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Mar 30, 2017

MOL: When governance meets investor relations

Mikkel Skougaard, IRO at oil & gas giant MOL, talks sustainability, the firm’s 2030 strategy and how working in governance gave him an edge in IR

At a glance

A $21 tn market
The two years from 2012 to 2014 saw the SRI market grow by 61 percent, with global assets under management topping $21 tn. And corporate governance – a key element for SRI investors – has been growing in importance for IR, with everything from proxy access to the ‘perennial issue’ of executive pay coming under the spotlight in recent years.

Governance goals
As part of its wide-reaching 2030 strategy, Hungarian oil & gas firm MOL is putting a focus on corporate governance, highlighting all things SRI and ESG. Mikkel Skougaard, part of the company’s five-strong IR team, boasts a background in governance at BlackRock, putting him in good stead for a future where governance meets IR.

Targeting SRI investors
IR professionals looking for a slice of the ESG pie need to go beyond the basic research and get to know the governance analyst covering their region or sector – and then build a relationship with him or her. It also helps if you can get non-executives on board for investor roadshows and engagements, recommends Skougaard.

MOL is a giant in Central & Eastern Europe (CEE). With 25,000 employees and activities in more than 30 countries, the Budapest-headquartered international oil & gas firm is among the largest companies in the region, serving more than 1 mn people daily. But while it might have a history spanning more than 100 years, MOL is a company looking to the future. October saw the approval of the firm’s very long-term 2030 strategy, called ‘Enter Tomorrow’. Its far-reaching plan covers everything from a focus on a higher free float and diversifying away from fuels to a ‘transformational change’ in corporate culture. 

So how does an IR team go about presenting a company strategy set to run for more than a dozen years? ‘Following the announcement of our 2030 strategy, we held a capital markets day in Budapest – the first in four years – where we presented the main strategic direction as well as our five-year targets,’ explains Mikkel Skougaard, IRO at MOL and former vice president of corporate governance and responsible investment at BlackRock. 

‘So far, market feedback has been very positive, praising MOL for taking steps to adapt to an increasingly low-carbon world.’ He adds that, for IR, ‘having a long-term 2030 strategy is great as you can plan ahead and be more proactive.’ 

Mikkel Skougaard, MOL
Mikkel Skougaard, MOL

A diversified IR team

The ‘diversity of experience’ within MOL’s IR team helps bring out the best in the program. The team includes IR professionals from both the buy side and the sell side, and Skougaard’s most recent experience in corporate governance at BlackRock means he’s often called on to provide an investor perspective on governance issues. The company is also seeing increasing interest from both governance analysts and other SRI- focused investors on the topic of corporate governance, says Skougaard – something he says is quite new for MOL. 

‘We recently had a key institutional investor requesting an engagement with MOL to specifically discuss governance issues,’ he explains. ‘Having been on that side of the table, I was quite familiar with what [institutional investors] look for, which helped us when preparing the meeting and ensured we got the right people within MOL to participate. We involved several key people, such as the head of executive compensation and the secretary of the board, which was a new experience for both of them. 

‘From the feedback, we learned that the investor was positively surprised about the extent to which we involved key people in the discussion, something that was not possible when trying to reach other companies in the region.’ 

As well as making for a more fruitful discussion, Skougaard says bringing such people into the meeting helped demonstrate MOL’s intention to really get to the bottom of any concerns the investor had. 

Increased governance focus

While the governance focus might be relatively new for MOL, Skougaard says that for the firm’s investors, governance is often on a par with operational and financial matters. ‘One recurrent theme is our ownership structure, where we have been making great improvements over the last 12 months, and something the market has been positive about,’ he notes. 

MOL’s board features ‘a strong mix of executives and non-executives, with a diverse set of professional backgrounds on the non-executive side,’ notes Skougaard – something investors no doubt appreciate. And this helps offset some of the ‘recurring issues’ raised by shareholders. Voting rights and whether the Hungarian state’s roughly 25 percent stake in MOL potentially influences governance and management decisions are two such concerns, while the combined chairman and CEO role can also raise questions. 

‘The latter issue is common for Hungary,’ explains Skougaard, ‘and although many investors would like a separation [of the roles], they appreciate that MOL has a very strong majority of independent directors on the board, and that the executive functions of the chairman are limited, because the day-to-day operations lie with our group chief executive.’ 

For Skougaard, though, no matter what the question, the answer is all about information: the structure and roles within the executive and supervisory boards or on the background of company directors and their remuneration, for example, with Skougaard citing executive pay as the ‘perennial governance issue’ for investors (see Getting governance right, below). 

