Iceland, Tuesday 6 th September 2016
Iceland, Tuesday 6th September 2016
Communicating to build trust and drive valuation – a distinct perspective
The historical context and the shifting balance of power
What good communication looks like
What we bring to the discussion of building trust and driving valuation:
Regulatory background
Head of IR for leading European corporates at times of profound challenge and change
Regular dialogue with leading global investors
Most senior female executive at major global industrial company
International track record in shareholder and stakeholder engagement
Non-Executive Director with international experience
Advisor to Chairmen on Board effectiveness
Corporates
Investors/ Asset-Owners
Industry Bodies
Government/ Regulators
NGOsBusiness Schools
ProfessionalServices
FinancialInstitutions
The Board
Governance Finance Corporate AffairsSenior Corporate
Roles
Executive Committee
Direct Reports
Building Trust & Driving Value
Evaluation
Executive Search
Development
- Understanding shareholder and stakeholder expectations of the Board and Executive
- Assessing how well placed the Board and Executive team are to deliver
- Board and Executive succession planning
- Sourcing high calibre candidates to meet corporate objectives
- Enhancing corporate and employer reputation
- Bespoke development programmes at Board and Executive level to deliver shareholder/stakeholder value
- Tailored programmes on group and individual basis
Good communication with shareholders and stakeholders is key to Board effectiveness, underpins the license to operate and drives valuation
Communicating to build trust and drive valuation – a distinct perspective
The historical context and the shifting balance of power
What good communication looks like
The 2008 Financial Crisis was a turning point, resulting in erosion of trust in financial institutions, contributing to the rise of populism
Shareholders
Executive The Board
Chair
Institutional shareholders found wanting in 2008 – clearly not providing oversight
Dissatisfaction with investors resulted in the UK’s Stewardship Code - published in 2010 and updated in 2012. This sets out how investors should hold Boards to account and also how they should engage with investee companies
This UK initiative has extended to the Investor Forum which encompasses leading international investors operating under separate codes
Internationally we are seeing an increase in activism:
Passive investors focus on governance – LGIM in the UK £746 billion AUM
Sovereign Wealth funds drive change e.g. Norges with $894 billion AUM and focus on climate change
But also US style activism comes to Europe and drives disruptive change at Board level with an estimated $173bn AUM chasing activist opportunities globally
Increase in engagement / increase in activism
One consequence of 2008 Financial Crisis is fear of dominant CEO
Much governance put in place to prevent potential maverick CEOs:
Oversight by Board stepped up
Chairman required to engage with shareholders & regulators
Regulatory oversight of CEO and Executive team increased in particular with banks
But very clearly shareholders are most interested in engaging with CEO. Harvard Business School assistant professor Eugene Soltes argued in 2012 “Our results suggest that private meetings (with the CEO) help some investors make more informed trading decisions.”
And the Executive pay argument across Europe indicates that public anger with senior Executives has still not subsided
CEO remains pivotal though governance and regulation has increased; succession planning now in the foreground
The Chairman used to be very much in the background
Now we are seeing that Chairmen are being held to account and if the company runs into difficulty we frequently see Chairman as well as CEO stand down
Chairmen are being tasked to hold the Executive to account & the Chairman’s remit is increasing
Chairmen in Financial Services in particular also assuming regulatory engagement
Chairmen meeting with investors on governance issues – attitudes are changing here including in the two tier board system
Chairmen are being tasked with responsibility for culture across the organisation eg the recent FRC report Corporate Culture and the role of Boards. The FRC surveyed chairmen on how influential different individuals were on company culture in practice - 89% felt the role of the chairman is influential or very influential compared with 54% for NEDs
Effective Chairmen may have dotted line to Head of IR to hear what the market is saying
Chairman’s role has changed most profoundly since 2008
The Shareholder
Traditionally shareholders had two main sanctions:
1. To sell the holding
2. To vote against management at the AGM
The UK Stewardship Code 2010 urged investors to engage more intensively with the companies they invest in to observe good governance and improve performance
“Investors in the company […] play an important role in holding the Board to account for the fulfilment of its responsibilities”
UK Stewardship Code, September 2012
The Board
As a consequence the expectation of Board level engagement with shareholders has increased, in particular for the following: The Chairman The Chair of the Remuneration Committee The Senior Independent Director
Prior to the 2008 financial crisis:
8 years later………..
Stakeholder value Shareholder value
License to operate
Country % of Women on Boards
Iceland – OMX Iceland 44.0
Norway – OBX (Supervisory Board) 41.0
Sweden – OMX Stockholm 30 36.0
United Kingdom – FTSE100 27.0
Germany – DAX30 (Supervisory Board) 27.0
Australia – ASX-200 23.4
United States – S&P100 23.2
Canada – S&P/TSX60 20.8
Southern Africa – JSE Top 40 and SOEs 17.1
Ireland – ISEQ 16.0
Malaysia – FTSE Bursa Top 100 15.2
Hong Kong – Hang Seng-50 11.9
*Figures refer to highest decision-making body. In countries with two-tier governance this is the Supervisory Board
Globally, Chairmen and CEOs are alert to the importance of increased female representation in the Boardroom and Executive Committee. The pipeline of senior female executives, however, remains too weak.
