Stratega Day 2016 Boards, Executives & Shareholders - - PowerPoint PPT Presentation

Strategía Day 2016

Boards, Executives & Shareholders -communicating to build trust and drive valuation

Gillian Karran-Cumberlege, Fidelio Partners

Iceland, Tuesday 6th September 2016

Boards, Executives & Shareholders Agenda

• Communicating to build trust and drive valuation – a distinct perspective
• The historical context and the shifting balance of power
• What good communication looks like

A Distinct Perspective

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

Fidelio’s Universe

Corporates Investors/ Asset-Owners

Industry Bodies Government/ Regulators NGOs Business Schools

Professional Services Financial Institutions

Fidelio’s Universe

The Board

Governance Finance Corporate Affairs Senior Corporate Roles

Executive Committee Direct Reports

Board Effectiveness includes Shareholder & Stakeholder Engagement

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

Boards, Executives & Shareholders Agenda

• 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 Historical Context – The Financial Crisis as a Turning Point

The 2008 Financial Crisis was a turning point, resulting in erosion of trust in financial institutions, contributing to the rise of populism

The Shifting Balance of Power

Shareholders Executive

The Board

Chair

Changing Role of the Shareholder

• 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

Changing Role of the CEO

• 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

Changing Role of the Chairman

• 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

• n 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

Shareholder Sanctions & Engagement

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

Shareholder Value vs Stakeholder Value

• Prior to the 2008 financial crisis:
• 8 years later………..

Stakeholder value Shareholder value License to operate

Diversity - Women on Boards Overview

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

Boards, Executives & Shareholders Agenda

• Communicating to build trust and drive valuation – my distinct perspective
• The historical context and the shifting balance of power
• What good communication looks like

The Board Challenge

Disruptive technology Anti-business sentiment Political interference Audit requirements Economic turbulence Environmental risk Regulatory

• verload

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

Is There a Single Shareholder Perspective?

Pension Funds Mutual Funds Sovereign Wealth Funds Hedge Funds Strategic Investors Retail Investors Analysts Consultants Proxy Advisors Intermediaries

The Corporate / The Board

The Corporate Interface with Investors

Corporate Capital Markets

CEO CFO IR Director Communications Strategy Treasurer CSR Director Management Board Supervisory Board Bondholders Financial Media Retail Investors Analysts Advisers Shareholders

The Importance of Good Communication in Valuation

• 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

What Good IR Looks Like

“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

IR Blueprint : Key Internal Relationships for IR

Communications Internal Communications Executive Management & Board Corporate 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

Evaluating IR Team Performance

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

Insider Trading and Communication

“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,

• ffice 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

Tools to Increase Shareholder Awareness and Market Understanding

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

The Impact of Good IR

Source: Rivel Research

To Close

Thank you

Fidelio Partners is a Board Development and Executive

Search consultancy. We support our clients to build diverse and effective leadership teams that are well positioned to deal with complexity and change. Fidelio has a deep understanding of shareholders, stakeholders and valuation. Our clients benefit from Fidelio’s functional expertise in Governance, Finance and Communication, as well as our ability to source world-class talent across these functions. Diversity is hardwired into every aspect of Fidelio’s approach to building and developing leadership teams. Through Evaluation, Development and Search our clients can ensure 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 to
• perate
• 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

Fidelio Partners