There are many different ways to form an investment view on a company. As my colleagues Dan White and Matt Cable discussed in a recent blog meeting company management can be both interesting and informative and for many investors pivotal to the investment decision making process. In my experience the insight gained from time speaking with a company’s non-executives is an excellent way to improve the understanding of one’s conviction on an investment. However, gaining access when companies are listed overseas can prove challenging.
As institutional investors we generally get offered excellent access to executive management teams. Within the UK market there is a long established tradition of dialogue between institutions and chairman/non-executives of quoted businesses covering a range of issues including long-term business planning, corporate culture, succession planning and remuneration. We believe it’s a crucial element of being an active, involved shareholder and something that is perhaps lost amongst the short-term ‘noise’ around newsflow and quarterly earnings.
What is interesting is our mixed experience in replicating the type of discussions we have in the UK with companies listed overseas. During the first quarter of this year we contacted 35 overseas listed companies where we were shareholders and asked to speak to either the chairman or the senior independent director. So far we have had calls with 22 of these companies. Of the remaining 13 companies we have had 7 refusals and the balance are ‘work-in-progress’ (some of which are surprisingly difficult to arrange).
The consistent feedback to us is how rare our requests have been with companies frequently saying they only get requests of this nature once or twice a year. This also largely explains why some companies have declined to speak with us – the companies have never arranged such calls and do not have the processes in place to cope. US corporates in particular are worried about the legal risk of being accused of selective briefing (which we are also very keen to avoid) since their chairmen may not be aware of what information they can share with shareholders.
This is a real shame. We always find the calls to be insightful, sometimes the calls are driven by a general desire to understand more about a business and to build and establish a relationship for the future. In other cases we have specific issues we’d like to discuss. The calls so far this year have covered a wide range of issues: the attitude of employee representatives on the supervisory board of a European transport company to the rolling strikes their colleagues are undertaking; the uniquely Indian cultural challenge in encouraging an 88 year old non-executive to retire (no one wants to offend him); the positive impact non-executives had making sure a US clothing retailers’ supply chain was scrupulously managed, and the worrying situation of a quoted company not holding an annual shareholders meeting.
The majority of calls are reassuring and even when they aren’t, they can be equally informative. The calls always add to our understanding of a business and the dynamics of the board and provide topics for further discussion with the executive team. Crucially, the calls benefit from being run in combination by someone with governance experience and the relevant fund manager or analyst, the value is greatly diminished if either party is unable to join in. We also consistently get feedback that the calls are useful to the companies as well as they provide a forum for them to ask us questions and get direct, unfiltered feedback from shareholders.
Given how useful we find the calls it seems surprising how rarely companies get similar requests. One of the reasons may be as a result of the market’s sometimes short investment timeframe. Issues such as culture and succession planning take time to impact the share price and a number of investors are only focussing on the latest quarterly earnings release. In our experience, investors and companies clearly gain from this interaction and we hope that other investors and companies will follow our lead.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.