Dodd-Frank and the SEC, investor activism, social media and share ownership were all on the table at this year’s East Coast think tank
At the intersection of Wall Street & Washington, DC (comments are anonymous as IR Magazine Think Tanks take place under the Chatham House Rule)
‘Over the past five or six years I’ve seen more companies become engaged with Washington, partly because of Dodd-Frank and all that’s going on around business practices after the financial crisis. Now agencies like the SEC are getting much more involved in bringing a whole new level of transparency and accountability, not only to the US market, but even to US-based companies operating overseas, which is a whole new design in regulation to watch out for.’
‘The pay ratio rule is one of many that may not only burden companies with wasted time, but also – ultimately – may not be worth the cost. There’s been a push to make agencies do cost-estimate and impact studies for new rule-makings. I think that’s a smart thing to push.’
‘The SEC has put off rules for political spending disclosure, but a lot of shareholders are asking for it, and it’s not a bad thing. They appreciate that companies are protecting themselves by being engaged in the political process. The more you back away from engaging with policy makers, the less they’ll understand your business, and you’re not going to fare well when they look at policy that affects you.’
‘As a government affairs officer, I get together with our IRO as much as possible and send updates on a weekly basis. For our annual meeting, we go through a whole exercise making sure he and our executives are prepared to answer questions about our political spending or activities, or any of our numerous policy and regulatory issues.’
‘Our customers are too-big-to-fail banks so certain strokes of the pen when writing the Dodd-Frank Act would have outlawed large swathes of our business. We are much more engaged with Washington than we ever were before and, as we’re relatively small, we teamed up with competitors to form a joint lobbying group.’
‘Members of Congress say there’s a lot of animosity in DC. Ten years ago they’d have been talking to each other across the aisle, trying to make policy happen. Not anymore. At the SEC meeting on the pay ratio, there was a lot of hostility toward the commission and a lot of partisanship.’
Tipping point for activism
‘This year has been a watershed. Companies that were once thought of as untouchable – JC Penney, Apple, Microsoft, Hess – are facing agitation, where once it was only much smaller firms that were vulnerable. The stigma of activist investing is no longer there and traditional long investors like T Rowe Price, Fidelity and Neuberger are the ones pressing activists, saying, I’m sitting on dead money. You’ve got to do something and I won’t stand in your way. Whether it comes down to funding or collaboration by gold-standard investors, it’s the new paradigm.’
‘The fact that Carl Icahn found Twitter is amusing but also very scary. In our world there are activists like Icahn who have proven themselves, and then there are those we characterize as ‘the schnooks’ coming out of the woodwork. Anyone can post a letter on Seeking Alpha and it gets picked up by Yahoo! Finance, and that scares boards and management no end.’
‘Over the last two years, activist assets have grown about 23 percent, to more than $500 bn, including inflows and market performance. Hedge fund assets within that group have grown about 35 percent and now represent 61 percent of the total, up from 55 percent.’
‘Companies worry about the wolf pack coming in after an activist declares a stake. But that’s an impact of only 3 percent to 5 percent of shares outstanding – not anything dramatic. The impact now is from traditional money managers, who may not have been overly vocal before but, when an activist comes in, they really add to the momentum.’
‘We’ve been surveying institutional investors about proxy statements. Companies get good grades for how well they explain board independence, but poor grades for pay-for-performance alignment and performance goals and metrics.’
‘There’s a half-page op-ed in the Wall Street Journal today about shareholder democracy and why directors are evil tyrants – written by Carl Icahn. That’s an example of how shareholder activism has evolved over the last 10 to 15 years. Now more than ever, shareholder activism is an accepted form of investing.’
Social media showdown
‘Our CEO said he won’t use Twitter because our company is too complex to be summed up in 140 characters or less, which is the length of a tweet. As a tech company, however, we monitor what the techies are saying on social channels, and that kind of intelligence does weave its way into mainstream media coverage as well as into the messaging in the Q&A we develop each quarter.’
‘Ninety percent of the dialogue around social media is about pushing the information out. But the real value of social media is that it’s the largest focus group in the world – it’s an incredible intelligence source. As an IR professional, you need to listen first. One Fortune 100 company takes the top themes in its earnings call script, scours social media around those themes, then prioritizes them during the call based on social intelligence.’
‘We’re a social company, a social brand and we have a social leadership team. IR is not in a vacuum, so it has to be social, too. While social media may be an unconventional point of access, however, you just have to treat it the same as any meeting or phone call. Every rule still applies.’
‘For our shareholders, whether institutional or retail, discussion on Twitter adds to the mosaic. They can crowdsource their due diligence, and management benefits from that insight, too. Hopefully we get more questions than we can answer, forcing us to concentrate on topics where there’s a need for information.’
‘When I was a sell-side analyst, I went nuts on social media following as many people as I could find who were voices in the industry – what they were talking about, the events they were going to, things they were dissatisfied with. I created a megaphone that talked to me about the industry, giving me so much stuff I could then repackage as invaluable research.’
Changing ownership disclosure in the US
The NYSE, NIRI and the Society of Corporate Secretaries and Governance Professionals want the SEC to shorten the deadline for institutions filing 13Fs from 45 days after the end of the quarter to just two days.
After a backlash from institutional investors who said the scheme would rob them of their intellectual property – investment ideas – NIRI chief executive Jeff Morgan has suggested a third alternative: confidential monthly filings with a 30-day deadline, with the SEC then providing the ownership information to companies confidentially.
Wishful thinking: ‘Don’t tell me you can’t give me the information two days after the end of the quarter. I am sensitive to the fact that investors don’t want to tip their hand, but there has to be a middle ground. Disclosing 45 days after the end of the quarter is useless, while at the same time corporations are required to report every material development instantaneously. It’s a completely unfair situation.’
Back to earth: ‘Disclosing positions two days after the end of the quarter would put your best investors – the Fidelities and Vanguards of the world – at a disadvantage. The reason is that hedge funds have so many ways of artificially owning stocks and flipping out of them at the end of every reporting period to mask their ownership. In principle, I agree we should have more clarity about who owns our stocks and when but, in practice, it’s a nightmare.’
IR Magazine Think Tanks are invitation-only events for select groups of corporate IROs. Find out about upcoming think tanks around the world at www.irmagazine.com/events.
