Here are seven key insights from the NYSE network of issuers and influencers:
1. Effectively Allocate Time Between Urgent Issues and Your Long-Term Strategy
In a one-on-one interview with Bloomberg TV anchor Betty Liu, Mary Erdoes, CEO of J.P. Morgan’s Asset & Wealth Management business, shared some of the lessons she has learned throughout her career. One of the most important, she said, was not just to manage your time, but to own it completely. Today’s business world moves at such a fast pace that it is easy to let the urgency of immediate issues supersede the execution of a company’s long-term strategy.
As a leader, one of the most effective ways to balance this is to maintain full control of your calendar to allocate your time efficiently, wisely and never lose sight of your long-term objectives. Specifically, Erdoes recommended reserving regular time on a Friday afternoon for a calendar review. However, she said, do not limit this review to just the following week; it should also cover the next month, quarter and six months out to ensure you are spending your time where it can have the most impact on advancing the goals of your business. She also shared the insight that what made you successful today is unlikely to be the formula for succeeding in the future, reiterating the importance of change and growth.
2. The Expansion of the IRO Role
Traditionally, the IRO was principally concerned with managing the relationship between the company and its shareholders, but that mandate has expanded significantly in recent years. The IRO is a key voice in external communications, in developing corporate strategy, driving the feedback loop to managment, and is also a resource for the board of directors. Today’s IRO has added a mix of ESG matters, communications, corporate strategy and M&A to their remit.
With new forces such as social media in play today, there’s also increased pressure on the IRO to capture and manage the information flow both internally and externally. Productive shareholder meetings today are more likely to be two-way conversations than prepared presentations to surface key issues.
Echoing a theme that came up in a number of the day’s panels, we heard from AIG’s Head of Investor Relations Liz Werner about how the shift from active to passive investing was also making an impact on the role of the IRO. Werner noted that it was much harder to reach passive investors as they do not engage with companies in the way a typical fund manager would. She added that while passive investors’ primary concern was governance, it wasn’t their exclusive focus. This means that the IRO must be conversant in strategy, be able to explain why certain business decisions had been made, and actively seek out opportunities to engage with passive investors to ensure these essential messages were effectively delivered.
3. Insights into U.S. Equity Markets
Schack gave his own view on some of the hotly debated issues such as calls for an access fee pilot, which may reduce trading costs for brokers, but result in lower market quality and liquidity for listed company’s securities. Likewise, a proposal by BATs to further fragment liquidity during the Closing Auction -- arguably the most important trade of the day -- raises alarms that initiatives intended to reduce operating costs for broker dealers are not in the best interests of investors, listed companies or the market writ large.
Schack noted that regulations -- no matter how well-intentioned -- often have unintended consequences for issuers and investors. In the future, it is likely that participants from across the industry will play an even more prevalent role in advocating for rules that contribute to simpler, more transparent markets.
4. The Impact of MiFID II
European financial market regulation, known as MiFID II, is likely to have an impact on global equity markets and is a key topic of discussion in terms of compliance with new rules. Among other issues, we heard from Deutsche Bank Global Head of Client Strategies Lori Arndt and Latham Watkins Partner Dana Fleischman about the legislation’s impact on sell-side research globally.
Today, institutional research comes as part of trade execution costs , but MiFID II will mandate the separation of those activities. A possible outcome of this will be that less research will be produced as investors will be more selective about the research they consume given the associated costs. Because firms are global, this impact is being felt in the US with the implementation of firm-wide policies on research distribution and corporate access. With MiFID II taking effect on January 3, 2018, many companies are engaging in analyses to address how they will be acquiring research in the future, whether that’s on a pay-per-report basis, through hourly commissions or via subscription models. For IROs, this means their companies may no longer receive the benefit of institutional research coverage as extensively, or at all.
5. A Growing Emphasis on ESG
We talked with Derek Bingham, VP and Head of Goldman Sachs SUSTAIN, Colgate-Palmolive’s SVP of IR John Faucher and VP of Global Sustainability Lori Michelin about the growing interest from shareholders in environmental, social and governance (ESG) initiatives.
Michelin stated that sustainability is now a key metric upon which asset managers are beginning to base allocation decisions, and their interest runs beyond what a given company is doing itself. Today, it is imperative that IROs are able to communicate their company’s positions across the broader ESG spectrum effectively - not only to shareholders but to stakeholders including employees, customers and vendors.
In addition to being an area where this a tremendous amount of information being requested through surveys, reporting and index participation, ESG is now a board-level conversation and touches many parts of the organization; therefore IR, legal, finance and communications groups all need to be aligned. Finally, Bingham noted that ESG is an opportunity to illustrate a company’s many sources of sustainable advantage as part of the communications, as well as managing the risks around areas of exposure.
6. Shifts in Passive and Active Investing
The panel discussed the notable and ongoing allocation toward passive investment vehicles through index tracking, as well as emerging types of ETFs and quantitative strategies. Not only is this being driven in part by investors seeking prudent exposure and diversification, but cost-efficient investment products. And asset managers are looking for ways to manage the shifts in flows from active to passive, while remaining competitive with new products, client service and returns. The panel agreed that active portfolio management is not going anywhere; they cited statistics showing that with $70T in AUM globally, passive instruments comprised just 7% of that total, with only 4% attributed to ETFs. So while ETFs remain in growth mode, active management remains a critical part of the investment ecosystem.
7. The Regulatory Landscape in 2018
Tom Quaadman, EVP of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, shared his predictions for the regulatory landscape for 2018, starting with the acknowledgment that many of the new administration’s promises around passing business-focused legislation have gone unfulfilled. The healthcare and tax reforms that were intended to fuel infrastructure spending are both still in their early stages, however there was reason for optimism. Tax reform is, by Quaadman’s estimation, the most complicated issue to tackle in Washington D.C., but the National Economic Council has a basic structure outlined and is currently working on building it out. Quaadmen said that if it is done right the public should expect a reform bill to pass in the first quarter of 2018.
Quaadman went on to say that much of the talk in Washington around a full repeal of Dodd-Frank is fading, but the Trump administration is still looking to make smart regulatory reforms a priority. He noted that there are roughly the same number of public companies today as there were in 1982, and we could see the passage of a new JOBS act some time in 2018, which would be a positive development and drive growth in the public markets.
Resources for your IR team
As the IR discipline and the role of the IRO continue to expand, we’re continuing to work with the NYSE network to support best-in-class IR programs across our listed companies.