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Richard Davies looks back over three decades of Investor Relations

 
After three decades in IR, including two years as the Chair of the IR Society, RD:IR’s Managing Director, Richard Davies, believes that though the IR industry has come far, there is still a long way to go.

 

Summary

  • Technological change has driven faster, cheaper and more accurate data
  • IROs are better qualified than ever
  • Regulatory changes have had huge effects on the capital markets
  • The sell-side is here to stay, despite what some people think
  • Companies with dedicated IROs typically perform better

 

The best thing about working in the IR industry is the constant change, which provides both challenge and opportunity. This is matched by the continuity in the profession of the striving towards better practice. Looking back over the last 27 years of my time in the sector, I see much that has changed and much that has stayed the same. The most startling developments have, of course, been in the area of technology, with the impact of faster processing speeds in computing and the arrival of the internet. Many readers will find it difficult to imagine a time before digital and, indeed, I find it difficult to believe that we used to perform so much data entry and analysis manually in the late 80s. I started my IR career creating one of the first share register analysis systems, which was a spin-off of a hard copy publication I was hired to edit, The Index of Nominees & their Beneficial Owners. This directory of nominee companies and the funds they represented became a minor City classic, which I still get asked about, 15 years after its final edition was published. The early iterations were researched using fiches from Companies House, telephone calls to nominee companies and inspections of often hand-written or typed registers of beneficial owners, derived from interrogation under the old Companies Act Section 212 legislation (now known as s793). We went on to use this painstaking research (further augmented by fund-to-fund manager researched linkages) to analyse share registers, which arrived in hard copy format in piles of boxes, which we sifted and entered manually into computers the size of a desk. Analysis which now takes seconds, with electronic registers and sophisticated data processing, took days in some cases – and the fees reflected this.

Big data

The commoditisation and universalisation of data has certainly been a key change in the IR and financial services industry. Today’s IRO has easy access to information that would have been unimaginable 30 years ago. The challenge remains, however, in understanding how data should be used efficiently and strategically. It is a cliché in the industry to point out that IR is now taken more seriously by company boards but this is, of course, true. IR has become more professionalised in the UK, partly due to the impact of the IR Society. Gone are the days when fund managers and analysts would only speak to senior management, largely due to the rise in financial competence of the average IR officer (although I am not of the opinion that IROs necessarily have to be ex-analysts to have gravitas).

Disrupted industry

A major change, which historical significance in total, like the French Revolution according to Zhou Enlai, has yet to be fully understood, has been the forced unbundling of broker fees to fund managers for corporate access and research. I suspect that this is only the beginning of a deeper and wider disruption of financial services as market Darwinianism and internet technology scythe their way in months through centuries-old relationships in the City. There are so many other changes to the way that the capital markets operate that have impacted on the world of IR, all of which we now take for granted: internationalisation and consolidation of the asset management sector; the rise of hedge funds and proprietary trading; the impact of EU regulation (for example, MiFIDs 1 & 2); high-frequency trading and dark pools; the rise of Asia and other emerging markets as part of the globalisation process; the increase in interest in governance and the commensurate rise in importance of the proxy advisory agencies.

Big banks are here to stay

While so much has changed, so much has stayed the same. It is a rather wonderful aspect of the IR market that many of the market players of 27 years ago are still in place, whether as companies or IRO professionals. The young bucks of the 80s are now part of the IR establishment, albeit with greyer hair and expanded waistlines (including this writer). The arguments about companies needing to be pro-active about their equity marketing strategy are as true now as they were then, if not more so. People have decried the end of the sellside since I started work in the City. It hasn’t happened yet and will not happen for some years to come: there are too many vested interests. The major investment banks will be part of the scene for the foreseeable future and life for larger companies in terms of the services they receive therefrom will go on much as usual for the time being. Given the changes in the research and corporate access fee model that the recent FCA and forthcoming MiFID changes precipitate, my concern relates to the funding of small- and mid-cap public companies. Growth companies are the basis of a healthy public company market, where investors, retail and institutional, can invest in entities which are subject to market scrutiny, unlike the private equity market, where the only real oversight is provided by the auditor. Many of our current large-cap companies started life as small-caps but I wonder how many would achieve the same growth under today’s capital market conditions.

