What the buy side wants from corporate access
As one of the cornerstones of investor engagement, effective corporate access activity is key to an IRO’s success. Here, we talk to two experienced investors: Chantal Brennan, research director at Davy Asset Management, and Matthieu Rolin, portfolio manager at Aviva Investors. They give us a unique insight into how corporate access can be improved and share their views on how the exercise can be a worthwhile – and mutually satisfying – affair.
How well do you feel companies currently deal with corporate access?
Matthieu Rolin: Most companies understand the need to attract long-term investors that will stick with the firm during its development. Most companies do a great job, giving detailed information about the strategy and the business outlook, and their investor relations teams are usually very professional and willing to satisfy investors’ curiosity. Nevertheless, there are still some companies that do not make enough effort, that maybe feel they do not need to focus so much on corporate access because everything is going well and most investors love them. They should keep in mind that growing a long-term investor base that will not let them down during the darker days is a good thing.
Chantal Brennan: From a geographical point of view, North American and European companies manage corporate access well and have professional IR departments that are used to dealing with investors, whether institutional or retail. I have found it somewhat more complicated organizing meetings with Japanese companies as they may ask for translation services, even when they speak excellent English. Persistence is key.
In your experience, what has been the impact of regulation on corporate access activity?
CB: I believe the environment is changing. Investors are better placed now that brokers can no longer control access to corporates. I have experienced many occasions where access to corporates was misused by brokers to boost their trading revenues by refusing meetings if they were not on, or added to, your firm’s brokerage list, even if you were a shareholder. This approach has yet to fully change despite the 2014 ruling from UK regulator the Financial Conduct Authority on corporate access. The new system is, in principle, better – but there are new tactics by brokers such as refusing to allow investors the opportunity to attend conferences where companies are presenting by saying the meetings are overbooked, even if they are prepared to pay to attend the event and have responded well in advance.
MR: Regulation has not currently changed my corporate access to companies to any significant degree – it has been neither a drag, nor a booster. The new Mifid II regulation will most likely increase competition between brokerage companies and IR companies.
What are your main frustrations when it comes to corporate access?
MR: For me, the biggest frustration is the lack of disclosure and transparency from management teams. Some companies are not that keen to give detailed information about their strategy and, instead, stick to general comments about the company. Also, the lack of follow-up can be annoying. After meeting with the management, one could expect to receive updated information about the company on a regular basis. For example, if the chief executive of a company speaks at a conference that most investors cannot attend, it would be useful to receive a summary of the speech highlighting the main information.
CB: At the moment, corporates and buy-side and sell-side companies are not prepared for the transition to Mifid II because they have historically outsourced their investor relations departments to brokerage firms. Management teams may fail to understand the direct demand-supply dynamics for their stocks and the importance of how they communicate the story of their business. The price of not doing so can be share price volatility and a lack of liquidity.
What makes for a good corporate access experience?
CB: Good corporate access is multifaceted. First up should be an easy-to-use website where news, information and presentations are easily accessible. For roadshows, the company should ensure it is meeting a combination of existing and potential investors; it’s disappointing when you are a long-term investor to discover management has visited your city and you didn’t get the chance to meet. If corporates want long-term investors and a stable shareholder base, they need to reach out – encouraging investors to be loyal is vitally important.
MR: One of my best experiences was with Craig Menear of Home Depot. I liked the openness and the accuracy of his answers and his transparency. He did not try to hide the dark spots of the business and had some very convincing answers regarding the way he could turn things around. I also met with the Schlumberger investor relations team in Houston and really appreciated the time spent with it talking about every aspect of the business. I further liked the follow-up emails the team sent with additional information about the company – it showed how much it took into consideration my questions and remarks and its willingness to continue the relationship after the meeting.
From your perspective, what are the main things companies could do to improve their corporate access to investors?
MR: There are three things that are important to me. Firstly, companies should travel more to Paris: it has a high-quality investment community, and it’s frustrating to see companies visiting investors in London or Zurich and not stopping by. Secondly, they should talk more openly about what is going wrong and what measures they intend to implement to change the situation. Finally, they should have a good knowledge of the investors they are meeting with and be able to adapt their speech whether they are talking to a generalist investor or a sector specialist.
CB: A good investor relations team understands the different investor types and why different types of institutional investors own their stocks in their portfolio. Understanding we come in different flavors – growth, value, large cap, quant, hedge, and so on – is important in effectively building a loyal investor following. Companies need to be more vocal in their demands to not just meet with the same people: the company should drive the agenda, not the broker.
This article appeared in the summer 2017 issue of IR Magazine.