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What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

What This Activist Investor Who Was Feared Throughout Japan Can Teach About Positive Change

By | Corporates

In a previous blog post, we saw a report from Activist Insight that outlined how shareholder activism is a growing trend in Asia as well. The research found that Japan has seen some of the most instances of shareholder activism in the region from 2013 onwards. 

It’s perhaps fitting, then, that one of the most notorious Asian activist investors of the past two decades is Japanese.

Yoshiaki Murakami’s name used to strike fear in boardrooms throughout Japan – at least until a fall from grace in 2007. His reappearance and renaissance in recent years signifies a shift in how corporates are dealing with shareholder activists.

Pioneer Activist

A former government employee, Murakami decided to set up his own fund in 1999. He claimed that his time in Japan’s trade ministry drilled into him the importance of good corporate governance. 

As a shareholder, he became one of the most vocal supporters of activism and change in companies, which he felt were underperforming. His style was highly unusual in the country, where the general tendency of shareholders was to not get directly involved in management affairs.

As a result, he made a name for himself in tussles with companies like transportation and property conglomerate Seibu Railway and the Osaka Securities Exchange.

He became famous for demanding greater returns for shareholders and “showing how capital markets, including management-shareholder relations, should be,” according to his own statement. 

Part of his credo, which should be illuminating for any corporate dealing with shareholders, was that cash flow is for a company akin to blood flow for a human body. “The flow of money is essential for the growth of corporations, and there are negative side effects to the health of a corporation if this flow is blocked,” he said.

Responding to concerns that his investments caused market speculation, Japanese regulatory authorities changed reporting rules so that investors had to report shareholding acquisitions larger than 5 percent. 

His fund came to be worth JPY 444 billion – then it all came crashing down in 2007, when Murakami was indicted on allegations of insider trading.

A Return to Activism

Murakami reappeared in recent years to once again take an active role in corporate governance. An attempt to appoint outside directors in Kuroda Electric in 2015 was a return to form for the activist, even though it did not succeed.

He was more successful last year, when he stepped in to solve a merger block between oil refinery firms Idemitsu Kosan and Showa Shell Sekiyu. The companies had been locked in a dispute between the founding family of Idemitsu and Showa Shell management. 

Murakami acquired a stake in Idemitsu so that he could take part in the deal as a shareholder, instead of just being an outside advisor. He managed to convince the founders to let the integration go forward, while also getting some concessions for shareholders.

The merger was successful, going into effect just this week, with the combined entity now counting Saudi Aramco as its second largest shareholder.

More recently, Murakami was involved in the management buyout attempt of Kosaido, a group that includes, among others, a printing business and a funeral parlour business.

The group faced a takeover by Bain Capital, but Murakami and his group of companies launched a tender offer to grab a majority stake.

Although the tender offer failed, Kosaido moved quickly to overhaul its corporate governance structure, according to Murakami’s proposals and recommendations, and cleaned up the board while removing CEO Tsuneyoshi Doi.

Having written extensively about the deal for months, Insight Provider Travis Lundy hailed the latest development as “good news” in his latest note, although he remained skeptical of a stock price hike.

Read Travis Lundy’s full Insight: Kosaido Moves Quickly Post Failed Tenders

Making the Most of All Stakeholders

The changing face of shareholder activism in Japan reflects a broader trend in Asia. As the region attracts ever more international investment, corporates must be aware of the implications.

Activist incidents like the ones spearheaded by Murakami ingrained in Japan the need for companies to be more transparent and open about their corporate governance. Efforts by Shinzo Abe’s government, as well as an acknowledgment that shareholders reward companies that take the necessary steps to improve, came as a result of such activities.

This doesn’t just mean a solid corporate governance structure that brings value to the company and to shareholders.

It also requires an awareness of the overall ecosystem around the company; the investors, analysts, competitors, and yes, activists who tug and pull at the company from all sides. 

If company management is to successfully navigate the market waters, it needs to pay attention to all these stakeholders – and, as Murakami has shown on many occasions, to make the most of their influence.

