In late September, 60 of the best and brightest of the IR community around San Francisco and Silicon Valley gathered at the IR Magazine Think Tank – West Coast II.
When we brought this audience together in March earlier this year, there were the first substantive signs of the megatrends of ESG and Mifid II really affecting how people were thinking about their IR programs. How would the audience respond over the following six months and what else was on their minds by September?
Changes to targeting and engagement
One of the expected consequences of Mifid II is that issuers and investors will begin to engage directly, cutting out the sell side. While there were several people in the room – representing both issuers and investors – who said they are more open to direct engagement, there was also an acknowledgement of the value the sell side provides.
Mary Turnbull, senior vice president of corporate access at Raymond James & Associates, said the number of roadshows and conferences her firm is working on this year will be on par with 2017’s numbers, which were the highest the firm had seen. So while direct engagement may be more common, at this early stage it may be the case that it is on top of existing broker-led engagement, rather than at the expense of it.
Turnbull added that Mifid II is prompting a more fundamental partnership between the brokers and IROs. For instance, when institutions have a policy of not paying for corporate access, Raymond James will still include them in a roadshow, but will also ask the company to meet with paying prospects it thinks will be of value. ‘There’s a lot more dialogue to be had,’ Turnbull said.
She pointed out that IROs will get much more value out of corporate access if they share their target list in advance. ‘Everyone uses targeting software, and that’s the first line in targeting. But once you’ve identified the firm you’d like to meet, how do you know who you want to meet with?’ she asked. ‘Should you meet with the portfolio manager, the analyst or both? If we get that list upfront, we can provide real-time feedback and have better conversations.’
On the topic of who to meet with at an investor, PayPal’s head of IR Gabrielle Rabinovitch suggested looking beyond your traditional sector base. ‘If you’re taking the time to meet with [an investor], ask to meet with multiple portfolio managers,’ she said. ‘There might be some overlaps in terms of their investment thesis. At the larger long-onlys, you’re seeing a lot of rotation and a lot of analysts moving around, so it’s beneficial to see a large group when you go. You want to think about targeting within institutional investors, not just across institutional investors.’
Dan Romito, global head of investor analytics at Nasdaq, agreed that companies should broaden the range of sector specialists they target. Mifid II and the increase of assets flowing into passive funds is creating a ‘paradigm shift’ in investor engagement, he said. ‘There are a lot of best practices that are established when you ignore the old paradigm: there isn’t one new paradigm that has come in its place, there’s a whole series of new paradigms.’
In addition to targeting a broader range of investors outside of your traditional industry sector, Romito advocated for direct engagement and suggested instituting ‘Dial for Dollars Friday’.
‘The days of sitting back and allowing capital to come to you are gone,’ he said. ‘There are just too few people covering too many stocks. Reach out to investors and give them the value proposition. And don’t be afraid if there’s no interest.’
Don’t be a hedge fund bigot
Perhaps the most quotable line from the day was also told to Romito while he moderated his table discussion about investor engagement. ‘Don’t be a hedge fund bigot, be a turnover bigot,’ the person at his table told him. ‘There’s nothing wrong with meeting with hedge funds. It just depends on the individual. If the fund is long-term focused and stays in a stock for a long time, there’s nothing wrong with engaging with it.’
In a later session, Megan Capay, corporate relations at Surveyor Capital, relayed the challenges her firm faces as a hedge fund. She said sometimes she’ll hear that corporate access brokers will receive a target list from issuers, and her firm will have been blacklisted. In these situations, she has called for more information from the issuer about why that is. ‘Have you had a bad experience years ago? Do you just not want to meet hedge funds? Having that dialogue would be helpful going forward,’ she said.
Capay also noted that a quirky impact of Mifid II is that issuers should expect to see the ratio of hedge funds to long-only firms at roadshows tilt toward more hedge funds because they will be willing to pay for corporate access, unlike some large institutions.
‘ESG is a core part of not just attracting assets, but also retaining assets’
ESG has often been cited as a consequence of assets flowing into passive funds and, during an interactive session where attendees were asked to write down their biggest IR challenge, more than half wrote down a passive-related concern. During a later panel, however, Serena Perin Vinton, senior vice president and portfolio manager at Franklin Templeton Investments, outlined how active managers are also paying attention to ESG in a meaningful way.
Her firm is a signatory to the Principles for Responsible Investment (PRI), which she said places greater scrutiny on Franklin Templeton’s ESG integration. As a result, the firm has appointed an ESG ambassador and director of ESG research for every investment division it has. The firm’s approach is screening for ESG, not SRI, she said, so ‘it’s not precluding us from making any investments, but it’s helping us assess fundamental risk.’
Perin Vinton also spoke about the limitations of the ESG data currently available to investors. Franklin Templeton subscribes to MSCI and Sustainalytics, she said, but is not wholly satisfied with either service. For instance, she feels there is a cap size bias – where large caps receive a more favorable rating because they have more resources to put toward ESG disclosure. As a result of this, Franklin Templeton aggregates the data it receives from MSCI and Sustainlytics and then overlays its own research to reach a conclusion.
Perin Vinton also praised the Sustainability Accounting Standards Board’s (SASB) reporting framework, which is attempting to provide a degree of sector-specific standardization of ESG data. Earlier in the day, Anton Gorodniuk, financials sector analyst at SASB, outlined the balancing act ESG data aggregators face. ‘Everybody wants to tell a unique company story, but there is a need for investors to be able to compare companies,’ he explained. ‘That is the challenge and we’re trying to think about how to balance it.’
The role of IR in a crisis
Several of the sessions during the day underscored the value of strategic IR, including in reporting into the CEO and board. But perhaps the most arresting example came in a discussion about crisis management, during which attendees talked about how the number of risks to public companies continues to grow. Activism, short-sellers, data breaches, CEO departures, sexual misconduct… the list of emerging risks goes on.
The group agreed that IR has an opportunity to take the lead in crisis management if there isn’t already a concrete plan in place. ‘Know who should be at the table and have them know they’re expected to be at the table before a crisis occurs,’ said Lisa Hartman, president-elect of the NIRI San Francisco chapter. ‘If you don’t have a crisis committee in place, establish one. It’s a good way for IROs to be seen as internal leaders.’
Hartman also suggested tracking the types of crises other companies are facing by regularly following the news. By doing this, she said, IROs can think about how they would respond and who they would talk to if a similar situation arose at their own company.