The role of the IRO

We have come very far in the IR industry in the UK but there is still a long way to go. Many UK public companies still do not see the need for a dedicated IR professional. Even those companies that do employ an IR officer may not take a pro-active approach to marketing their equity. The UK IR industry includes some of the world’s leading IR professionals, running sophisticated processes and strategies, utilising a mix of data and consultancy to take their company’s equity story to the global marketplace. On the other hand, there are companies that still do not consider IR to be important or which rely totally on a lacklustre broker with no interest in promoting their equity. The most exciting aspect of my last 27 years in the IR world is that I see that the former category is growing and the latter is shrinking. Research shows that companies which do not perform IR so well tend to disappear faster than those that do. In my experience, it was always thus and I am sure this will continue to be true. I wish the IR Society a very happy 35th birthday. I am delighted to have been part of its history. I look forward to the future of the Society and of the global IR market as we all embrace change and challenge. 

 

Richard wrote this article as a contribution to the IR Society’s 35th anniversary celebratory edition of Informed Magazine. A copy of the magazine can be downloaded on the Society’s website here.

RD:IR Sponsors Best Communication Award at the AIM Awards 2015

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We are pleased to announce our involvement with this year’s AIM Awards, now in its twentieth year. The event will take place on the evening of Thursday 8th October 2015 at Old Billingsgate in the City of London and RD:IR will be sponsoring the ‘Best Communication Award’.

Each year the AIM ‘club’ gathers to celebrate outstanding achievement on the world’s most successful growth market. Sponsored by PwC, the Awards identify the quoted companies and entrepreneurs who have harnessed AIM to help them fulfil their ambition and growth potential in the last twelve months.

 

1H 2015 RD:IR Proxy Round-Up

 

 

The UK M&A market saw an upturn in 2014 and this positive momentum continued into the beginning of 2015. RD:IR in turn began the year by carrying out two M&A proxy solicitation campaigns, the first for Salamander Energy plc and the second for Friends Life Group Ltd.

Salamander Energy plc, a FTSE 250 Asia-focused oil exploration company, reached an agreement to be acquired by Ophir Energy plc in an all share deal in November 2014, to be effected by a Court-sanctioned scheme of arrangement. The scheme required the approval of Salamander shareholders at both a court meeting and a general meeting in February. Our campaign to Salamander institutional investors helped ensure the successful passing of all resolutions at both meetings, with a large majority of 95% of Salamander shareholders voting in favour of the takeover.

Continuing the M&A trend, Aviva plc agreed to buy Friends Life Group Ltd in December 2014 in an all-share deal between the two FTSE 100 companies. The deal, worth £5.6bn, created the largest UK insurance deal since 2000.

RD:IR conducted a proxy solicitation campaign to Friends Life institutional shareholders to ensure maximum voting. This resulted in more than 99.9% of Friends Life shareholders voting at the general meeting to support the deal, which overwhelmingly passed the 75% threshold required for the two companies to combine.

During the AGM proxy season RD:IR was pleased to provide proxy and corporate governance services to a number of clients, among them: Tullow Oil plc, bwin.party digital entertainment plc and Faroe Petroleum plc.  

If you wish to enquire further about our shareholder communication services please contact Yolande Lundy (Proxy Research Manager) on yolande.lundy@rdir.com / +44 20 7492 0527

IR Society Corporate Governance Review Seminar

As moderator for yesterday’s IR Society seminar focusing on current trends in Corporate Governance, Richard Davies assembled a superb panel of speakers to address the 40-strong audience. 

Corporate Governance

Beginning with experts from corporate governance trade bodies, Will Pomroy, Policy Lead: Corporate Governance & Stewardship at NAPF, opened the seminar with discussion of Pension Funds and Environmental Social Governance (ESG).