Don’t be caught unawares – maintain and build your contacts and relationships through an all-encompassing network. Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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How Pension and Wealth Funds Redefine Shareholder Activism Worldwide

How Pension and Wealth Funds Redefine Shareholder Activism Worldwide

By | Corporates

Shareholder activism can take many shapes. The concept is mostly associated with go-getter investors like Carl Icahn, storming into a company’s board demanding change or ousting ineffective CEOs.

But there are other ways in which investors and shareholders exercise influence on company boards. More and more lately, shareholders have more specific demands from companies they invest in – demands that revolve around environmental, social, and governance (ESG) principles.

Activist Pension Funds

Foremost in such board activism tend to be investors like sovereign wealth funds or pension funds. The California Public Employees’ Retirement System (CalPERS) was one of the first such funds to lay down governance and sustainability principles for investee companies.

“[We] firmly embrace the belief that strong, accountable corporate governance means the difference between long periods of failure in the depths of the performance cycle, and responding quickly to correct the corporate course,” the fund states.

Among CalPERS’s recommendations for companies are having clear CEO succession processes, appointing independent directors to review significant transactions (ensuring they align with the company’s best interests), and assurances of voting rights for shareholders on major company decisions.

The fund has seen steady returns of about 7 percent on its investments over the last 20 years, which lends credence to its practices. In the process, it has inspired other similar institutions to follow its lead.

Its New York counterpart, the New York State Common Retirement Fund, has been pressuring Exxon Mobil’s executives to do more on climate change, including creating a climate change committee on the board. In a filing in May, they said that Exxon’s response on climate change was “inadequate,” which was a “serious failure of corporate governance.”

The Scandinavian Touch

Across the Atlantic, Norway’s Government Pension Fund Global places great emphasis on governance and corporate responsibility in the companies it invests in. “We aim to contribute to well-functioning markets and good corporate governance,” reads one of its mission statements.

The fund expects good governance particularly in areas like climate and the environment, anti-corruption, tax and transparency, and human rights. It has invested in 9,000 companies across 70 countries, which gives it a global outlook.

“The dialogue we have with companies and their boards is among the most important tools we have as an investor,” says Carine Smith Ihenacho, Chief Corporate Governance Officer for the fund.

If a company does not fulfil the stated standards, the fund is not afraid to take a firm stance. It has excluded companies for missteps like gross corruption, environmental damage, and human rights violations – things that happen because of bad governance.

Collaboration is harder when a company operates in a specific sector – for example, “sin” markets like tobacco and alcohol. Norway’s KLP pension fund announced last month it would divest from companies in alcohol and gaming, such as AB InBev and LVMH.

There isn’t a lot these companies can do in such an extreme case, short of changing their businesses altogether. But they can still control their messaging to show what efforts they are making to be sustainable and responsible, despite being part of “sinful” sectors.

Long-term Relationship

What can company management take away from such investors?

In a 2015 interview, McKinsey partner Tim Koller recommended that companies should look at themselves from the point of view of an activist and ask what they would do differently in order to create value.

“Why am I not doing that, and am I comfortable not responding to what even a hypothetical activist would do? Am I the best owner of the businesses? Am I growing the businesses adequately? Am I cutting costs where they need to be cut? Am I returning cash to shareholders when I don’t need it? So it’s much more a matter of doing it yourself,” Koller mused.

Koller emphasised that activist investors that are there for the long haul can bring a lot of benefit to the company. “They may hold onto an investment for five to seven years, work with management… They’re well prepared, they ask good questions, they do research. And they have a longer horizon perspective, so it’s not just about cutting costs,” he said.

Make sure you are communicating your governance practices and getting the right messages out. Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies, that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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Shareholder activism strategy

Shareholder Activism Is Evolving. Your Strategy Must, Too

By | Corporates

When you have shareholders, you are accountable. We don’t foresee any glasses dropping in shock at this revelation, but nonetheless, it’s a reality for every company – doubly so for listed ones.

If company management does not prove itself quite up to the task of running and growing the company, or isn’t communicating its efforts well enough, sooner or later, there will be shareholder activists to contend with. Depending on the situation, they might try to nudge things towards the direction they believe is best for their investment, or even try and take matters into their own hands.

