RD:IR was once again Gold Sponsor for the Investor Relations Society Conference, now in its 33rd year. The conference was hosted on 18 June at Kings Place in King’s Cross, London, with 400 people in attendance from issuers and service providers alike. Working so closely with the IR Society allows us to be at the forefront of the development of the IR profession, but also to feature heavily at the conference. It was great to see so many people brandishing RD:IR-branded tea towels emblazoned with our signature crumpet! We sincerely hope all attendees enjoy thinking of market-leading IR services while drying their dishes.
As with last year, the conference was very well hosted by the BBC’s own Evan Davis, who was joined on stage by the great and good of the IR and investment worlds. John Allan, chairman of Tesco and Barratt Developments, and president of the CBI, started the day with the keynote address. Setting the scene, he opened by mentioning that sustainability, climate change and corporations’ effects on the environment were at the forefront of younger generations’ minds. The distrust of corporations by the general public is something that the corporate world needs to address, and John noted that “thinking about your shareholder register will continue to be very important”. Of course, with climate change covered, no opening address would be complete without a mention of Brexit. John made his views clear that a no-deal scenario would be profoundly negative for British business, the economy and people. This would lead to a further depreciation of sterling, which may indeed encourage greater levels of foreign direct investment but would weaken British business’ purchasing power abroad and open companies to potential takeovers from foreign corporations. None of his comments on Brexit were too positive, but he did not become hysteric, instead noting that life will go on even with short-term disruption and long-term degradation. With so much negativity present in the political and business environment, John stressed that it is hugely important for IR professionals to remain honest and transparent. IROs are the eyes and ears of companies, so they must remain in constant contact with all stakeholders, unafraid to deliver unpopular messages if so required.
The day continued with seven different sessions interspersed with two keynote interviews with Susan Hooper and Sarah Bates respectively. The running theme throughout all sections of the day was ESG, which is a theme that seems to have almost wholly eclipsed MiFID II and – dare I say – Brexit. The former seems to have brought about a lot less change than anticipated, and the latter is such an unknown that people and companies do not know in which direction to head without further details from the government – no-deal, May’s deal or some other future? With ESG in mind, Gareth Hayward of Charles Stanley told the audience that he had recently been told by a company that they focused on what they called the three P’s: planet, people and profit. It would not have been too long ago that ‘planet’ would not have made this list.
There was wide agreement throughout the day that ‘ESG’ can be a problem label. It can be interpreted in so many different ways, so it is either better to break it down into its component parts or use the term ‘sustainable’, as per the suggestion by Andrew Parry of Hermes Investment Management. However, there is definite recognition that ESG issues, in whatever form, have been rising rapidly in the past twelve months and are now front-and-centre for most industry professionals. Indeed, Evan Davis asked for a show of hands by the audience to see who recognised this change and everybody agreed that they had noticed the change over the past year.
Rather contrary to the message of the day from many speakers was that put forth by the IROs. There was agreement that while the buy-side seem to bang the ESG and sustainability drums externally, it is exceptionally rare that investors will ever ask about ESG issues when in meetings with IROs. So it appears there is still work to be done for ESG to truly permeate all aspects of the investment industry. To aid this push, the afternoon panel dedicated to ESG made the case that ESG factors should not be thought of as entirely separate to the financial health of a company. It is far more accurate and helpful to see ESG issues and sustainability as part of how to value a company, with these topics being included into traditional reporting. There is still a long way to go for ESG ratings to be successfully implemented, however, and this is improving all the time.
Despite ESG being so dominant, there was space for other topics, and MiFID II was still a considered one. Now in play for 18 months, any effects from the legislation should be at least starting to be seen. Anne Scott of Kames Capital noted that analyst interaction has decreased by around 30%, though corporate access has stayed at a fairly constant level. In line with the declining level of analysts, Steve Davies of Jupiter has seen research declining, so his approach is to have fewer analysts but pay them more. This would be to avoid the process of ‘juniorisation’ that is taking hold in the industry, where quality declines as more junior analysts produce the research.
MiFID II was then considered by a panel of IROs, two of whom were from larger caps Sainsbury’s and easyJet and have seen a very limited reduction in analyst coverage, if at all. On the contrary, Richard Amos of small-cap Wilmington has seen coverage reduce quite considerably, meaning he is now considering going the route of sponsored research. The challenge is to keep this trustworthy and avoid the market viewing the research as conflicted due to the corporate footing the bill. A solution to this suggested would be to have the research without any investment recommendations and more focused on being an honest review of a company.
The interaction between investors and issuers has fundamentally changed since MiFID II came into force, with the sell-side becoming less relevant in many respects. Dani Saurymper of AXA Investment Managers told the audience that he has taken it upon himself to organise a recent roadshow to meet corporates. He found these corporates to be very accommodating to his requests and there was no sell-side either present or needed. This model of direct access is something we are likely to see much more of as both issuers and buy-side firms build out their corporate access teams. In addition, conferences and capital market days are something that will prove very useful as the market continues to adapt, as noted by Carl Murdock-Smith of Berenberg.
To build and maintain strong relationships with investors, outsourcing entirely to third parties is not the answer, but David Phillips of Hays noted that outsourcing is still a very useful tool because IROs are only going to become more busy. Being able to have assistance with 7am email announcements and meeting organisation from third party providers are things that will only boost any IR strategy. This level of organisation will always be required, as Sarah Heald of Pennon Group noted that while video conferencing is on the rise, investors will always want to see the whites of the eyes of an issuer’s board before investing.
In addition to MiFID II and ESG issues, many other topics were touched upon in what was a very full event. Evan Davis’ interview with Susan Hooper at the beginning of the afternoon was very interesting indeed. Susan is an NED of Uber, Wizz Air, Affinity Water and The Rank Group, as well as being on the board for the DExEU. She primarily focused on the role of NEDs in the efficient running of companies, noting that they exist to “kick the tyres of the strategy, fundamentals and culture” of a company. Climate change and sustainability are important to Susan, so she has identified that an important challenge for boards over the coming years will be to give a positive message to stakeholders that isn’t about growth. This will prove difficult in an environment where business ‘success’ and ‘growth’ are often synonymous, but the pressure exerted on the environment by business means a requirement for less consumption.
The final interview of the day was with Sarah Bates, the chair of Merian Global Investors. She focused on the changing investment environment and how ownership of companies has transitioned hugely with the rise of passive investments and ETFs. Sarah said that part of the role of being an IRO was to make yourself and your company available and easy to deal with, not hiding away when times get tough. Investor relations is where the bridge between investors and issuers is created, so it forms a vital part of an issuer’s longevity and ability to connect with the market.
In all, the day was interesting and well organised. We thank the team at the IR Society hugely for their hard work and look forward to seeing many of the attendees at other events throughout the year.