Pension Funds (PFs) outsource management to Investment Managers, but are still very keen to ensure that they carry out stewardship responsibilities as asset owners – by making their own informed voting decisions, for example. NAPF have been facilitating communication between the PFs and their Investment Managers – through Stewardship Accountability forums – to emphasise what is important to them. Perhaps surprisingly, in a recent survey conducted by the NAPF, 90% of PFs agreed that ESG factors have a material effect on investments.

The Investment Association’s (IMA), Director of Corporate Governance & Engagement, Andrew Ninian, revealed that whilst Remuneration has dominated discussions in recent years, issues surrounding Board effectiveness are one of the largest agendas facing the IMA today. He stressed the need for long-term decisions to be made by the right people on a company’s Board and that this is crucial to its investors. Ninian also spoke about the increasing requirement for diversity within Boards and a requirement for a matrix of skills. He described a pressing concern pertaining to the lack of ‘Board-ready’ candidates available to ‘step up’, and suggested companies need to be more willing to expose their senior executives to Board activity and decisions, in order to prepare them for Director roles. He emphasised the importance of the role of the Chairman, referring to the position as the ‘lynchpin’ of the Board and that ultimately, the Chair is responsible for the cohesiveness of the Board.

George Dallas, Policy Director at ICGN (International Corporate Governance Network), an investor-led membership body, spoke about the role of ICGN in fostering partnerships between companies and investors, rather than seeing the relationship as ‘us and them’. The ICGN operates a number of policy committees and is at the forefront of governance thinking: it produces frequent ‘Viewpoint reports’ on topical governance themes

Peter Swabey, Policy & Research Director of ICSA (Institute of Chartered Secretaries & Administrators) offered insight into the role of the Company Secretary and touched on trends within corporate governance. Peter suggested the CoSec role:

  • delivers strategic leadership
  • adds significant value as a bridge in the boardroom between the executive team and the non-executive team
  • facilitates the delivery of organisational objectives
  • occasionally referred to as ‘wise friend and counsellor’ of non-execs

According to ICSA, the role of Company Secretary is increasingly outwardly-focused with many CoSecs currently involved in investor engagement and corporate communications. The role has developed beyond the administrative function of old. Peter warned of the conflict of interest in combining the roles of Head of Legal or General Counsel and CoSec, suggesting they should remain separate entities.

Before concluding, Peter referred to the PSC Register (Person of Significant Control), created as part of the Small Business, Enterprise & Employment Bill, due to come into effect in April 2016. All companies must disclose their beneficial owners via the register, defined by BIS as:

  • Those with ownership of more than 25% shares
  • Those with ownership of more than 25% voting rights
  • Ownership of right to appoint or remove a majority of the board of directors
  • Right to exercise significant influence or control
Sustainable Investments and ‘Impact Investing’

The following two speakers, Simon Howard, CEO of UKSIF (UK Sustainable Investment & Finance Association) and Tomas Carruthers, CEO of Social Stock Exchange, focused on the potential for investors to drive sustainability through investing into businesses that positively impact the environment and society.

According to Simon Howard, investing in companies with sustainable business practices is imperative from a financial point of view, as well as any sort of ethical one. He explained that an increasing number of investors are concerned by how businesses, especially in the oil and gas sectors, plan to transition to a low carbon economy. He mentioned how the ‘Aiming for A’ coalition saw shareholders successfully campaign for BP to report on its progress in this respect and in relation to climate change, through the submission of a shareholder resolution. Addressing his audience, he suggested that, based on his experience, the longevity of IR teams in comparison to that of individual CEOs, could present an opportunity for investor relations professionals to be the ‘conscience of the company’.

Tomas Carruthers, spoke passionately about his pioneering organisation, the Social Stock Exchange (SSX), as an alternative to the traditional route to capital-raising. The Social Stock Exchange is the world’s first regulated stock exchange with RIE status and seeks to “bridge the gap between the increasing desires of businesses to make a difference, alongside making a profit.” His passion for ‘impact investing’ evident, he described how the SSX offered small cap companies a platform to increase their visibility and attract “capital at scale, via a growing community of global impact investors.”