As widespread as shareholder activism is, it’s interesting how many companies simply don’t seem to take it into account – or, if they do, have no set plan for dealing with it.

According to research by consultancy Alix Partners, only 10 percent of company executives who were asked are confident they could stand up to activists. And even though a significant majority of executives are concerned about the rise of shareholder activism, more than half of them have no plans in place to go up against it.

The research involved listed companies across the European Union. Executives interviewed for the report pointed out that technology makes it a lot easier for activists to catch them unawares. “These days it is easier to stir up activism. Like-minded groups are instantly connected and able to mobilise,” they said.

That’s in Europe, which, alongside with the US, has historically been a market where shareholder activism flourishes. But activism has been on the rise in Asia too, as noted by aptly-named consulting firm Activist Insight and an in-depth report on Nikkei Asian Review.

According to Activist Insight, investor activism climbed nearly 20 percent in Asia in 2018 – even surpassing Europe when it comes to activist activity. And while the consultancy has observed a relatively quieter first quarter in 2019, this is not the time for management to get complacent.

Join the Race

It’s not only activist shareholders who can play the instant communication game. Company management and investor relations professionals must be on top of the situation, using the resources at their disposal. Not only can they confront activism when it happens, they can also prevent it from arising through transparent communication and careful management.

Market specialists, from PwC to Harvard, have outlined ways in which management can be ready for activists. We have written before about some best practices for investor relations ourselves: be transparent. Be open to contact. Cultivate and nurture valuable relationships.

Using tech platforms and tools, you can tell your company’s story and make sure it reaches the people you want. You can contact your shareholders anywhere, at any time, keeping them updated with relevant information and disclosures. You can keep an ear to the ground about what people are saying about your company, whether that’s stakeholders, media, or analysts.

When a challenge does come, being ready to face it head-on can yield more value for all stakeholders.

Do you wonder which platform can help you stay on top of such challenges? Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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Exchanges Redefine Their Role as More Than Just Listing Boards

Exchanges Redefine Their Role as More Than Just Listing Boards

By | Corporates

Choosing an exchange on which to list might be one of the most important decisions a company will ever make.

The reasons underpinning this may vary from one company to another but some common denominators remain. Among them, metrics like Average Daily Trading Volume, which serve as a reliable indicator of market liquidity.

Liquid boards make it easy to buy and sell securities. As such, they tend to carry greater investor appeal. This might explain, at least in part, why some companies choose to list on foreign exchanges instead of those in their home markets.

Exchanges Unite

Faced with this current reality, many exchanges are now embarking on a raft of initiatives to enhance their unique “listing” proposition.

One trend that’s catching on is the establishment of cross-border partnerships, such as the fairly recent multifaceted accord agreed between the Shenzhen Stock Exchange (SZSE) and the Indonesia Stock Exchange (IDX).

“Both parties reached consensus on jointly building a China-Indonesia small- to medium-sized enterprises capital market service plan to leverage the SZSE V-Next Platform [an initiative to facilitate innovative capital formation] and the IDX Incubator mechanism [to support digital-based startups],” the SZSE mentioned in a statement, citing one of several areas of cooperation.

As an added benefit, the agreement could also open new doors for SZSE to actively participate in the ASEAN+3 Bond Market.

Only time will tell how such partnerships will fare. Nonetheless, they set an encouraging precedent for more exchanges to follow.

Identifying and Supporting Future Listers

Exchanges used to be viewed mainly as a final destination of sorts for startups, with public listings seen as hallmarks of success.

While that perception still holds true to some extent, listing boards around the globe are making deliberate attempts to alter this perception. Some are doing so by inserting themselves into the heart of a still-private company’s business journey.

Germany’s Deutsche Börse, for instance, supports founders of startups from the financial sector via its Venture Network, which aims to improve their financing situations. Numerous fintech firms also base their headquarters at the Deutsche Börse FinTech Hub – 450 square metres of individual offices and co-working spaces.

But that’s not all.

