Call for companies to hold yearly strategy debates with long-term investors
This month, a group of institutional investors announced the creation of the Investor Forum, which will work to boost engagement between UK companies and long-term investors. One of the key recommendations of the group is that companies start to hold annual strategy meetings, with the forum acting in a supporting role.
Those involved are, understandably, trying not to be too proscriptive in what they would like – because they don’t want to put anyone off the idea by being overly demanding.
Still, we’re able to sketch out the basic idea: companies invite long-term institutional investors in for a discussion about strategy, focusing in particular on what a company believes are its underlying strategic advantages.
‘It’s about trying to get to a position where we all – whether it’s the companies themselves or the investors or asset owners – feel more confident that major British companies have an underlying strategy, have an understanding of their competitive advantage,’ says James Anderson, a partner at Baillie Gifford, who chaired the working group.
Anderson hopes that up to 15 or 20 of a company’s ‘most committed’ investors might show up. Brokers and their analysts, though, would be banned from attending.
While Anderson praises how some companies now put on corporate governance meetings, which may link governance to strategy, he hasn’t yet seen a company do a strategy meeting in quite the way he’d like. ‘It’s not primarily met by what we traditionally regard as corporate governance sessions,’ he says.
He also wants these meetings to look further ahead than companies typically do. ‘What I dislike is, if you go to strategy sessions or what purport to be strategy sessions when companies come in and see you – and you see this at so many of our giant companies – targets are structured in terms of being one or three-year goals for sales, net income and the like, and that really has very little to do with the underlying business strategy,’ he explains.
Companies commonly deal with major strategic issues by talking to their largest investors one by one. Anderson says he thinks these meetings are useful, but believes there are also benefits to holding a group discussion on such matters.
‘We think there are some occasions when, from both the companies’ and the investors’ point of view, having a forum where you can do it to gauge overall opinion might be quite a good methodology,’ he notes, adding that group meetings would also hinder companies taking a ‘divide-and-rule approach’.
One difficulty the working group’s idea could face is the ability of companies to get a large number of their major shareholders in the same room at the same time, especially without the help of brokers. But Anderson remains upbeat that these meetings could take place.
‘Companies should be in touch with their major investors as a matter of course without going via a broker,’ he says. ‘Larger listed companies generally have their own investor relations team, for example. So it should be feasible for them to co-ordinate annual strategy meetings and, if the meetings are valuable, investors will want to be there.’
The working group plans to get the Investor Forum up and running by June 2014. One of the forum’s main aims is to encourage UK and international investors to engage collectively with British companies.
The move follows a government-backed report into the UK equity market by Professor John Kay, which called for action to improve sustainable, long-term company performance.
The forum is backed by the Association of British Insurers, the Local Authority Pension Fund Forum and the Investment Management Association, although some commentators have questioned whether a diverse group of institutional investors will be able to collaborate effectively.