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Investor Relations Society response to Kay Review

At The Investor Relations Society we see investor relations as fundamental to overcoming short-termism - from fund managers not taking the risk of moving too far from their benchmark index over short periods, to the excessive scrutiny of company management over short term share price fluctuations. It is the role of IR teams to explain and report company strategy to give a true and fair perspective of current and future performance. We therefore note with interest the findings of Professor John Kay’s Review into UK Equity Markets and Long-Term Decision Making. John Dawson chairman of The Investor Relations Society comments:

“There is much for us to support in today’s Kay Review. We strongly believe there is a role for companies and investors working together to strengthen openness and trust, with a prominent role for the investor relations function. As such we welcome the Kay review’s proposal for a forum for major investors to engage with UK companies and each other and indeed we have recently established our own ‘IR Forum’ in which representatives from some of the UK’s largest fund managers meet with a cross section of investor relations directors to discuss how the two groups encourage dialogue. As the Review identifies, asset managers are the ‘stewards’ of the funds their clients invest into. We support efforts to encourage this process although we contend that issuers have been actively engaging with the buy and sell sides through their investor relations departments for a considerable time and that, in fact, this process is improving”.

We also note that the Kay review proposes the scrapping of mandated quarterly corporate reporting (IMS) as well as encouraging high quality, succinct narrative reporting. We support both these recommendations although consider that many companies may wish to continue reporting on a regular basis. John Dawson comments:

“Many of our members tell us that they are likely to continue with four to six trading updates per year because it is helpful in enhancing openness and trust. All too often, companies that don’t provide clarity with regular market updates are accused of selective briefing. However, there is much that can be simplified and reporting timetables can be more flexible so many companies will welcome the opportunity of a less prescriptive approach. Ending this obligation should allow greater flexibility for companies with regards to their reporting needs”.

The practicality of some of the remaining recommendations is harder to determine and timing on any of these proposals is still unclear. However, Professor Kay’s Review is a step in the right direction with respect to reducing equity market short-termism, and we welcome the emphasis it places on the importance of issuer-investor dialogue
Further information contact:

Investor Relations Society

020 7379 1763
enquiries@irs.org.uk