Currently led by a retail investor base, ‘impact investing’ has enjoyed an explosive growth in the last five years. Research has pointed to Millennials as the driving force within this investment area. Since 2012 there has been a 60% rise in the global growth of market for sustainable investments (*Global Sustainable Investment Review, Global Sustainable Investment Alliance, Feb 2015). 

Voting, Governance and Stewardship

This four-strong panel of experts included, Mike O’Sullivan of Glass Lewis & Co, Sarah Wilson of Manifest, Anita Skipper of Aviva Investors and Diandra Soobiah of NEST. Each speaker gave insight into their organisation’s role and the trends they perceive with regard to voting and stewardship, and the integration of corporate governance research within investment firms. Mike O’Sullivan and Sarah Wilson distinguished between their work as proxy advisory agencies. O’Sullivan noted that Australia has proved a leader in best-practice, and that experiences could prove relevant and beneficial for the UK going forward. Sarah Wilson attacked what she perceives as ‘zombie voting’, which in effect dilutes the efforts of shareholders who do make informed decisions. There was agreement across the panel with regard to the challenge shareholders face in responding adequately to the volume of meetings and resolutions proposed. This led to suggestion that perhaps shareholders might proceed by focusing on a reduced number of holdings, where issues can be examined in detail, rather than prioritising quantity over quality.

Anita Skipper, in accordance with Sarah Wilson, highlighted the importance for investors to develop and implement their own voting guidelines in light of the fact that not all shareholders have the same views and solutions. Anita, who is a Corporate Governance advisor to Aviva Investors, commented on the firm’s progress on integrating responsible investment practices within the investment and stewardship process. There is a perception that across the industry there needs to be better communication between fund managers and their corporate governance teams to optimise the sharing and incorporation of research and industry developments.

Diandra Soobiah spoke about the importance of integrating ESG as a risk governance strategy and carrying out stewardship responsibilities for NEST as a defined contribution pension scheme. For NEST, the National Employment Savings Trust, the incorporation of ESG issues reflects the Trust’s long-term horizon, which in turn represents the expectations and concerns of its members. NEST not only engages with investee companies as part of its stewardship strategy but with regulators and standard setters, and, crucially, its fund managers too.

Ethics and Governance

Peter Montagnon, Associate Director of IBE (Institute of Business Ethics) and a member of RD:IR’s Advisory Board, closed the seminar by providing the audience with anecdotal insight into the importance of ethics in business. He emphasised the need for companies to have a business model that reflected their core values and that if the two are not aligned, a company risks entering into very muddy waters. He went on to the say that values and culture must drive a company’s behaviour and that this should come from within a company. Not only should investors demand transparency on ESG progress, but the CEO in particular must provide a beacon of light and an example for employees to follow. 

 

For more information regarding IR Society events please visit their website here.

 

Authors: Sarah Blackshaw & Alice Essam

Mark Robinson joins RD:IR as a Senior Client Manager

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RD:IR is delighted to welcome Mark Robinson, who joins the company as a Senior Client Manager (European Issuer Services). Mark will be responsible for our European clients and will work closely with both the Analytics and IR Services teams, as we expand our relationships with new and existing clients on the Continent.

Mark graduated from the University of East Anglia in 2005 with a BSc in Mathematics and started his career working for Camelot where he was responsible for analysing the retail sales of the National Lottery products. From there, he moved to Thomson Financial, joining the Corporate Advisory Services team to cover corporates in the UK and Northern Europe and developing shareholder identification reports.

Mark joins RD:IR from a global financial data provider, where he was responsible for clients across central and emerging Europe. He brings with him a wealth of experience and has been involved with panel discussions outside of the UK, including, discussing liquidity at the TUYID (Turkish IR Society) annual event, and also leading discussions on the impact of ETF investments at the AGM of CIRA (Circle for Investor Relations Austria).

Richard Davies, Managing Director of RD:IR, said, “I am thrilled that Mark has joined us. This is a particularly exciting time in the company’s development as we expand into Europe. Mark has a great understanding of investor relations and we look forward to introducing him to our clients and prospective clients.”