Clear communication is the foundation of trust

Communication, disclosure and engagement are integral factors for how we work across our investment floor. None more so than for active managers when it comes to security selection, where we consider direct, open dialogue with potential and existing investee holdings to be a fundamental building block within our investment process.  

This dialogue provides us with detailed insights into business models, strategic developments, capital management and investment allocation priorities.

As investors, we consider it imperative that our engagement with portfolio companies and the wider market remains open and constructive, as we look to establish long-term relationships to build a complete view on the investment case, while using our market voice and capital to help drive corporates towards positive real-world change.

Purpose and collaboration

To us, meaningful engagement is a two-way street that should aim to benefit us as investors, the companies we invest in and the wider world. To achieve this, we pursue engagement with the following criteria firmly in mind:

1. Purposeful, providing valuable insights that inform investment decisions
2. Collaborative, enabling dialogue that strives to improve company business models and operations, while also supporting a commitment to better economic, environmental, social and governance outcomes

As such, we believe corporate communications should offer a clear and transparent vision of a company’s purpose, while also being proactive on messaging. This is as important for the investment story as it is for all stakeholder interaction.  

A lack of transparency in corporate communications can be a red flag for investors, yet today there are still too many companies listed on the UK stock market without clear messaging provided by a well-run investor relation (IR) function.

A changing role

The obvious question, then, is what constitutes fit-for-purpose IR? The first thing to note is that the role of IR has evolved significantly during the past few years. It’s now more all-encompassing, with shareholder communication being an essential part of day-to-day operations.

IR teams today should rightly be expected to stay on top of corporate news and activity, acting as a focal point for interaction to ensure efficient time utilisation of C-Suite management. We therefore expect credible and consistent articulation of business model fundamentals and the investment case (and this includes ESG factors).

Equally, they should be able to facilitate dialogue with broader company management, including on sustainability matters as well as enabling communication with non-executive board members when appropriate. Again, this is an area growing in importance as we look to establish the effectiveness and accountability of sustainability strategies.

To be in a position as a key stakeholder to challenge, support and advocate for change on important topics, investors need a first point of contact – IR should be equipped to shoulder this responsibility. This is why we believe it can be problematic when companies don’t fill this important post. At the very least it potentially undermines the investment proposition, while in some extremes it can have financial and reputational repercussions.  

Meeting the needs of investors

At a time when awareness of sustainable investing is soaring – and scrutiny of potential greenwashing is also mounting – it is paramount that trust is built. This requires information provided by companies to be clear, precise and in a form that is available to all stakeholders, not just shareholders.

Good corporate governance at a company forms the foundation of an investment thesis, and investee companies must also have a solid framework for communicating and engaging with all their stakeholders, including shareholdersMonitoring business transition and progress requires strategic dialogue with corporate management, but unfortunately this doesn’t work without a clear line of communication between shareholders and companies.

As the potential benefits of in-depth engagement with companies becomes increasingly apparent, IR must rise to the challenge of providing that line of communication.