The Quoted Companies Alliance held its annual conference on 9th June 2016. We report on the keynote speech, the conference debate and the conference panel session. Our headline sponsor was Winterflood Securities Limited. The supporting sponsors were Jordans and ICAP. The interactive questions sponsor was YouGov plc.
Keynote Speech: Sacha Sadan, Director of Corporate Governance, Legal & General Investment Management
Sasha Sadan, Director of Corporate Governance at Legal & General, opened our Annual Conference as keynote speaker.
Quality corporate governance is a key device in connecting directors with shareholders. And with corporate governance’s significance increasingly growing over the last five years, there is a commensurate need for companies to ensure it becomes a fully integrated part of their business.
Sasha Sadan emphasised the importance of open, transparent and comprehensive disclosure as the best recipe for inspiring trust from investors. In particular, companies should not shy away from highlighting and explaining the risks they face and how they intend to overcome them.
Although smaller companies should not feel compelled to fulfil every disclosure requirement that would be expected of larger companies, they must ensure that key areas, such as succession planning, are explained. Yet businesses should feel comfortable on focussing on areas that they feel are relevant, as long as this is communicated to their investors fully.
For example, the appointment processes of non-executive directors (NEDs) provide an indication as to the quality of boards. NEDs provide the vital link between the board as a whole and the senior executives, yet, at the same time, need to be prepared to challenge management at appropriate times. To facilitate this, they should be encouraged to regularly meet with shareholders.
Equally, disclosure and transparency regarding how companies are supporting their employees to develop and learn new skills, as well as aspects of the environment affecting companies are valuable features investors want to see mentioned and explained to them.
Sadan also drew attention to the QCA Corporate Governance Code, which he said was a great tool for showing small and mid-size quoted companies how corporate governance can be done well and effectively.
Sadan also stressed the importance for companies to engage and communicate with their investors in bad times, not just good times. The rewards of good corporate governance are clear: a lower cost of capital, a greater level of trust fostered between shareholders, directors and staff and an all-round higher probability of attracting investment that will fuel the company’s growth and development.
You can watch the speech in full here.
Debate: What does the possibility of the UK leaving the European Union mean for quoted companies?
Andrew Hilton, Director and Joint Founder of CSFI, and chair to this panel session, began by highlighting the deep divisions within both political parties and society as a whole that the UK’s EU referendum had caused.
Indeed, Joe Twyman, Head of Political and Social Research at YouGov (see slides here), underscored the demographic differences between those more likely to vote remain or leave. This reflected the latest opinion polls, which showed support for both sides at neck and neck. He reflected that the economy continued to be the number one issue of concern for voters, with many accepting that leaving the European Union would be a risk.
Dr Rebecca Emerson, Head of UK at Oliver Wyman stated that the management consultancy’s largest worries of a potential Brexit concerned the possible restrictions on staff being able to move freely around the European Union, citing the potentially burdensome costs of acquiring visas. She added that if the UK were to leave the European Union, there would be a substantial prospect of non-European Union banks shifting their offices to other European Union Member States due to their loss of passporting rights. This would jeopardise London’s and the UK’s position as a financial centre.
Siddarth Chand Lall, Investment Manager at Hargreave Hale Limited, commented that, although a weakening of pound sterling vis-à-vis other currencies such as the euro or the dollar could yield a potential benefit for quoted companies in the form of stronger incomes, this could not be guaranteed and could be undermined by economic volatility. However, he emphasised that companies with good balance sheets and strong free-cash flows and the ability to pay dividends would still be well-placed to weather any uncertainty.
The panel agreed that a vote to leave would trigger disruption to the business activity of small and mid-size quoted companies due to the significant uncertainty regarding the future trade deals Britain may or may not agree. Furthermore, small and mid-size quoted companies would also likely see a rise in asset outflows, lower net capital inflows and an increase in the cost of capital. This was view was supported by Andrew Hilton who stated that it was inevitable investment decisions would be delayed in the short term, were Britain to vote to leave.
Among conference attendees, the consensus was clear: 81% of the people in the room were in favour of Britain remaining a member of the European Union.
You can watch the debate in full here.
Panel Session: Fund Manager Q & A – How information can trigger quoted companies’ ability to grow
The chair of this panel session, Phil Holland, Finance Director & Deputy Managing Director at Primary Health Properties plc, drew attention to the fact that quoted companies faced a number of challenges including new regulatory requirement, as well as identifying how social media can be best used to circulate information to investors.
Hester White, Head of Client Account Management and Client Strategy at Peel Hunt, underlined the importance of investment research for small and mid-size quoted companies to obtain access to equity markets. She explained that Peel Hunt research had shown that 78% of quoted companies recognised the positive correlation between amount of research and the liquidity available to them.
However, she highlighted that the EU Markets in Financial Instruments Directive II (MiFID II) – due to come into effect on 3 January 2018 – needed further refinement. She explained that, as the legislation currently reads, there would be a fall in payments for research, which will lead to a corresponding falls in the volume and investment in quality research. This domino effect will not only ultimately culminate in less liquidity being available to small and mid-size quoted companies, but also potentially a wider scope of market abuse.
Andy Brough, Fund Manager at Schroders, emphasised the importance fund managers place on being able to obtain pertinent and quality information and data on quoted companies. He highlighted that, with equity markets having become increasingly global over the last few decades, it was essential to not only distil relevant information to investors, brokers and fund managers. Although he advocated quoted companies taking the time to develop and nurture one-to-one relationships with these stakeholders if possible, he accepted that company would, and should, exploit AGMs in disseminating company information to a large audience.
Andrew Buchanan, Fund Manager at Octopus Investments, supported the notion that fund managers, as well as investors, sought a steady flow of information from quoted companies that was both jargon-free and written in plain English. He stressed that underlining the purpose and objective of the company in an interesting way was vital to engaging fund managers and, thus, increasing their probability in being able to grow.
With 82% of conference attendees either agreeing or strongly agreeing that websites and annual reports were important tools in attracting investors, the panel agreed that small and mid-size quoted companies must also give strong consideration to how information is presented, as well as the content, to give them the best chance of growing their companies.
You can watch the panel session in full here.