When Clare Harrison wrote the November 2006 IR Magazine cover story Capital destination – covering how and why London was leading ‘the battle for listings’ – the City was well ahead of its US peers on foreign IPOs.
IR Magazine November 2006:
‘The total value of foreign IPOs listed on the London Stock Exchange (LSE) up until October this year is more than three times the figure for the NYSE and around eight times the figure for Nasdaq,’ Harrison wrote.
This, she said, was down to a difference in approach between the more regulation-focused US exchanges and the LSE. ‘Our approach is based on principles,’ explained LSE’s then spokesperson Anya Velzeboer at the time. ‘If a company doesn’t adhere to a requirement, it has to explain why. We are providing an open and transparent market.’
If LSE-listed companies don’t adhere to the UK’s Combined Code on Corporate Governance, which is overseen by the Financial Reporting Council (FRC), they must give their reasons for not doing so, added Harrison. ‘It’s this ‘comply or explain’ approach that sets the UK apart from the ‘comply or go to jail’ model used in the US,’ she wrote.
The code today
One of the reasons for the LSE’s success in attracting foreign listings was the UK’s focus on corporate governance, with Christiaan Brakman, then spokesperson for the NYSE and now global advisory council communications executive with Bank of America, attributing London’s success to the fact that the Financial Services Authority (FSA) – now the Financial Conduct Authority – was so highly regarded. Velzeboer also noted that the regulator’s world-class reputation was a big draw – ‘so much so that other financial supervisory authorities throughout the world’ were using the FSA as a model for best practice, she said.
That code was recently updated, with the FRC releasing the much-awaited 2018 UK Corporate Governance Code in July. ‘The new, shorter code is the result of an extensive and lengthy consultation, and places emphasis on businesses building trust by forging strong relationships with key stakeholders,’ wrote Andrew Holt for IR Magazine at the time. ‘It calls for companies to establish a corporate culture that is aligned with the company purpose and business strategy, promotes integrity and values diversity.
‘There is a renewed focus on the application of the ‘principles’ – the FRC wishes to see clear, meaningful reporting. Investors and proxy advisers must assess explanations carefully and not take a tick-box approach.’
The main changes to the code, noted Holt, cover workforce & stakeholders, culture, succession & diversity and remuneration.
‘Corporate governance in the UK is globally respected and is a framework trusted by investors when deciding where to allocate capital,’ said Sir Win Bischoff, chairman of the FRC, in a statement announcing the amended code. ‘To make sure the UK moves with the times, the new code considers economic and social issues and will help guide the long-term success of UK businesses.
‘This new code, in its shorter and sharper form and with its overarching theme of trust, is paramount to promoting transparency and integrity in business for society as a whole.’
New York takes the IPO crown
While much was and still is made of London’s dedication to corporate governance, Harrison heard from some who suggested that the City’s 2006 surge in popularity could be a result of the Enron scandal just five years earlier, or that the higher number of foreign IPOs were mostly small listings on the LSE’s Alternative Investment Market, which would not have qualified to go public in the US.
And Jamie Allen, secretary general of the Asian Corporate Governance Association, predicted at the time that Asian tech firms would continue to be attracted to Nasdaq and its investors’ knowledge of the technology market. As a result, Allen said, ‘Nasdaq will continue to give the LSE a run for its money.’
While he was right that Nasdaq would remain the traditional home for tech firms, 2014 saw the massive Alibaba deal – in which the Hangzhou-headquartered giant raised $21.8 bn – go to the NYSE instead. The loss of Alibaba to the US is still being felt in Hong Kong, where regulators recently moved to allow dual-class shares after Hong Kong lost its IPO crown to New York last year.
A Brexit future
And what about London? Back in 2006, Harrison wrote that ‘Londoners maintain that their city offers international companies access to the world’s deepest pool of capital.’ Indeed, despite ongoing uncertainty as a result of the Brexit vote – with the 21-month transition period beginning at the end of March 2019 – London’s IPO market enjoyed a solid start to this year.
‘The financial services sector is dominating 2018 so far, accounting for 11 of the 16 IPOs – from both markets – and 51 percent of UK IPO proceeds,’ wrote Holt in April this year, adding that ‘this focus confirms that London continues to hold its position as a global financial center, despite political uncertainty.’
Looking ahead, EY’s IPO Eye report predicted that the influx of cross-border IPOs, which accounted for 26 percent of listings and 58 percent of proceeds in 2017, would likely continue as businesses sought to take advantage of the period of expected calm ahead of Brexit.
Scott McCubbin, EY’s IPO leader, noted signs of more IPOs in the pipeline, with an expected Q3 peak: ‘There are some signs of more listings from larger companies anticipating more significant deal sizes, but this part of the market is very much waiting for a first-mover to lead the way.’
As IR Magazine builds up to its 30th anniversary issue – the upcoming winter 2018 issue, which will be the 279th edition of the industry’s flagship magazine – we’ll be posting more throwbacks to old covers, revisiting some of the hot topics from the past 30 years of investor relations and hearing from some of the industry titans.