The big governance push

MOL’s successes in the ESG arena – it was added to the MSCI ESG Emerging Markets Index in 2014 with a ‘best in class’ AA rating, and was recently included in the Dow Jones Sustainability World Index, the only CEE company to feature there, as well as the FTSE4Good Emerging Index – have led the firm to invite greater governance attention. Skougaard points to the company’s Sustainable Development Plan 2020 as an example of where MOL wants to go with governance. Launched last year, the plan’s focus spans six areas from climate change to human capital but also involves further integration of reporting, a governance focus on the website, greater engagement with investors on ESG topics and even a roadshow for SRI investors. 

Describing ESG, SRI and index investors as ‘an increasingly important investor constituent’, Skougaard adds that ‘[MOL is] planning to involve, for the first time, a non-executive director in our engagement with investors’, noting that while governance-specific roadshows and investor engagements with non-executive directors are increasingly common in certain parts of Europe, ‘in a CEE context, this is unique.’ 

Attracting such investors can bring big benefits: the ESG investment market grew by 61 percent between 2012 and 2014 to hit $21.1 tn in assets under management worldwide, according to the Global Sustainable Investment Review 2014. So what advice does Skougaard offer other IROs looking to tap into that cash? 

‘The key to targeting governance- focused investors is to learn their policies and practices,’ he says. IR teams should do their research, making sure they have an understanding of institutional investors’ corporate governance policies and principles as well as proxy voting guidelines, ‘which are all publicly available’, and keeping up to date on both what these investors might want to discuss and how they might vote. 

‘Beyond the basic research, IR teams need to proactively reach out to the governance analysts covering their region or sector,’ Skougaard says. ‘Make contact and build a relationship.’ It also helps if you can get non-executives on board for investor roadshows and engagements, he adds, ‘but only on topics relevant to them such as corporate governance, strategy or capital allocation’, for example. 

Finally, Skougaard points to something he says both corporates and IR teams often misunderstand: that passive investment does not mean passive behavior. ‘Some of the most active owners are the passive ones, for the simple reason that they do not have the ultimate sanction possible: to sell their shares,’ he cautions. ‘The only way for them to effect change to protect their investments is through engagement and voting, the two pillars of active ownership.’

Building trust

The IR Magazine Awards – Europe 2016 saw MOL take home the best-in-country award for Hungary as well as being short-listed for the categories of best overall investor relations (mid-cap), best in region and best in sector. When Mikkel Skougaard, IRO at MOL, is asked what he thinks investors appreciate most about the company’s IR effort, he cites the usual tenets of best practice IR: transparency and timeliness. 

‘We [also] actively listen to market feedback and incorporate that into our internal discussions on how to improve not only the level of information, but also our investor and analyst responses,’ he explains. ‘What we think the market values most, however, is the fact that it is not only our top executives but also a very wide range of high-level managers from every division within MOL who regularly travel with IR to attend roadshows and investor meetings.’ 

Bringing management out in front of investors offers multiple benefits, Skougaard notes, such as ‘allowing investors to direct their questions and concerns directly to management, while ensuring market concerns are known across the firm’. All in all, he says, ‘this leads to more constructive and insightful discussions, it brings investors closer to MOL and it ultimately increases trust’.

Getting governance right

In the wider world of governance issues, Mikkel Skougaard, IRO at MOL, says the single biggest corporate governance topic raised by investors continues to be executive remuneration. 

‘This hasn’t changed during the last few years, and I doubt it will change any time soon,’ he says. ‘Although new topics emerge now and then, how managers are remunerated is the topic that interests investors the most.’ 

Key to getting the vote you want on any corporate governance issue, though, is an ongoing dialogue with investors. ‘Do not leave any discussion on governance matters to a few days prior to your shareholder meeting,’ Skougaard advises. ‘Instead, IR teams need to proactively engage with corporate governance analysts and fund managers throughout the year on these issues.’ 

He points to five areas that IR teams need to fully understand: 

1. Shareholder concerns over governance risks 
2. How fund managers and governance analysts co-operate 
3. How your investors integrate corporate governance (or agency risk) into their investment processes 
4. How investors use ratings agencies 
5. Whether corporate governance alone can affect investment decision-making. 

‘This last part is the absolute key and is where IR teams should pay great attention,’ Skougaard warns. ‘Having been on the other side of the table, I can testify that governance alone can affect investment decisions.’

This article appeared in the spring 2017 issue of IR Magazine

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...