investors are the most likely to listen live to the recording or to read the transcript. Asian investors are the most likely to read the analyst notes. The buy side is more likely to listen to the recording or read the transcript or analyst notes than the sell side, which is more likely to listen live.
How do you interact with company earnings calls?
Asking questions
More than six in 10 investors say they generally ask questions during earnings calls. The sell side is much more likely to do so than the buy side. Asian investors are typically more likely to ask questions than North American or European investors.
Just 7 percent of investors say they don’t follow the questions asked in an earnings call. Three quarters of them follow the questions live and 46 percent follow the questions after the call. Asian investors are less likely than North American or European counterparts to follow questions live, while the sell side more commonly follows questions live than does the buy side.
Do you ask questions during an earnings call?
Do you follow the questions that are asked during an earnings call?
Anticipating questions
In preparation for anticipating what questions are likely to be asked during the Q&A section of their earnings calls, more than eight in 10 IR respondents say they follow analyst research, while just over six in 10 follow the earnings calls of their peers. Following peer earnings calls is a more common practice for North American companies than for European or Asian companies. European firms rely more on following analyst research. The practices of following analyst research and following peer group earnings calls both increase with company size.
Just under nine in 10 anticipate business-related questions in their Q&A and just over two thirds expect macroeconomic themes. Fewer European companies anticipate macroeconomic questions, while there is a greater expectation for both macroeconomic themes and business-related questions among larger companies.
How do you anticipate the analyst questions you will receive during the Q&A section of your earnings call?
Evaluating earnings calls
Which elements of the call matter most?
Evaluating earnings calls
IRO assessment
When IROs assess the success of an earnings call, the quality of analyst notes is considered the most important factor, followed by how prepared the firm is for addressing questions during the call. When asked to rank six factors in assessing success, quality of analyst notes is ranked as the most important factor by more than a third of IROs, while preparedness for analyst questions is ranked top by 29 percent.
Stock price performance is considered more important than management satisfaction in earnings calls when assessing their success. The two factors of least importance to IR professionals are quality of callbacks and media coverage.
Please rank the following in order of importance when assessing the success of an earnings call
Investor evaluation
The most important factor for investors in evaluating earnings calls is the extent to which the prepared remarks provide a business update, closely followed by the quality of answers provided to analyst questions.
When asked to rank five factors in order of importance, providing a business update is ranked highest by four in 10 investors, while three in 10 rank quality of answers highest. Both factors are in the top two ranks for 57 percent of investors.
The confidence of management in its messaging is the next-most important factor for investors in evaluating earnings calls. The least relevant factor for investors is the provision of a macroeconomic briefing in the calls.
Please rank the following in order of importance when evaluating whether an earnings call was helpful to you
Mistakes in earnings calls
When investors were asked what common mistakes companies can make in their earnings call, they gave a diverse range of answers. These include too much time spent on prepared remarks, focusing on the wrong measurements and not giving investors enough time before and during the call.
Useful practice
Below is a selection of comments from investors on what they consider to be useful practice in earnings calls.
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Behavior changes gaining steam on the earnings front
By Steven Fink, managing partner at MessageBank and Ben Burnside, head of EMEA & director of IR
at OpenExchange
Behavior changes gaining steam on the earnings front
By Steven Fink, managing partner at MessageBank
and Ben Burnside, head of EMEA & director of IR at OpenExchange
It is with great pleasure that MessageBank and OpenExchange are collectively sponsoring the Earnings Calls research report by IR Magazine.
The management of our companies have been providing virtual event and meeting services to the investor relations marketplace for the past 30 years and, in that time, we’ve seen a few major technical and behavioral changes that have impacted the way in which IR activities are conducted.
We were at the forefront of pioneering the concepts related to issuers initially co-ordinating quarterly earnings conference calls in the early 1990s, when touch-tone phone technology allowed sell-side analysts to put themselves in a ‘question queue’ on a conference call for an operator-moderated Q&A session subsequent to scripted prepared remarks.
This dramatically changed the manner in which management teams presented their quarterly results: communications started to happen over the course of an hour rather than the typical week-long process of speaking to analysts and institutional shareholders individually. The audio-conferencing technology became easy to use and cost-effective. And it provided substantial value to analysts and shareholders.
