Just as London’s summer heatwave was starting, a group of around 40 IROs made their way to the Merrill Lynch Financial Center in the City for the IR Magazine UK Think Tank. On the agenda were three topics attendees had chosen in advance: changes on the sell side and independent research; dealing with the media; and non-financial reporting and CSR. Each discussion began with an expert panel and then moved into a group discussion, with IR attendees lobbing questions at the panel and sharing their concerns and experiences. Here, we present some highlights from the day.
Changes on the sell side and independent research
Has the quality of brokerage coverage declined since unbundling? IROs looking for a quick answer to this question left empty-handed, but those wanting a more substantial response to this complex issue were satisfied.
The discussion kicked off with talk of more brokerage firms – including the day’s host, Merrill Lynch – outsourcing their research function. ‘Still, the analyst putting their name to the research, by law, has to be responsible for this opinion,’ noted Simon Greenwell, head of research at Merrill Lynch.
The recent explosion of hedge fund activity also came up, with panelists speculating on what type of research these investors are buying. ‘I wouldn’t be surprised if they [hedge funds] were using independent houses a lot more,’ said John Barrass, head of the CFA Institute in Europe. Greenwell agreed that these shareholders are seeking this type of research and also urged IROs not to dismiss hedge funds as short sellers. ‘They can be great supporters but if you don’t look after them, they can really damage your share price,’ he said.
Gabriel Didham, managing director of independent London-based research firm Objective Capital, described the role of corporate-sponsored research in helping companies gain visibility in the market. His firm uses a blind pool of analysts to cover client companies and ensures that they cannot influence the outcome of the research. Still, one attendee expressed his skepticism, saying: ‘I don’t believe in sponsored research on any level.’
The issue of factual inaccuracies in brokerage research was then brought up, with some IROs expressing concern. ‘For companies with more US exposure, it’s certainly a worry,’ said one. Still, one IR attendee from a beverage company said she’d seen very little research that featured mistakes or where inaccuracies had made the difference between a buy and a sell. Perhaps this is one of the advantages of being in a well-understood industry, she added.
Finally, the question of unbundling the fees the buy side pays for trading commissions and research was broached, with attendees claiming the issue hasn’t significantly impacted the way their companies are covered. ‘It has meant more independent research, which is a good thing, but it really depends on the sector,’ said one IR professional.
Dealing with the media
How should IROs deal with the press? Why do so many journalists fail to give the full story? When bad news hits, do you hide or brazenly face the press? These were some of the questions addressed by Dan Roberts, editor of the Lombard column in the Financial Times, and Stephen Benzikie, managing director of London-based PR firm Bell Pottinger.
Roberts, who is moving to become City editor at the Sunday Telegraph, started off with insights on how he gathers fodder for his column. ‘With the Lombard column it’s often about spotting trends,’ he said. ‘So I spend quite a bit of my time walking around the building just talking to other journalists to get a feel for things.’
Roberts was asked whether he speaks to analysts to answer questions on the companies he covers. ‘Some companies might well suggest you talk to such and such, but obviously my gut reaction as a journalist is usually to go elsewhere,’ he commented. He then offered advice on communicating in times of crisis. ‘Companies gain more credibility when they’re open, be it in good times or bad,’ he said. ‘Withdrawing or bunkering just does you no favors. But I do have some sympathy for companies when there’s turmoil in the boardroom, or when you just don’t know who is running the company – like Vodafone recently.’
Benzikie pointed out that companies don’t have to be FTSE 100 heavyweights to garner media attention, provided they have a story to tell. ‘Increasingly, media is about differentiation,’ he said. ‘But also, one of the first things a journalist will often ask is, Well, how do you compare your company with X? or What are you like? So you’ve got to strike the balance between differentiation and comparison. Get them to understand the business model and what drives it.’
IROs had straightforward views on how to deal with the media. ‘Like any other analyst, just be very open and straightforward,’ said one IRO. Another attendee was more negative, claiming that the time pressures of deadlines prevent some journalists from getting the story straight. Still, the consensus was that it’s important to return journalists’ calls even if it’s simply to deliver a ‘no comment’ message.
Non-financial reporting and CSR
How should companies handle non-financial reporting? What do fund managers want to see reported in this area? These were just two of the questions handled by panelists Nick Robins, head of SRI funds at Henderson Global Investors; Matthew Taylor, CSR manager at BP; and Susanne Stormer, director of accountability and triple bottom line leadership at Novo Nordisk.
Robins revealed that investors interested in CSR issues are generally long-term holders. ‘The average holding period for these [SRI] funds is about eight years,’ he observed. ‘So if you get SRI investors, they may be picky about the information they want before investing, but they’re very sticky.’
Taylor stated that for a big corporate like BP, responding to requests for non-financial information is not a stretch. However, BP’s IR team of eight decided three years ago not to focus on feeding the demands of SRI funds. Three years on, though, the investor market has matured and the debate around CSR issues is becoming more mainstream and focused around sustainability, Taylor added.
To reinforce Taylor’s point, Stormer said her company’s IR team has integrated non-financial reporting with IR. ‘When we do roadshows together and we have the sort of questions that an IR manager ordinarily would not be all that well equipped to deal with, we can give them joint answers to take back with them,’ she says.
Robins suggested that one way to tackle the sometimes differing agendas of mainstream and SRI funds is to simply articulate how the issue of ethics fits into the business strategy. ‘Pharma company Novartis has done this,’ he said. ‘It also has huge amounts of black and white information for people like us who want all the nuts and bolts, and all that information is on the web site.’
Some IROs felt non-financial information was still not being taken seriously by most investors and were irritated by the seemingly endless stream of SRI questionnaires. Robins argued, as many other serious SRI investors do, that companies shouldn’t waste their time with these. Instead, they should simply direct interested parties to the appropriate disclosures in their annual report or on their web site.
