Ask the Expert: what will be 2012’s biggest test?
What will be the biggest challenge for investor relations in 2012?
Jeff Morgan, president and CEO, NIRI
Last year ushered in a new level of market volatility not seen in recent times with equities experiencing extraordinary monthly, weekly and even daily swings. Coming out of this period of extreme volatility, many expect investors to scrutinize their investments even more intently in 2012.
IR professionals will be on the front lines of this corporate information flow, and must be sure they listen even more closely to those interested in their companies and ensure they are providing all of the information necessary for investors to make informed investment decisions.
While this is exactly what IR professionals should be doing already, I believe the difference will be in the level of scrutiny companies will undergo in 2012 as investors and potential investors perform even deeper levels of due diligence.
Public companies and their IR professionals will need to listen carefully for subtle messages:
‒ What are the company’s plans for idle cash and how does this help shareholders? Hint that investors are becoming impatient waiting for cash deployment and they will move on to other investments soon.
‒ How is the company minimizing exposure to the European debt crisis while not sacrificing growth? Investors don’t want surprises if Europe continues to unravel.
‒ Is the company’s board engaged, or more of a rubber stamp? What is the organization’s executive compensation philosophy? Are shareholders urging for proxy access or other potentially disruptive proposals? Corporate governance issues will carry more weight in 2012, and investors are likely to conduct governance peer comparisons.
‒ What is the word on the street, and among customers, on social media platforms? What is the company’s social media strategy, and how well does it monitor and use social media to create a dialogue with the investment community? Investors are likely to pay more attention to social media as a way to gain better insight and an investment edge. Companies should be sure to match investors’ social media interest, incorporating new communications methods where appropriate.
Political issues such as the unresolved European debt crisis and the US elections, a likely very active proxy season, the slowly growing US economy, and general financial market jitters are sure to affect our profession in 2012. Investor relations professionals must be prepared for the resulting challenge of an even deeper level of scrutiny from the Street during another very active year.
Jeff Morgan is president and CEO of NIRI, the largest IR association in the world with more than 3,500 members. Before joining NIRI, Morgan was chief operating officer of the Futures Industry Association for nine years.
Michael Littenberg, partner, Schulte Roth & Zabel
This year, IR professionals will continue to face many of the same legal and governance-related communications challenges as in 2011, with a few new additions.
In the ‘new for this year’ column are private ordering proxy access proposals. The SEC’s mandatory proxy access regime was struck down by the courts, but amendments to Rule 14a-8 that allow for private ordering access proposals took effect last September.
A fairly small number of private ordering access proposals are expected to be filed in 2012, and the success of this year’s crop of proposals is likely to be a driver of the use of this tool by governance activists next year.
The recurring governance item receiving most attention this year is the say-on-pay vote. Given the overwhelming shareholder preference last year for an annual say-on-pay vote, the issue will again (and each year going forward) be on the ballot at a large number of companies. In 2011 around 40 companies experienced a negative say-on-pay vote, and breach of fiduciary duty claims were brought against directors at a significant subset of these companies.
This year, expect the say-on-pay resolution to receive a more critical look from many investors and the proxy advisory firms. There will be a greater focus on both pay for performance and pay practices at comparable companies. At some firms, compensation practices are also likely to increase pressure on the director vote. The continuing focus on executive compensation underscores the importance of an active IR role in crafting compensation disclosure and communicating the ‘why’ behind compensation decisions.
Shareholder proposals relating to political contribution disclosure will continue to be on the agenda and are likely to experience an uptick in 2012, due to both the Citizens United case and the current political environment in the US. As in prior years, governance activists will also continue to advocate for other governance changes such as majority voting, independent board chairs and board declassification.
Finally, IR professionals need to be mindful of pending Dodd-Frank rule-making initiatives that may result in new legislation later in the year, in particular conflict minerals and internal pay equity disclosure.
Michael Littenberg is a partner in the New York office of the international law firm Schulte Roth & Zabel. He has more than 20 years of experience representing public companies in transactions and ongoing disclosure and compliance matters.
Rob Berick, senior managing director, Dix & Eaton
I think the biggest challenge for IR in 2012 will be effectively and efficiently managing investor expectations in a still-unsettled global marketplace, both in terms of future financial performance and appropriate uses of cash. While there are signs of improving investor confidence, the bears have not yet gone into hibernation.
As a result, any perceived anomaly, misstep or shortcoming by a public company will continue to have an exaggerated impact on its valuation in the near term. This phenomenon will be even more acute for US-listed companies, which will have to weather the incessant and emotionally charged noise (and ever-changing polling results) that will surround the US presidential election in November.
In this uncertain environment, IR professionals will need to consistently educate investors on the intangible assets – as well as the external factors – that will influence outcomes while repeatedly connecting the dots between strategy and results. Similarly, the IR professional must be deliberate in capturing unvarnished feedback from investors over the course of the year so that the management team and board have a clear understanding of how the investment community is valuing the company, its industry and its end markets.
Finally, given the pressure fund managers will continue to face to show results or drive change in the absence of results, IR professionals will need to take another step forward in assisting the corporate secretary, general counsel and the board in navigating the flow of communications with regard to corporate governance issues.
Rob Berick is senior managing director at communications consultancy Dix & Eaton and oversees the firm’s investor relations practice. Over his nearly 20-year career, he has developed and executed investor relations programs for companies in a wide range of industries and market-cap sizes.