This was further influenced when fair disclosure regulations and governmental policies such as Sarbanes-Oxley mandated equitable dissemination of information for all investment constituents. The result was another transformation, changing how public company information and results were communicated to the marketplace.
The richness of information
in a video call makes audio-only communications seem antiquated
Getting the picture
The research and results of this IR Magazine report are indicative of an analogous transformative change taking place today. And it can be summed up in one word: video.
The Covid pandemic has fast-tracked the use of technology for virtual business meetings in ways never seen before. The use of Zoom, Microsoft Teams, Skype, FaceTime and other video connection services has exploded since March 2020 and there is no turning back. Video technology has become ubiquitous, easier to use and cost-effective. The richness of information in a video call makes audio-only communications seem antiquated.
It is clear from our own experience working with clients on a daily basis – and further proven by the data in this report – that the primary methods of business communication have changed rapidly and permanently.
Technical advancements along with accelerated adoption due to the pandemic and a realization of the benefits of video technologies – such as richer communication, enhanced analytics and reduced environmental impact due to reduction in travel – have set the stage for another broad-based industry shift.
The Covid pandemic has fast-tracked the use of technology for virtual business meetings in ways never seen before. The use of Zoom, Microsoft Teams, Skype, FaceTime and other video connection services has exploded since March 2020 and there is no turning back
Shareholders, analysts, journalists, and employees have all come to expect and demand more personal interaction with C-level management. Video technology has enabled this in such a way that management has an opportunity to tell its story in a more impactful manner and, in the process, develop a deeper relationship with these communities.
Specific to earnings communications, it is becoming increasingly clear that audiences want more personal interaction and a closer ‘connection’ to company management than is currently being offered through the traditional conference call or audio-only webcast. Those who miss this opportunity risk being viewed as lethargic and less in tune with evolving investor needs.
MessageBank and OpenExchange are extremely excited about the evolution in our industry relative to widespread acceptance and deployment of video-enabled content in the investor relations marketplace. Be it pre-recorded or live video presentations combined with visual interactivity between analysts and management, the trends are becoming clearer.
We look forward to engaging with you to assist and advise you on a path toward a richer and more meaningful earnings communication process.
MessageBank is a leading provider of customized multimedia event solutions to the IR and financial communications marketplace. The company produces and hosts strategic conference calls and webcasts for global multinational companies, financial PR consultancies and buy-side/sell-side firms. With an emphasis on industry-aligned consultative services and support delivered by the executive management team, MessageBank bridges best practices, consistent value-add and co-ordinated execution for the most sensitive audio, web and video services, allowing C-level management teams to effectively communicate with shareholders, analysts, employees and the media. The company provides seasoned expertise in event management for applications including earnings, off-site investor days, M&A transaction announcements, corporate town hall and employee meetings, crisis/regulatory communications, press briefings and product and service launches/webinars.
OpenExchange securely enables virtual communications for the financial industry, using its video expertise, proprietary technology solutions and premiere managed services. OpenExchange bridges the worlds of interactive videoconferencing, live streaming and searchable on-demand video showcases. Based in Boston, New York, London, Hong Kong and Seoul, and anchored by its experience connecting C-suite executives in the professional investment community for more than 10 years, OpenExchange makes it seamless to connect, curate, disseminate and discover vital information critical to driving investment and business decisions.
<sub>Awards</sub>
Asia’s finest
Find out who won at the IR Magazine Awards
in South East Asia and Greater China
Find out who won at the IR Magazine Awards
in South East Asia and Greater China
IR professionals in Asia have worked tirelessly over the last year to maintain engagement with investors and analysts amid some of the world’s toughest Covid-19 restrictions. In early December, those efforts were recognized when IR Magazine held its annual awards for South East Asia and Greater China, which celebrated best practice and innovation by IR teams across both regions.
At the South East Asia awards, Thai companies had a particularly good night, with CP All, Central Retail Corp and Dohome winning best overall IR in the large-cap, mid-cap and small-cap categories, respectively. Meanwhile, the Greater China event saw China Resources Beer, Kunlun Energy and Suncity pick up the major gongs.
The awards are divided into two sections. Awards-by-research categories are decided by a survey of portfolio managers, buy-side analysts and sell-side analysts covering the region in question. Prizes include best overall investor relations, best IRO and best in sector.