Refusing to rest on its laurels, the German exchange announced in March 2019 further plans to develop the Hub and bring in new startups by tying up with fintech community platform TechQuartier.

This example clearly demonstrates how exchanges are proactively repositioning themselves as early-stage partners of prospective listers.

Going Above and Beyond

To the extent that some exchanges go the distance to attract new listings, a few others go further by maintaining that commitment even after companies list.

Here’s one: The Stock of Exchange of Thailand runs an investor relations professional development division to help IROs of listed firms build communication and engagement capabilities.

Upskiling IROs happens to fall under the domain of IR associations, too. Read more about what they do: Don’t Let Your IR Association Membership Go to Waste

And, here’s another: In Singapore, smaller-cap companies on the Singapore Exchange will benefit from a S$75 million (~US$54 million) funding programme launched earlier this year by the country’s central bank. Part of the grant aims “to groom a pipeline of equity research analysts and retain experienced research talent to initiate research coverage primarily of listed mid- and small-cap enterprises.”

Beyond Exchanges

The aforementioned initiatives can potentially inject an added measure of value into both prospective and existing listers.

Moreover, they evidence the renewed commitment of listing boards to be more than just market-making platforms, but as a partner that has the best interests of their listers at heart.

Even so, companies should still take initiative to make the most out of the value provided by exchanges. For starters, why not empower their IROs to engage investors more independently?

Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help IR professionals establish and maintain valuable connections to the investment and analyst communities.

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Don’t Let Your IR Association Membership Go to Waste

Don’t Let Your IR Association Membership Go to Waste

By | Corporates

Clubs and societies have existed since the earlier periods of human history, clustering people based on shared traits, such as lineage, knowledge, skills, and so on.

Just as accountants have the Association of International Accountants, and investment professionals, the CFA Institute, investor relations officers (IROs) also belong to market-specific associations that span the globe.

Examples of IR associations (IRA) include: the UK’s Investor Relations Society, Germany’s DIRK, Hong Kong’s HKIRA, Singapore’s IRPAS, and MEIRA in the Middle East.

Some IROs identify with the prestige and recognition of being under one, while others view membership as mandatory to advance their careers.

If you are part of an IRA, you most likely pay an annual membership fee of sorts. So why not make the most of it?

We reveal tips on how to milk your “club” privileges for their true worth.

Navigate a Changing Regulatory Landscape, Together

“The importance of investor relations is getting more prominent when listed companies encounter the impact of changes in regulation, market structure and technology,” wrote Eva Chan, Chairman at the Hong Kong Investor Relations Association (HKIRA).

How true.

Read more about regulatory impact: MiFID II Opens Up a Whole New World of Corporate Access for IR Teams

Rather than attempt to navigate uncertainty alone, why not tap into an IRA’s collective expertise? In so doing, IROs reduce the risk of making costly mistakes.

Look out for useful hacks like HKIRA’s Investor Relations Best Practice Guide, a handbook written by actual IR professionals. Such guides offer practical tips and advice based on real-life experiences, and help inform overall communication strategy and decision-making.

Upskilling to Keep up With the Times

With drastic change to the profession looming on the horizon, some IROs see a pressing need to be more formally equipped to tackle the challenges at hand.

This view has been echoed by Harold Woo, President at the Investor Relations Professionals Association (Singapore), or IRPAS: Woo highlighted in an interview with The Business Times that as regulations and trends evolve in the IR field, IROs need to constantly update their skills.

For that, IR professionals should capitalise on the development programmes offered by their respective associations. IRPAS’s International Certificate in Investor Relations is a prime example of an upskilling initiative aimed at empowering IROs with the multi-disciplinary skills required to excel in tomorrow’s IR environment.

Event-Driven Networking

Keen to keep abreast of the latest developments? Here’s the simplest way: just… show up.

IRAs typically organise and/or list industry events on their annual calendar. We advise IROs to routinely scan through them for updates. It takes no more than a minute!

As cliché as it may sound, the added chance to mingle and expand your network with other IR professionals should be good enough reason to attend.

