The impact of regulation
While all market constituents are working to understand and implement the manifold implications of MiFID II, for the IR community, the requirements are clear - if daunting. Broker coverage will likely decline as funding models change, meaning that small and mid-cap firms will receive less attention from a smaller pool of analysts. According to Bloomberg Professional Services, to combat this dearth of analysis, companies “will need to reach out and market directly to a much wider pool of independent and boutique research houses, as well as fund managers, while servicing with greater care the remaining research analysts covering their stock”. Achieving that goal will require cultural, technological and strategic change for companies of all sizes and shapes.
While the channels those companies have relied on for disseminating their stories are narrowing, the content of those narratives must also change. Regulators are placing the emphasis on concepts such as ‘stewardship’ as a way of moving away from short-termism towards a more holistic longer-term outlook. As the Kay report stated, “a stewardship relationship based on an understanding of company fundamentals creates an environment of trust and constructive challenge which enables those managing the company to take good long-term decisions on investment and strategy.”
It seems likely that regulatory bodies across the world will build on these themes in the years ahead.
Regulators are not the only audiences who are looking for companies to change tack in the way they report and communicate. There is genuine and broad-based demand from the asset management community for more (and more high quality) information on long-term company strategy, social impact and (in its fullest sense) risk reporting.
“a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.”Larry Fink, Chairman and CEO, Blackrock
Asset managers are both looking for better and more responsible governance, while also changing their own structures to meet the requirements of their investors. The emphasis on the long-term is having a direct impact on proxy voting. Blackrock, to take one prominent example, has recently announced plans to double the size of its Global Investment Stewardship Group, “The time has come for a new model of shareholder engagement – one that strengthens and deepens communication between shareholders and the companies that they own.”
Technology to the rescue?
For IR teams, all of this presents a conundrum. They must fill the void left by declining research coverage while simultaneously deepening relationships with end-investors. According to a recent report by BNY Mellon and the IR society, the average annual IR spend for a mid-cap company is a healthy $388k. While that may constitute a substantial line item for many firms, it is going to have to increase significantly if companies are to maintain the liquidity of their stock, “IR teams should waste no time in securing an adequate IR budget and getting the resources and tools in place to proactively deal with the new reality.” Clearly, simply increasing the number of face-to-face meetings and presentations isn’t going to work.
As we would expect, in parallel with seeking greater resources, IR teams are also looking for technological solutions that will help them boost shareholder engagement. For large and mega-caps some of those solutions are radical and expensive – such as the use of AI chat-bots to handle shareholder requests.
The truth is that the technological revolution we see in our day-to-day and professional lives has not yet delivered viable and effective solutions for the IR community. Company websites are necessary and useful tools, but they don’t help push content out to those who are not already to some extent aware of a given brand and its investment proposition. Social media tools were designed for personal interaction and are not fit for purpose when it comes to communicating regulated information in a controlled and professional context – nor are they without risk. While IR teams have embraced new forms of content (albeit belatedly) such as video, they struggle to attract the attention that their investment of time and money deserves.
Technology may have hinted at the answer to the changing requirements of IR teams, but it hasn’t yet served up the full solution.
Why Senasen is different:
Our platform represents a major step forward for companies, asset managers and investors. It was designed specifically to increase interaction and communication between all parties, and to do so in an environment that is professional, compliance friendly and easy to navigate.