In the awards-by-nomination categories, companies submit entries where they explain how they have excelled in a particular area of IR practice, such as annual reports, investor meetings, technology or sustainability information. The winners are selected by a panel of financial markets experts, including fund managers and former senior IROs. To find out more about IR Magazine Awards events, please click here.
IR Magazine Awards
– South East Asia 2021
Best overall investor relations (large cap)
CP All
Best overall investor relations (mid-cap)
Central Retail Corp
Best overall investor relations
(small cap)
Dohome
Best investor relations officer (large cap)
Tanapon Prapapan, CP All
Best investor relations officer (mid-cap)
Rami Juhani Piirainen, Berli Jucker
Tanapon Prapapan, CP All
Best annual report
(large cap)
Singtel
Best annual report
(mid-cap)
Central Pattana
Best annual report
(small cap)
AEM Holdings
Chandran Nair, AEM Holdings
Best crisis management
(mid to large cap)
Ascott Residence Trust
Best crisis management
(small cap)
Asia Aviation
Best ESG materiality reporting
(large cap)
PTT Global Chemical
Best ESG materiality reporting
(small to mid-cap)
Century Pacific Food
Best investor event
Thai Union Group
Best IR during a
corporate transaction
CapitaLand China Trust
Best IR website
SM Investments Corporation
Nicole Chen, CapitaLand China Trust
Best use of multimedia
for IR
CapitaLand China Trust
Rising star
Crissa Bondad, D&L Industries
Crissa Bondad, D&L Industries
Communications
Total Access Communication
Consumer discretionary
Central Retail Corp
Consumer staples
Berli Jucker
Energy
PTT
Financials (including real estate)
Bank Central Asia
Healthcare
Bangkok Dusit Medical Services
Industrials
Sarana Menara Nusantara
Materials
Siam Cement
Technology (joint winners)
GHL Systems
Venture Corp
Utilities
Metro Pacific Investments Corp
Partners of the IR Magazine Awards – South East Asia 2021
IR Magazine Awards – Greater China 2021
Best overall investor relations
(mid-cap)
Kunlun Energy Company
Best overall investor relations
(small cap)
Suncity Group Holdings
Best overall investor relations
(large cap)
China Resources Beer (Holdings) Co
Kelly Lau and Kevin Leung, China Resources Beer (Holdings) Co
Best investor relations officer
(large cap)
Kevin Leung, China Resources Beer (Holdings) Co
Best investor relations officer
(mid-cap)
Zhao Hailin, Kunlun Energy Company
Best investor relations officer
(small cap)
Winnie Lei, Suncity Group Holdings
Zhao Hailin, Kunlun Energy Company
Winnie Lei, Suncity Group Holdings
Best annual report
(large cap)
Link Asset management
Best annual report
(mid-cap)
Xtep International Holdings
Best annual report
(small cap)
Sa Sa International Holdings
Eric Yau, Link Asset management
Best crisis management
China Telecom
Best ESG materiality reporting
(large cap)
CLP Holdings
Best ESG materiality reporting
(small to mid-cap)
Kerry Properties
Best investor event
(large cap)
China Life Insurance Company
Best investor event
(small to mid-cap)
ZhongAn Online P&C Insurance Co
Best IR during a corporate transaction
Kerry Logistics Network
Best IR website
Hon Hai Precision Industry Co
Best use of multimedia for IR
ZhongAn Online P&C Insurance Co
Wei-Wei Jen, Hon Hai Precision Industry Co
IR Magazine’s choice award for innovation in IR
ESR Cayman
Rising star
Christine Yang, Central China Real Estate
Lifetime achievement
Jacky Yung
Jacky Yung
Communications
China Telecom
Consumer discretionary
Xtep International Holdings
Consumer staples
China Resources Beer (Holdings) Co
Energy
PetroChina Company
Financials (including real estate)
Central China Real Estate
Industrials
China State Construction International Holdings
Materials
Asia Cement (China) Holdings Corp
Technology
BizLink Holding
Utilities
Kunlun Energy Company
Partners of the IR Magazine Awards – Greater China 2021
<sub>Buy side</sub>
Ninety One:
Buying the solution providers for climate change
Deirdre Cooper tells <I>Garnet Roach</I> why, from 2030, the fund manager won’t hold companies that don’t have science-based targets
Ninety One: Buying the solution providers for climate change
Deirdre Cooper tells Garnet Roach why, from 2030, Ninety-One won’t hold companies without science-based targets
Founded in South Africa more than 30 years ago, Ninety One maintains a strong emerging markets focus – something that regularly features in commentary around the need for an ‘inclusive’ approach to tackling climate change. The fund manager is vocal on ESG and the transition to net-zero.