Final Thoughts

IRAs play pivotal roles as advocates of industry best practices and enablers of professional development. Most importantly, the work they undertake continuously supports robust communication between corporate management and investors.

It pays to capitalise on what IRAs have to offer, so spare a moment to find out what you’ve been missing!

There’s one more thing IROs can do to seed more seamless investor communication: Sign up for a FREE account on Smartkarma’s Corporate Solutions, a brand-new range of services for C-Suite and Investor Relations personnel of listed companies that’s been designed to help professionals establish and maintain valuable connections to the investment and analyst communities.

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Lyft’s Dual-Class Boo-Boo With Investors Holds an Important Lesson for IROs

Lyft’s Dual-Class Boo-Boo With Investors Holds an Important Lesson for IROs

By | Corporates

Lyft became the latest public company to be blacklisted by The Council of Institutional Investors (CII) for issuing dual-class shares.

How big a deal was it?

To a select group of investors comprising pension funds and asset managers, it mattered – so much so they had CII pen a letter to protest the move ahead of the ride-hailing firm’s IPO pitch.

The Power Struggle

Much of the grievances stemmed from the fact that “the co-founders will wield majority voting control despite together owning less than 10 percent of the company’s equity, creating a substantial misalignment between those with control and those exposed to the economic consequences of that control.”

Seen from a different perspective, these investors likely viewed dual-class shares as the antithesis of democratic decision-making, paving the way for autocratic rule.

“The notion is that equity interests should align with voting power, and that super-voting shares can lead to distortions that disadvantage other shareholders,” said CII executive director Ken Bertsche, who expressed his concerns in an interview with IR Magazine.

Bertsche’s fears are not unfounded.

Just before Lyft’s IPO, Smartkarma raised some red flags on the company’s rate of cash burn that would easily make any investor squirm. Here’s an excerpt from our pre-IPO commentary:

 

“…the company will need at least US$2 billion to make ends meet in the next two years. If it manages to raise roughly that much through its IPO [which it did], chances are it needs to raise more funds in two or three years. That would potentially mean a secondary share offering, diluting existing shareholders’ stakes.”

Read the full article: Lyft’s IPO May Be Oversubscribed but Investors Are in for a Bumpy Ride

 

But there is a flip side.

Some proponents argue that dual-class shares are a necessary evil, allowing public companies the space to implement long-term plans without having to deal with voter-induced gridlocks. Others contend that it acts as a shield against potential hostile takeovers in the future.

Whichever the case, this fiasco could have been better handled from an investor relations standpoint.

The Heart of the Matter

Was a cold, hard letter really necessary for investors to make their grievances heard? And, did it achieve the desired outcome?

Lyft went ahead and issued dual-class shares, anyway.

In our opinion, the real issue at hand wasn’t so much in making the unpopular decision as it was in failing to communicate openly about it.

For example, when reputable media, such as IR Magazine and the Financial Times, tried contacting Lyft for comment on the letter, the company failed to respond. That kind of attitude surely needs to change if they are to avoid raising suspicion among investors.

Lyft could start by being more approachable, which will go a long way to establishing trust, thus easing investors concerns somewhat.

“Being publicly traded means being responsible to all shareholders, not just the founders and other pre-IPO investors who continue to have the preferential voting class of shares,” notes Dayna Harris, partner at corporate governance consultancy Farient.

“This responsibility and other expectations about good governance are constantly evolving, and a publicly traded company needs to be responsive at some point.”

Take the First Step

The simple act of getting listed on an IR directory can ease frustrations among investors seeking to connect. Smartkarma’s Global Investor Relations Directory helps IROs be more easily accessible. Join now, and add your details for free.

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Your Company’s Blind Spots Might Matter More to Investors Than Your Financial Disclosures

Your Company’s Blind Spots Might Matter More to Investors Than Your Financial Disclosures

By | Corporates

Investors looking for sound opportunities generally require a great deal of information on a company – but what kind of information they look for in such disclosures might not be immediately obvious.

Access to financial reports used to be a key determinant of company performance. However, that is no longer the case. More and more investors are coming to realise that earnings data alone can sometimes fall short in their ability to pinpoint threats to future growth and/or profitability.

