Investors question firms’ game plans as risks multiply
Public companies are facing greater heat from investors over their long-term game plans, according to a new corporate survey.
A growing number of investor relations officers (IRO) are reporting higher levels of scrutiny from shareholders over the direction in which their listed firms are heading.
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Governance issues such as board composition and executive pay were also flagged as increasingly important issues, according to the 479 IROs whose companies represent a combined market value of over $3 trillion.
The report from Citigate Dewe Rogerson found that 63 per cent of IROs say there is higher interest or pressure from investors regarding their long-term strategy.
Investors are increasingly taking scrutiny into their own hands because there is less analyst coverage of companies that they can rely on following the introduction of Mifid II, the report said.
Technological changes and the rise of index-tracking funds that cannot sell a company’s shares has also driven a growing interest in the long-term ambitions of firms.
More than 20 per cent of IROs also said they have perceived an increased threat of an activist approach, underlining rising threats of smaller companies being targeted.
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“The trend towards increasing emphasis on long-term strategy chimes with feedback from our clients and the investment community. The pace of technological change is extremely fast, as is the speed with which businesses are adapting. This makes it critical for companies to articulate their strategy effectively,” said Sandra Novakov, head of investor relations at Citigate Dewe Rogerson.
She added: “MiFID II has also played a role, we believe, by reducing analyst coverage.
“In addition, we think the growth in the popularity of index funds is a significant factor. These funds cannot, by definition, sell a company’s shares, so they seek to improve performance by focusing on ensuring good standards of corporate governance and by emphasising effective long-term strategy.”
Less than a third of IROs feel that their chairperson has a strong relationship with top 10 shareholders.