Here, Deirdre Cooper, one of two portfolio managers on the highly concentrated $3.4 bn (as at September 30, 2021) Global Environment Strategy Fund, talks about the need to go way beyond ESG scores, why divestment doesn’t work and what the firm wants to see from companies moving into a greener future.
You’ve talked in the past about the need to ‘break down the economic system and rebuild it’. That’s quite a radical view. How does it translate into your investment style?
That comment relates to how difficult it is to decarbonize. It [represents] the kind of thematic work and long-term scenario analysis work that we do within the multi-asset team at Ninety One.
It makes sense, when you’re thinking particularly about very long-term trends, to take yourself out of the weeds – whether that’s daily stock movements or quarterly earnings – and really think about the businesses that will have competitive advantages, not just in the next couple of quarters, but in the next couple of decades. That is a key feature of both my own investment philosophy and investment style, and also some of the work we do more broadly in the team.
It is about the under-appreciated benefit of sustainable investing but I don’t think sustainable investing will generate better returns because there’s a so-called ESG factor. I do believe strongly that understanding a company’s externalities is essential.
The Global Environment Strategy is highly concentrated, typically about 25 names. We screen global equities to find those companies that are the solution providers for climate change.
Then we have another screen that tells us which of those companies are most likely to generate good returns and revenue growth. We will also look at a company's different value chains.
Knowing a company’s footprint doesn’t necessarily tell you whether or not that company is really taking the transition seriously
Ninety One is very vocal on ESG. How have the conversations you have with companies evolved in recent years? Where do you think firms are still falling short and where should they be focusing their attention in the coming year or two?
We’ve seen huge progress on reporting good carbon data and we’ve done a lot of work engaging on behalf of the Carbon Disclosure Project (CDP). Our strategy is really global, it has a big weight in emerging markets and we spend a lot of time with firms in China and other emerging markets, working with them on carbon data disclosure, so that’s been a big area of success.
What I’m most concerned about at the moment is the tension that exists between investing in companies that are really thinking about all their stakeholders, that are thinking about all the externalities, versus a sort of ESG-by-numbers approach. That’s quite a difficult circle to square.
On the one hand, we want to be open and transparent with our clients – and eventually, it all comes back to somebody’s savings and somebody’s pension. We need to be able to explain in a simple way what we mean when we say sustainable, and that has really driven forward ESG scores and climate scores. But the truth is that this simplifies what is a very complex issue. Trying to figure out whether a company is sustainable is not something you can easily sum up in a mark out of 10.
Focusing on the data sometimes masks the more important issue. On the climate side, just knowing a company’s footprint doesn’t necessarily tell you whether or not that company is really taking the transition seriously and putting plans in place in order to address climate. It tells you more about the industry that company is in: is it asset-heavy or asset-light? Is it in the developed market, which is lower carbon, or in an emerging market, which is carbon-heavy?
On the diversity side, we definitely support diverse boards. But if you obsess too much about board diversity, you miss the fact that the company might not be moving forward on diversity more widely. Just adding women to your board doesn’t necessarily make your organization more inclusive. In fact, there isn’t really any correlation between companies that have diverse boards and having more diverse senior management teams or having better gender pay gaps – which are probably better indicators of diversity.
Do you use ESG ratings agencies?
If so, which ones and how do you incorporate that data into your investment decisions?
We use ESG ratings agencies in exactly the same way we use sell-side research. We have access to research from ISS, MSCI and Refinitiv, we have Bloomberg ESG data, we have CDP carbon data. We have different data sources on both the country side and the company side. We read ESG research just like we read sell-side research, but we absolutely never fully implement sustainability by simply eliminating the bottom X percent on an ESG score basis.
There’s very low correlation between ESG scores across providers. There’s even low correlation if you look into the individual pillars, so the E scores aren’t correlated, the S scores aren’t correlated. My favorite study of ESG ratings looked at whether better transparency improved correlation and actually, it’s the opposite, which makes sense if you think about the way the ratings work.