Investors are starting to think of disclosures more holistically, and are more open to additional ways of scrutinising listed firms.

The Market Demands More Workforce Disclosures

IR Magazine recently published the latest results of the Workforce Disclosure Initiative (WDI).

The study found that more than 120 investors, with combined assets exceeding US$13 trillion, had asked listed companies to disclose information on how they manage risks and harness opportunities in their workforce and supply chains.

What’s the significance of this finding?

“The initiative notes that investors are increasingly seeking this type of comparable data in order to engage with the practices of investee companies,” writes Andrew Holt, the reporter who authored the piece.

Matt Christensen, head of responsible investment at AXA Investment Managers (part of the WDI coalition), agrees: “As long-term responsible investors with several social-related funds, the data collected against the WDI is used to provide in-depth and complementary information to our social performance and impact assessment.”

But there’s still some way to go before substantive disclosures become the norm.

About half of the respondents provided no detail “on who is involved in the workforce risk-management process, how frequently it is carried out, or what areas of the business are covered.” In the long run, this issue could evolve into a major concern for investors.

Workforce risk management disclosures, Investor relations, corporate access

In Vogue: ESG Disclosures

Elsewhere, years of “greenwashing” PR campaigns have led some investors to question the compatibility of ESG factors with their pragmatic desire to seek returns.

Get in deeper with our commentary: Why ESG Investing Must Move Beyond the PR Stunts and Greenwashing

While sustainable (or impact) investing is still catching on, the rationale underpinning its approach is hard to dispute.

Take for example, the fast-fashion industry: As the price of clothing declines, consumers buy more clothes and wear them less frequently. But at what cost?

According to research published by Investory on Smartkarma, Asia has emerged as the global septic tank of textile pollution thanks to this trend.

Read the full report: Fast Fashion in Asia: Trendy Clothing’s Toxic Trails – Investors Beware

“[Could] your $20 shirt have contributed to toxic chemical poisoning of villagers along Indonesia’s Citarum river? [Or the] bleaching of corals along Australia’s Great Barrier Reef? Possibly yes,” Investory opines.

 

Did you know?

Cotton farms take up less than 3% of [the] world’s arable land, but use 16% of all pesticides.
– Investory

 

Your Company’s Blind Spots Might Matter More to Investors Than Your Financial Disclosures

versus

Many consumers are already beginning to weigh the environmental and social footprint of their purchases. Accordingly, fashion houses such as H&M, Levi Strauss, and Gap, find themselves forced to embrace sustainability, or risk losing customers.

This sets up investors to get in on the act and start holding these brands accountable, like they have done previously with “vice” sectors like tobacco.

A Golden Opportunity for IROs to Engage

In addition to the aforementioned non-financial disclosures, there are others, such as boardroom diversity, that carry equal weight in the eyes of some investors.

Interested parties seeking such unconventional information have difficulty obtaining it, thanks to a lack of viable communication channels. This leads to missed opportunities for investor relations officers (IROs) to engage with those parties on a deeper level.

Smartkarma’s Global Investor Relations Directory helps IROs be more easily accessible to investors. Join now, and add your details for free.

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IROs arrange private investor interactions between earnings cycles

IROs Often Wait Until Earnings Season to Engage Investors. They Shouldn’t

By | Corporates

News headlines like “Company X Beats Analyst Estimates in Full-Year Earnings Report” and “Shares of Company Y Plunge on Biggest Loss in Decade” are not rare to see during earnings season.

They typically have the power to move markets, sending share prices of the companies in question climbing or plummeting.

In light of what’s at stake, it’s perfectly understandable that most, if not all, investor relations officers (IROs) spend an inordinate amount of time preparing for an earnings event.

Some have even been known to go as far as preparing FAQs in anticipation of hard questions, or providing clear forward guidance on future revenue and growth.

The methods of approach may differ between companies but their core objective remains one and the same: retain and/or bolster investor confidence.

Private Interactions Matter More Than You Think

Is it logical, then, to assume that deep investor interaction occurs mostly on a seasonal basis?

