IROs and service providers gathered at the London Stock Exchange (LSE) on March 18 for IR magazine’s annual UK think tank. There, they compared notes, shared experiences and spoke candidly about four of the biggest investor relations issues of the day. What follows is a selection of some of their comments.
Dealing with SRI analysts
Sponsored by the London Stock Exchange
‘An interesting issue is how we should join the dots between what the corporate social responsibility (CSR) manager is saying to the governance specialists and socially responsible investment (SRI) specialists in the City, and what the finance director and chief executive are saying to mainstream analysts. We often find we get very disjointed messages.’
‘Both companies and investors are finding it hard to keep devoting increasing resources to these issues, and the pressure seems unlikely to decrease.’
‘The emission of carbon hasn’t had a cost impact for companies in the past so it hasn’t been relevant to share prices – but now it will be.’
‘The fact is that many more investment managers are incorporating CSR into their policies.’
‘There’s a one-sided dialogue where we are giving out information and there is very little in terms of a response.’
‘There is too much emphasis on box ticking and trying to fit everybody into a single social responsibility matrix when companies are so different.’
‘It would be really helpful if all of the questionnaires that people created could be brought down to just one.’
‘About twelve months ago I had lunch with Morley and we asked this question: what proportion of its funds are invested with some form of SRI criteria? And the answer came back from the most senior man at the table: less than 2 percent.’
‘I have been to an awful lot of these one-to-ones in the City with my finance director and CEO over the years. In those meetings I have never once heard a CSR question – not even at corporate governance meetings and breakout discussions.’
‘If the London Stock Exchange could run a single questionnaire that companies fill in, that would relieve two people who work for me from spending endless hours filling in the CSR questionnaires that are produced by almost every institution.’
Hedge funds: is there anything new to say?
Sponsored by Goldman Sachs
‘Hedge funds are not really that interested in changing companies frequently. They’re just there to trade in and out on certain specific events.’
‘An understanding of what these hedge funds are doing and how they’re going to behave is very important. Being able to talk to them in the right way can actually ensure you don’t have the kind of negative situations you’ve seen in the press.’
‘We’re seeing hedge funds getting interested in corporate governance, although they don’t necessarily have a prescribed list of things such as the long-only kind that corporate governance specialists have.’
‘It seems to me a lot of people have the same strategy for communicating with hedge funds that they had a year ago, and I’m not convinced that’s the right thing.’
‘Getting access to management is so heavily valued by the hedge funds. One of the reasons for that is because they don’t get a lot of it, whereas the long-only guys get plenty of it.’
‘There is a brain-drain phenomenon with the traditional buy side, whereas the quality of meetings with hedge funds generally can be quite good, quite stimulating, because they’re just smart fund managers. The quality of the typical buy-side analyst today is diminishing.’
‘We’ve fallen into the trap where the sell side has led us to hedge funds and at the end of the meeting – of course – they were just talking to us to get information about other positions they held. This doesn’t reflect well on the brokers.’
Company valuation and de-listing from the US
Sponsored by The Bank of New York
‘When a European firm chooses to terminate its American depositary receipt (ADR) program there’s a greater market surprise factor. Why would a European firm, which presumably has less to jump in terms of governance standards, suddenly choose to terminate?’
‘The reason behind outperformance of US-listed firms is the much higher level of IR activity there, which a company can do without a US listing.’
‘The main issue that we’re facing as European companies is the cost of complying with Sarbanes-Oxley. Shareholders are asking about the money we’re having to spend to comply with these regulations.’
‘The thing that gives me nightmares is the concept of a high-level spreadsheet that underlies a Sox sign-off on internal controls. I think that could land several people, including audit partners, in jail in the future.’
‘There was an article in the press that said the majority of these [corporate scandals] would be covered by one very simple piece of legislation: thou shalt not steal!’
‘Does the SEC actually care about the fact that some European companies may de-list from the NYSE or Nasdaq? Perhaps it doesn’t.’
‘One of the advantages of the SEC having put off the requirement for non-US companies to comply with Section 404 requirements on internal controls is that it may allow the whole system to settle down a bit. I don’t think the SEC is going to be in a position to embark on any significant softening of the Sox regime until we stop seeing headlines every week about new corporate scandals.’
Your first analyst meeting post-IFRS
Sponsored by Standard & Poor’s
‘The hardest thing about restating 2004 numbers under international financial reporting standards (IFRS) was the lack of a benchmark on what should be displayed and how far we should go in talking about future impacts.’
‘A lot of analysts are not very confident because they
don’t feel it’s their area of expertise and they’re waiting for some guidance. The best prepared ones are in sectors where companies have given a lot of help, and it’s like that on the buy side as well.’
‘Earnings potential is going to be more erratic because of the new standards.’
‘It is ridiculous if you’re a business where the financial instrument requirements are significant but you don’t actually have to apply them in 2004. Everyone is going out with announcements as to what 2004 looks like but in some cases not applying the key standard that is going to be most applicable to them.’
‘I think there is definitely an opportunity to shine with analysts and help them through it. There will be a bit of a penalty where the communication is confusing.’
‘There are a lot of analysts who are quite cynical and see IFRS as an opportunity for companies to sweep things under the carpet. The more you can communicate, clearly the more you’re going to put those kinds of concerns to rest.’
‘Just hold the poor old analysts’ hands through all this because most of them are not qualified accountants – and even if they are, it was a long time ago, and they learned with different rules.’