Ratings agencies are also very risk-focused rather than impact-focused. The industry grew up trying to understand ESG risks. What these scores don’t assess so well is whether a company has products that are helping to solve the decarbonization problem. And that positive impact is what we really try to get at in terms of our investment process and the kind of companies we invest in.
And that’s why, for active management, fundamental research is absolutely key to sustainable investing.
Just adding women to your board doesn’t necessarily make your organization more inclusive
Ninety One has talked about why it believes divestment is not a solution to ESG issues, going so far as to suggest divestment does not constitute good stewardship. Can you explain your engagement process for when a company falls short of your expectations and what options you employ given your views on divestment?
We look at divestment from a theory-of-change perspective. Part of the issue is that a lot of the industries you might divest from tend to be very mature and cash-generative. That’s absolutely the case for the tobacco industry and the oil and gas industry: they don’t need to raise external equity so it doesn’t really work. We see divestment as signaling rather than a real, positive impact.
Having said that, for our sustainability strategies, there are sectors we don’t hold but the reason is because we work on sustainability issues as seriously, if not more seriously, than we do on financial issues. We study all those negative externalities. We believe for the oil and gas sector, for example, that if you were to properly price carbon emissions, including downstream Scope 3 emissions, the sector would have no value.
The other really concerning side effect of divestment is that it encourages companies to sell their dirty businesses – and they will often sell them to less responsible owners. We’ve seen that in action in the mining sector, with companies selling coal-mining businesses to owners that would run those assets for longer, that treat employees less well. We do want to, in some sense, keep some of these firms under public market scrutiny.
When it comes to engagement, on the one hand, there are the regular conversations and dialogues we have with management. At the other end of the scale, there’s true activism and taking a board seat. We tend not to get involved in that type of engagement, but we do have extremely active conversations with management.
We want to work with management – we have absolute respect for people who run businesses and we don’t want to tell them what to do in terms of the minutiae of running their company. We want to understand that they have the right policies in place, that they’re thinking about their externalities. But we try not to be prescriptive unless there is a very specific problem.
One of the things we’re spending a lot of time on just now is encouraging companies to set science-based targets because we think that’s the right way to think about climate risk. It’s not about looking at a basic footprint, because the footprint tells you if you have emissions – it doesn’t necessarily tell you if you’re at the place in the value chain that will bear those emissions and it doesn’t adjust for your sector.
We know those science-based targets take time. If a company has never reported emissions, you don’t want to set it a target for tomorrow. You want to do it very thoughtfully. You really need to understand the context before you embark on your engagement and before you set deadlines.
The other point I would make is that, generally speaking, we’re happy to collaborate – particularly on sustainability issues or to work with organizations like Climate Action 100+ or the CDP. I think cross-industry engagement makes a lot of sense.
Part of the issue is that a lot of the industries you might divest from tend
to be very mature and cash-generative
Can you tell us about some of your favorite companies?
We continue to be very excited about the electrification of transport and that value chain, particularly the firms in that value chain that are less well covered and less widely appreciated. Some examples of that would be two Chinese companies we hold. One is Wuxi Lead Intelligent Equipment, the market leader in making the machines that make lithium ion batteries for electric vehicles (EVs).
Wuxi is the biggest supplier to CATL, another Chinese firm and the biggest battery company in the world. We see [these companies] as a really fantastic way to invest in the very early days of the electrification of transport. Wuxi is sort of the arms dealer to the sector, so to speak. We see exceptional growth prospects and really strong competitive advantages for it.
It has been really interesting to see that at the back end of last year, the percentage of new cars sold in Europe that were electric was in the high teens. In 2020, globally, that number was 2.4 percent of new cars sold – so we’re moving toward that tipping point. We think all the companies that are linear volume plays on EV adoption look really well placed.
Finally, what would be top of your wish list for 2022?
That would have to be the science-based targets. For our strategy, investing in a way that can be Paris-aligned – I won't say is Paris-aligned as that implies all these firms are ready for 1.5°C when the world is nowhere near ready for that – is crucial.
We won’t hold anything in the strategy beyond 2030 that doesn’t use a science-based target.