No, it’s not.

Survey results published in a Harvard Business School white paper reveal that the average publicly traded firm conducts more than 100 one-on-one meetings annually with investors. In fact, 70 percent of firms grant offline access to senior executives.

Private investor access to senior executives

Clearly, interactions between investors and company executives extend far beyond earnings season. And why shouldn’t they?

Pivotal industry developments and major company announcements often occur suddenly and unexpectedly. Depending on their scale of significance, investors sometimes need an avenue to raise queries and have them answered in a timely manner.  

The urgency for IR teams to communicate is amplified many times over when a company encounters a catastrophic event. Boeing, for example, saw its share price spiral into a freefall after news of a second 737 MAX crash cast doubts on the jet’s order backlog, worth billions of dollars.

Attempting to restore lost confidence, Boeing CEO Dennis Muilenberg released a letter on 18 March to express deep regret about the two air tragedies.

Muilenberg also took the opportunity to announce the imminent release of “a software update and related pilot training for the 737 MAX that will address concerns discovered in the aftermath of the Lion Air Flight 610 accident.”  

However, the move proved to be too little, too late.

Boeing’s share price had already dropped nearly 12 percent by then, when measured from the last trading day (8 March) prior to the Ethiopian Airlines incident (10 March).

Chances are, a market sell-off would have ensued anyway – it was the second such accident in five months. Even so, there’s still the possibility that the ticker’s plunge could have been better cushioned with more deliberate IR-investor interactions.

Making the Connection

So, that brings us to our next question: How do IROs typically arrange private interactions?

Organising investor and analyst days in between earnings cycles is one way. The problem, though, is they might not always coincide with important events.

IR departments also depend on the sell-side to arrange ad-hoc meetings between investors and their senior management. Such gatherings enable shareholders to ask questions about the firm. They can clarify certain aspects like a new business strategy or a recent capex investment.

But what if investors prefer exclusive access outside the confines of these events? Are they able to get in touch with the company’s IR team seamlessly?

Smartkarma’s Global Investor Relations Directory helps IROs be more accessible to investors. Join now, and add your details for free.

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Hard for investor relations to reach new investors

It’s Hard Enough for IR to Reach New Investors. Don’t Play Hard to Get

By | Corporates

What makes a leading investor relations team?

After being asked this question in an interview with Deloitte, Christopher Jakubik, VP of Investor Relations at Kraft Foods, replied with an interesting mantra, which he calls “constructive dissatisfaction”.

To deconstruct this, Jakubik alluded to “the sense that you should never assume that what has worked in the past is appropriate for the present or future.”

At first glance, the term may seem nothing more than a general guiding principle. In truth, it’s profoundly relevant to how modern-day IR departments pursue new, prospective investors.

Conventional Challenges

IR teams typically deploy an array of methods to identify the right investors before strategising how to reach out.

However, their efforts often meet with numerous obstacles. For instance, the sell-side often fails to make vital introductions to preferred investors.

Over-reliance on underwriters can sometimes prove extremely challenging for IR officers, and equally frustrating.

Why?

The sell-side relies on two main avenues for generating revenue:

  1. Trading commissions
  2. Bookrunning fees  

Taken into context, it’s only logical that the sell-side’s vested interests be represented when introductions are made so as to make such meetings worthwhile.

If an introduction has little to no chance of yielding future commissions and/or fees, it doesn’t make sense to do it at all.

Similar motivations govern sell-side coverage selection. Read our article: Congratulations, Your Company Got Analyst Coverage. But Is It Useful to the Buy-side?

Don’t Neglect the Inbound Funnel

But outreach is only part of the equation.

IR teams should also be easily accessible in case investors express an interest to make first contact.

One common way companies make themselves available is by publishing their IR contact details on the channels they own, including their website and social media pages.

As well as implementing this so-called best practice, IR officers can also leverage the network effect of sector-relevant platforms. Tapping on the high concentration of buy-side professionals that use them to monitor markets and inform decision-making can yield the desirable results.

A study conducted by Smartkarma, however, has shown that only a fraction of companies make it easy to be contacted via platforms like the Bloomberg Terminal and S&P Capital IQ.

