A useful review: The work of the Investor Forum in 2018
Established in 2014, the UK's Investor Forum has established an impressive body of collective engagement work for which it was set up. The recently published Investor Forum Review of 2018 reports the collective engagements with UK companies, with 12 different company situations identified for assessment – leading to six completed engagements.
Andy Griffiths, executive director at the Investor Forum, sums up for IR Magazine the themes the forum has dealt with since its inception. ‘We now have four years of collective engagement experience, during which time we have evaluated 42 engagements and engaged directly with the boards of 23 UK listed companies.
‘Our experience provides a track record that demonstrates one, important, way in which our members hold companies to account through their stewardship activity. The underlying drivers of the need for collective engagement continue to be one or more of strategic direction, operational execution, capital and resource allocation, succession, and corporate actions,’ he says.
In this way, Griffiths notes that collective engagement lends itself to complex issues with real strategic impact, and to situations ‘where investors are seeking to send a strong message to a company’.
Griffiths confesses that a number of engagements in 2018 were lengthy, with some involving more than one phase, as investor views evolved. ‘In these cases, a central resource for collective engagement was often important to create a common thread.’
Some big company names are included in the latest forum review, with the six successful completed engagements involving big hitting firms: energy group Centrica, tobacco company Imperial Brands, consumer goods company Reckitt Benckiser, biotech firm Shire, consumer goods company Unilever and polymer solutions specialists Victrex.
Did the heavyweight nature of the firms involved surprise Griffiths? ‘The increased fragmentation of the ownership of UK companies was one of the primary drivers of the creation of the Investor Forum,’ he says. ‘In large companies, it is often the case that investors express very different perspectives to companies. Where the dialogue has become frustrated, the collective voice can be effective in drawing board attention to the most important underlying concerns and issues.
‘That said, collective engagement has also proven to be very effective with much smaller companies as well, suggesting that the forum’s approach can be effective for all companies.’
Griffiths reveals no real big surprises emerged in 2018 for the forum, but more of the same type of hurdles they have encountered since the forum’s creation. ‘We have facilitated a number of conversations regarding the effectiveness of the dialogue between companies and investors. Our experience suggests that the reality of a deteriorating relationship, or a need for change at a company, is often in plain view but frequently obscured by a decline in the effectiveness of the dialogue.
‘We have found that companies are increasingly concerned that comply or explain isn’t working anymore and that investors often feel companies broadcast their views rather than seek to convince them of the merits of the proposed approach.’
Griffiths then shifts to a firm standpoint, a theme central to the forum’s work, which, in turn, has a strong message for IR: ‘As an industry, investors have far too many meetings that often cover tangential issues or short-term trends, rather than the factors that drive and support long-term value creation. The tendency to add another meeting to seek clarification is evident – companies and investors are equally at fault.’
To address these issues, the forum has commissioned a study to explore the nature of the dialogue between companies and investors, which will be published later in the spring. ‘Our experience shows that the forum can make a significant contribution to bridging gaps in the dialogue between investors and companies,’ notes Griffiths.
This is not mere hyperbole. The record thus far of the forum is of effective engagement work, and borne out further by the fact that it welcomed nine new members to its ranks during 2018, bringing the total to 43 asset managers and asset owners – a more than doubling of the membership from the original founding group. These members collectively represent approximately 30 percent of the FTSE All-share.
And given the changing dynamics and concerns over corporate culture, the Investor Forum is set to have much work to do in the future.