Increasing disconnect between corporate boards and shareholders as IR teams struggle with growing workload and diminishing analyst forecasts

Results of Citigate Dewe Rogerson’s 10th Annual IR Survey  

Citigate Dewe Rogerson’s 10th Annual IR Survey, based on responses from 221 Investor Relations Officers at leading companies across the world, reveals a disconnect between corporate boards and shareholders whilst IR teams struggle with increased workload and diminishing analyst forecasts as a result of changes in their market environment.

Lack of regular board engagement with shareholders 

Since the launch of our first annual IR survey in 2009, the FTSE All-World equity index has nearly trebled, representing the longest bull market in modern history. Over that period, there has been a relentless rise in passive investment which not only reduced the active pool of capital that companies can target but also triggered ever-increasing pressure on companies to achieve and maintain strong governance standards. The parallel rise in shareholder activism has compounded this trend, with activists often seeking support from an increasingly concentrated pool of passive holders.

In this context, regular board engagement with investors is now a critical component of the IR programme that many companies are missing. Our research findings show that:

  • 37% of chairmen do not engage with investors outside the AGM
  • 49% of companies do not offer investors the opportunity to meet non-executive directors
  • 42% of board directors (excluding the chairman, CEO and CFO) never meet investors outside the AGM
  • 59% of companies do not have an activist response strategy in place
  • 66% of IR Officers do not regularly attend board meetings

At this time of heightened economic and political uncertainty across the world, there is little room for complacency. Companies that do not implement greater integration of board engagement into ongoing communications programmes, and ensure regular dialogue between board directors and IR, will leave themselves increasingly vulnerable to shareholder revolt.

IR teams under pressure

Following the implementation of MiFID II in January 2018, our research shows that small and mid-cap companies in particular are starting to struggle. Changes in research coverage are more pronounced among smaller companies, with 57% of small-cap IROs noting a decline in ‘maintenance’ coverage against 26% of large-cap respondents. Inclusion in thematic reports also appears largely dependent on company size.

Only 2% of small-cap IROs have noticed an increased number of such reports featuring their company against 12% of mid-cap and 17% of large-cap respondents. Despite realisation by IR teams that more work will need to be done in house going forward, we note no real sense of urgency at senior management level as IR budgets remain unchanged or even down year-on-year. Our research findings show that:

  • 44% plan to refine their investment case to ensure differentiation against the investment peer group
  • 38% plan to take greater control of investor targeting (vs. 27% in 2017)
  • 58% plan to make significant changes to their IR website and 54% are upgrading the investor presentation
  • 45% are increasing non-deal roadshow activity with 28% planning to host a greater number of group events
  • Yet, 77% have no plans to increase the size of their IR team while 80% of IR budgets are either unchanged (63%) or down (17%) year-on-year

A new dawn for expectation management

In response to the continued decline in the quantity and quality of sell-side research, the value of analyst consensus as an expectation management tool is diminishing. Mid-cap companies which used to attract a reasonable volume of sell-side coverage face a prospect of having to issue more detailed guidance in an attempt to assess and manage market expectations without the benefit of a meaningful analyst consensus. In addition to company guidance, we expect regular sentiment monitoring to play an increasingly important role in this process.

Our research findings show that:

  • 56% of companies do not produce an analyst consensus, up from 46% in 2017
  • 72% state that they currently have no need, or intention, to implement changes in their approach to guidance
  • 28% do not formally track market sentiment (vs. 19% in 2017) but in-depth perceptions studies are gaining in popularity with 42% of companies commissioning such surveys, against 36% in 2017

To view the full report click here.

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