As a Board Development and Executive Search consultancy Fidelio has a clear perspective on who succeeds to the Top Table and at the Top Table. We bring these insights to our unique “A Seat at the Table” Programme for senior female executives and directors, as well as a clear goal to develop tomorrow’s female CEOs and Chairmen.
Based on Fidelio research the following attributes are critical for succeeding to the table and at the top table:
Understanding the complexity of shareholder and stakeholder expectations for the leadership team
A firm grasp of governance, including formal and informal power structures
Presence and authority; personal impact; the ability to influence
Reinforcing networks; networks of support and networks of reciprocity
Resilience under extreme pressure
Effectiveness at the Board/Executive Committee table is the focal point of this highly practical two day programme and participants leave with practical tools to help them succeed, including:
A framework for understanding leadership structures and styles
A mirror for personal presence including within group dynamic
A road map of critical networks and milestones in order to achieve and personal objectives
Communicating to build trust and drive valuation – my distinct perspective
The historical context and the shifting balance of power
What good communication looks like
Disruptive technology
Anti-business sentiment
Political interference
Audit requirements
Economic turbulence
Environmental risk
Regulatory overload
NGO activism
Board composition and diversity
Employee needs
Delivering growth
Access to capital
Succession planning
Reward recognition
and remuneration
Strategy and business
development
Consumer activism
The Board
Shareholder activism
Boards face huge complexity and scrutiny
Pension Funds
Mutual Funds
Sovereign Wealth Funds
Hedge Funds
Strategic Investors
Retail Investors
Analysts ConsultantsProxy
AdvisorsIntermediaries
The Corporate /The Board
CorporateCapital Markets
CEO
CFO
IR Director
Communications
Strategy
Treasurer
CSR Director
Management Board
Supervisory Board
Bondholders
Financial Media
Retail Investors
Analysts
Advisers
Shareholders
The opportunity arising from high quality Board-level communication is a premium in the share price and valuation reflecting good governance
The risk from inadequate Board-level communication is increased volatility in the share price and exposure to aggressive activist Hedge Fund investors
Boards be seen to balance the interests of shareholders with those of employees, and the company at large
Attract and Retain Capital
Drive Valuation
Align and Communicate
to Stakeholders
“Effective IR absolutely influences valuation”
86% of investors believe that the quality of a company’s investor communications is a driver of valuation - CNC Global Investor Insight Report, 2015
Communications
Internal
Communications
Executive
Management & BoardCorporate and
Social Responsibility
Strategy
Finance
IR credibility with the market is
heavily dependent on its
relationship with the
Management Board. IR must
be in the loop and have a
voice on market related
issues
IR is very often part of the
finance team, and is always
dependent on Finance to
deliver most of the content
for the IR programme
IR will be less effective if it is
not trusted by employees; IR
must ensure consistency of
messaging to employees and
investors
IR must work closely with
Communications in order to
ensure smooth delivery of
the IR message across
multiple channels
With an increasing amount of
investment tracking
sustainable indices, the IR
programme must be CSR-
consistent
IR and Strategy are moving
much more closely together
to ensure optimal planning
process, as well as clarity of
guidance and target setting
Investor
Relations
Quantitative
Metric Ranking
Number of analysts covering the stock 48%
Number of investor one-on-one meetings 62%
Relative valuation/stock performance 33%
Qualitative
Efficient use of senior management’s time 61%
Perception study (“formal”) feedback 41%
Quality of investor one-on-one meetings 69%
Quality of information in analyst reports 63%
Source: BNY Mellon, Global Trends in Investor Relations, October 2015
“An individual is guilty of insider dealing if he has information as an insider and either encourages another person to deal in securities which are price-affected in relation to the information knowing or having reasonable cause to believe that the dealing would take place in specified circumstances or if he discloses the information to another person otherwise than in the proper performance of the functions of his employment, office or profession.”
Major names have succumbed to insider trading
Boards are right to be wary of the regulatory risk and for example the US Reg FD breeds a cautious and legalistic based approach to engagement with investors
With education and a robust framework we argue that Boards and companies can find appropriate channels of communication with the market
Education
Education and briefings
- internal communications
Regular IR reports to Board and senior
management
Engagement with shareholders
Third party shareholder reviews / investor feedback reports
Compliance
Source: Rivel Research
Fidelio Partners is a Board Development and ExecutiveSearch consultancy. We support our clients to build diverseand effective leadership teams that are well positioned to dealwith complexity and change.
Fidelio has a deep understanding of shareholders, stakeholdersand valuation. Our clients benefit from Fidelio’s functionalexpertise in Governance, Finance and Communication, as wellas our ability to source world-class talent across thesefunctions.
Diversity is hardwired into every aspect of Fidelio’s approachto building and developing leadership teams.
Through Evaluation, Development and Search our clients canensure that the Board and Executive team are well placed to:
drive growth
secure on-going access to capital
sustain corporate reputation and maintain the license tooperate
and thereby increase the value of the business
Fidelio operates internationally from London with a talented,highly qualified, in-house multi-lingual research capability.
13 Regent Street, London SW1Y 4LR
Tel +44 (0)20 7759 2200
www.fideliopartners.com
These slides represent the opinion of Fidelio Partners and have been constructed using publicly available information, which we have taken every reasonable measure to verify.