Of the roughly 26,000 companies from more than 70 countries Smartkarma analysed, we found that nearly three-quarters of the sample size failed to list even an IR email address, while close to two-thirds had no designated IR officer for investors to contact.

The unfortunate consequence is that corporates miss out on the chance to receive potential queries and/or leads.

Investor Relations Email Availability

This ends up limiting investor interest in their companies, which could have a direct impact on investment from the buy-side.

Unconventional Solutions

Besides getting aboard Bloomberg and S&P Capital IQ, are there other avenues for IR officers to explore?

Here’s one: Targeted contact lists, such as Smartkarma’s Global Investor Relations Directory, offer a cost-free opportunity to expand a company’s IR footprint. (Add your IR details here.)

And why not? Being listed on an independent investment research network brings the upside of gaining legitimate exposure without the downside of being vulnerable to spam.

There’s a fine line between communicating proactively and spamming. Read our article: Investor Relations: How to Win Friends and Alienate Spammers

Bottom line: To all IR officers, do not settle on the status quo. Reaching new investors demands a relentless mindset of constantly searching for new avenues to get the word out and be more accessible.

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Decline in the quality of sell-side research coverage

Congratulations, Your Company Got Analyst Coverage. But Is It Useful to the Buy-side?

By | Corporates

Analyst coverage is something companies pursue constantly. Why?

C-Suite and Investor Relations (IR) of listed companies recognise that the buy-side relies fairly heavily on analyst opinions about a company to make investment decisions.

It’s easy for IR teams to find comfort in the fact that they already have analyst coverage. As a result, they become complacent as they feel that they only need to engage the analysts they have already engaged to ensure sustained coverage.

However, here is what those IR teams are missing:

  1. Sell-side analysts can stop their coverage as and when they deem fit
  2. The quality of research might diminish, providing the buy-side with no added value

Analysing Sell-side Coverage

The following points illustrate how a company typically gets coverage by the sell-side:

  1. Company IR personnel/teams engage sell-side analysts and share the company’s story, with the goal of enticing them to initiate coverage.
  2. If successful, this push results in a lengthy and detailed initiation report, analysing the company from various angles and in depth.
  3. Analysts typically absorb new details and update their models once the company releases its results during earnings season. They do so to reflect how things have changed since their last report.
  4. This process continues until a sell-side firm decides to cut coverage on a company.

In the past, the reasons for cutting coverage on a company could be based on a few of these scenarios:

  1. Lower trading commissions generated by less frequent buy-side trading of that company’s stock
  2. Failure to run a deal through the bank

Today, that pool of reasons has expanded to include the following:

  1. MiFID II causing the sell-side to re-think the economics of their research departments
  2. Sell-side reducing their headcount and, thus, their bandwidth to continue coverage of certain companies

Analysing the Quality of Sell-side Coverage

MiFID II’s impact across global financial markets has led to a decline in the quality of sell-side coverage.

Void of actionable input and opinion, many of them increasingly resemble auto-generated reports that merely regurgitate broad earnings figures.

Sell-side research is also known to be vulnerable to conflicts of interest, as the bank has other relationships to maintain. And conversely, when running deals, the sell-side might be precluded from covering certain companies going public.

What Should Corporate Investor Relations Teams Do to Change this?

Cast a wider net and engage independent analysts.

What Is the Advantage of Independent Analyst Coverage?

Independent analysts might not provide regular earnings-related updates, which are typical to the sell-side, but are more driven to provide insightful and actionable ideas to the buy-side.

Their coverage might not follow a standard approach, but it will be substantive.

Buy-side’s interest in independent analyst coverage has increased against the backdrop of the evolving set-up, pricing, and nature of sell-side coverage.

How to Gain More Coverage

  1. Promote your company
  2. Share updated investor presentations
  3. Keep analysts apprised on events that might impact your company
  4. Be accessible when they come back with questions

Smartkarma has launched a Global Investor Relations Directory. Add in your details to be accessible to analysts and increase insightful coverage on your company.

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