Wuxi is sort of the arms dealer to the sector
IR papers
The modern lady CEO's guide
to ambiguous situations
The modern lady CEO’s guide
to ambiguous situations
Gender stereotypes are influencing engagement with shareholder activists, finds Jeff Cossette as he rounds
up the latest in academic research
Female-run companies are much more likely to be both targeted by and then co-operate with activist investors. And a new study suggests that this phenomenon results from a feedback loop fed by gender stereotypes rather than any inherent differences in management style.
Using an experiment, US researchers show that investors evaluate a firm as less attractive when a female CEO uses an unco-operative response to activism. The reverse applies to men. Investors think less of male CEOs who display a willingness to consider activist proposals.
‘Investors penalize CEOs if they communicate a response to activism that is inconsistent with gender-based stereotypical expectations, where females are expected to be more co-operative and males more aggressive,’ explains study co-author Scott Jackson, assistant professor of accounting at the University of South Dakota.
‘If managers anticipate this, their behavior may be driven, at least partly, by fear of a backlash for deviating from expectations.’
In concurrent experimental research, Jackson examines how the particular kind of activism interacts with CEO gender. When CEOs ‘match’ the activism type (that is, males with more profitability-focused activism and females with environmental and social-focused activism), investors – male and female alike – are more likely to perceive that CEO as better equipped to address the activism.
Importantly, however, Jackson also discovers a simple way that CEOs – especially women – can dramatically reduce this stereotype-driven backlash.
‘Female chief executives facing immediate, bottom-line activism can disclose an optimistic earnings guidance figure – either point or range,’ says Jackson. ‘This seems to significantly attenuate investors’ reliance on gender-based stereotypes.’
Attractive spreads
Plenty of academic research documents the rewards of investor relations in public equity markets. Now a new study has uncovered its relevance in private debt markets as well.
Sampling almost 18,000 syndicated loans between 2003 and 2015, US researchers find companies with dedicated investor relations officers enjoy 6.6 percent lower loan spreads than those without. These companies can also expect lower collateral requirements and performance covenants. And borrowers with long-tenured IR professionals see the biggest benefits.
‘IR professionals can have a much broader impact in the financing of corporations than researchers previously thought,’ explains study co-author Kimball Chapman, assistant professor of accounting at Washington University. ‘They help to shape the narrative not only for public markets, but also for private ones.’
The state of corporate governance in Palestine
Generally, good corporate governance has been shown to enhance overall performance across a variety of firms and locations.
But a study of 32 companies listed on the Palestine Exchange (market cap: $4.23 bn) finds scant evidence of this relationship. Indeed, controlling for financial leverage and total assets, researchers uncover a significant negative correlation.
‘This may be because some directors do not possess or have access to adequate expertise,’ opines study co-author Raed Abueid, professor of accounting and finance at Al-Quds University. ‘Our results suggest that listed firms should enhance their application of corporate governance principles – especially disclosure of board performance evaluation mechanisms.’
He tells IR Magazine that while Palestine has a nominally advanced governance code, regulatory oversight is weak and firms provide hardly any governance data in annual reports or on websites.
World o’ research
-
US investors don’t care who did the audit. University of Alabama investigators find no correlation between audit participant disclosure (mandated since 2017) and a variety of capital markets performance measurements.
-
US investors do care about Dodd-Frank pay ratio disclosure. Matching financial statements with market data, a Washington State University investigation reveals investor reaction is most salient in the first year of the disclosure.
-
Indonesian investors don’t care about sustainability disclosure. An analysis uncovers no links between such reporting and stock market performance.
-
A Finnish study finds Australian investors don’t care whether companies use the TCFD reporting framework – unless those companies operate in sectors most likely to harm the environment.
-
Researchers at the University of Hawaii say EU firms that provide earnings guidance entirely offset (and at times more than offset) any negative stock liquidity consequences resulting from Mifid II’s ‘unbundling’ provision.
31 IR Magazine Awards – US
Cipriani 25 Broadway, New York, US
IRmagazine.com/usawards
5 [Virtual] The Big I – Investor and Issuer Invitational Forum
niri.org
12 [Virtual] IR Magazine Forum– Technology, Media & Telecoms
IRmagazine.com/irforumtmt
14 [Virtual] IR Magazine Forum– Healthcare
IRmagazine.com/irhealthcare
18 IR Magazine Think Tank – East Coast
New York, US
IRmagazine.com/eastcoast
18 IR Magazine Forum – Equality in IR
New York, US
IRmagazine.com/equalityinir
25 IR Magazine Forum – Canada
Toronto, Canada
IRmagazine.com/canadaforum
25 IR Magazine Awards – Canada
The Ritz Carlton, Toronto, Canada
IRmagazine.com/canadaawards
5-7 NIRI Annual Conference
Omni Boston Hotel, Boston, US
niri.org
20-21 DIRK Annual Conference
Frankfurt am Main, Germany
dirk.org
21-23 [Virtual] CIRI National Conference
ciri.org
23 IR Magazine Think Tank – Europe
London, UK
IRmagazine.com/eurothinktank
23 IR Magazine Awards – Europe
8 Northumberland Avenue,
London, UK
IRmagazine.com/euroawards
14 ESG Integration Forum & Awards – Summer
New York, US
IRmagazine.com/esgsummer
IR Magazine is following government guidance in each region with regards to whether our events will return to in-person or remain virtual. Please visit the event website for specific information around the event format and our Covid-19 commitment to ensure the safety and comfort of our guests.
We’re always adding new events and webinars to our calendar. Please visit IRmagazine.com/events for the latest list of upcoming events.
<sub>Last word </sub>
<h3>Space:
The final IR frontier
<I>Laurie Havelock</I> explores
off-world enterprises
Last word
Space: The final IR frontier
Laurie Havelock explores off-world enterprises
We’re all sick of hearing it, but there is no denying that the pandemic has widened the landscape for how we all work, socialize and play. And the job of an IR professional is not exempt from this broadening horizon.
But what if the additional global reach of – for example – online earnings calls, virtual events or hybrid working practices was only the beginning of this revolution? What if the scope of the capital markets was ready for another, more galactic expansion in the next few years? What if the likes of Elon Musk and Richard Branson are correct, and space is the next frontier not only for humankind, but also for IR-kind?
What’s more, with the creation of a new office within the Pentagon tasked with identifying Unidentified Aerial Phenomena (UAPs), it’s clear regulators are not convinced we are the only ones who will be out there. Maybe, just maybe, there are untapped markets beyond our solar system…
With all that in mind, here is IR Magazine’s concise run-down of the potential top trends that could take your investor communications program interstellar.
Recognizing UAP risk
If the truth is out there, then companies may need to start accounting for and reporting on it. US officials have already admitted that UAPs – more commonly known as UFOs – are a real phenomenon and remain inexplicable to the country’s hyper-advanced military.
We all know the risk they pose to rural livestock, but what about that posed to the markets? While many doom-mongers have predicted a collapse in the world economy if aliens appear with hyper-advanced technology, be aware of the potential upside, too: who knows whether your company strategy might benefit from a sudden proliferation of teleporters, tractor beams or even death rays?
Space funds
By the same token, some enterprising fund managers are already designing vehicles to invest in companies that will shortly be looking to the skies, such as the Procure Space ETF, managed by ProcureAM.
Though many are heavily backing the likes of SpaceX or Virgin Galactic, there may still be opportunities to reach new investors by convincing them that your firm’s goods or services are just as applicable in space as they are on Earth.
Bear in mind that – thus far – the returns have been less than stellar: the Procure Space ETF gained just 6 percent in 2021, compared with the S&P 500’s 28 percent jump.
Out-of-this-world investor targeting
How many ‘dark pools’ of investment might be lurking outside of our solar system, or beyond the confines of a black hole? We may never know, but it’s never too early to start thinking about how to access this unknown capital.
Where the Voyager probe carried a sample of Earth’s finest cultural artefacts on board, you may consider creating a Golden Record of your very own to be launched into the heavens – only instead of the Beatles and Beethoven, it can feature your investor prospectus or annual report.
Corporate access invitations
Perhaps, if spacecraft are not something you have immediate access to, designing a corporate access event for extraterrestrial investors might be a more appropriate use of your time.
After all, given estimates that even our own solar system’s asteroid belt contains around $700 quintillion worth of resources, off-Earth investors are likely to have access to some pretty serious capital.
Reaching out across the cosmos can be a daunting task, but getting the right mix of investors to attend your reverse roadshow requires new techniques: some North American firms are turning to innovative field-based invitations to bring in visitors in their droves, pressing down crops in geometric patterns to entice out-of-town visitors.
