The New IR – Investing Remotely?
Investor Relations is changing, and we are at the forward edge.
In this blog I will explore what’s currently happening to investor relations as a result of the COVID-19 outbreak and the subsequent measures taken by governments, and what might happen next. It will come as no surprise that I intend to focus on access.
The progression of any trend is very rarely linear. Trends tend to progress messily with periods of acceleration, deceleration, and even reversal. Exogenous shocks tend to either accelerate or reverse trends. In 2008 the (at the time) massive stimulus packages and interest rate suppression around the world provided opportunity-cost-free capital and thus accelerated the start-up and tech development trends, for example. On the other hand, it reversed the trend of growing UK home ownership, which peaked at 73% of households in 2007 and still hasn’t recovered – it currently sits 8pp lower at 65%.
The world today is undergoing a series of major shocks: the pandemic and changing lifestyles, the oil price collapse, the economic collapse, the stimulus response thereto, the awareness of the risks posed by environmental decline. These shocks would each be significant but happening together and being interlinked results in an unprecedented scenario.
Ever since the dawn of a reliable and speedy internet (although, as many of us are now finding, this is yet to come in many parts of the country!) there has been a slow move in the trend towards remote working. In 2018 the number of AGMs that took place online increased by 40%. Working from home, amongst the employed, grew by 173% (a c.6.7% CAGR) between 2005 and (a largely pre-COVID) March 2020, according to Global Workplace Analytics.
Since the arrival of COVID-19 it’s safe to say this particular trend has accelerated, with the overwhelming majority of the western world working remotely, albeit without employers or employees having much choice in the matter. Microsoft has released usage data for its Teams meeting platform, which show that on Thursday 12th March a total of 560m minutes were spent in Teams meeting; a 500% increase since January. On 31st March, this had grown to 2.7 billion minutes – a 380% increase in 2 weeks. Other platforms, without providing numbers, have hinted at similarly aggressive growth.
This, combined with the travel ban, may ostensibly appear somewhat troublesome for a company that organises face-to-face meetings between businesses and investors across a broad geography. However, I’d like to point out that we’re not in the business of providing face-to-face meetings. We’re in the business of helping companies and investors to find and understand each other. Meetings are simply one of the tools we have used to facilitate this over the decades since our inception. What our clients and investors are discovering, to their advantage, is that we’re “channel agnostic”.
Our introduction of virtual roadshows has been a resounding success. We organised 95% more meetings this April than in April 2019 on an absolute basis and 148% more than our 3-year average on a per client basis. In May to date we’re already 69% ahead of the 3-year average for the whole of May. That we’re helping more investors to meet with more companies despite the lockdown is a testament to all involved.
Our clients and investors have taken to this virtual meeting environment with aplomb: a mere week after the commencement of the UK lockdown, 75% of our investors were able to use at least one form of virtual meeting – though we note that the use of videos remains, at this stage, the exception rather than the norm. There have been so many jokes about wearing pyjamas all day that we’re beginning to suspect there’s some truth in the matter...
The interesting thing is that while investors are hugely busy at the moment, our clients are receiving the same level of engagement and quality of feedback that they've always enjoyed. Only 6% of our investors said that they are reducing company interactions, and that was from a survey taken during the depths of the market volatility in March. My gut feel is that this has fallen closer to 0% as markets have steadied.
In my opinion there are three key reasons for the instant success of our virtual offering. Firstly, investors’ need for direction at a time when most companies are facing significant change on all fronts. The difference for an investor between reading about what’s going on in RNS and press releases and being able to discuss it with the management team themselves, is night and day – particularly when the landscape is changing so quickly.
Secondly, there’s less friction. Without the time required to travel, settle into a meeting room, distribute tea etc, we’re able to run 45-minute meetings and achieve the same or more than we can in an hour of physical meeting. This saves time for everyone involved, reduces the cost for our client companies, and improves the ESG outcome through reduced transport emissions and space occupied during peak travel times.
Finally, the lack of geographic constraint means we can choose from a broader pool of investors for each roadshow, increasing the suitability of the matches. In turn, this increases engagement and improves the probability of obtaining that all-important buy decision.
So that’s where we are. There is little sign of a return to normality, and I’m not at all qualified to suggest when the lockdown might be fully lifted. There are myriad articles discussing this, and I don’t think I can add anything valuable to the debate.
However, the key question is what happens next? It will depend on a few things.
Firstly, whether behavioural changes have persevered long enough to become ingrained. Will investors and companies want to return to the old normal, or will virtual meetings and remote working become the new normal?
According to a paper published in the European Journal of Social Psychology by Phillippa Lally, a health psychology researcher at UCL, it takes an average of 66 days for a new habit to form. However, this can vary wildly from 18 days to 254 days depending on the person, the habit being introduced, its regularity, and many other factors. If we take the mean as a useful proxy though, then excluding bank holidays it would take about 13 weeks for virtual meetings to feel like second nature, to become habitual. That feels about right, as it’s a pleasant habit (being at home, avoiding travel and office attire!) and most investors will have virtual meetings on a regularly basis throughout the lockdown. On the other hand, weekends will mostly consist of ‘habit breaking’ days, weakening the pattern – although according to the research “missing one opportunity to perform the behaviour did not materially affect the habit formation process”.
My best estimate is that should the lockdown persist until mid-June then there’s a decent chance that virtual meetings are here to stay. That’s without accounting for corporate pressure on the aforementioned ESG and cost improvements too.
Secondly, the roll out of reliable fibre broadband across the British Isles. As I alluded to above, our broadband service is patchy at best. And terrible at worst. In September 2019, Ofcom said only 8% of all UK premises were connected to full-fibre broadband. BT's Openreach aims for 15m premises to be connected by the mid 2020s: it has connected more than 2m so far and prior to the COVID-19 outbreak was adding 26,000 a week in over 100 locations - double the weekly number achieved in early in 2019. Change is coming, and here we find another trend that’s likely been accelerated by this crisis: £5bn of public money was earmarked in the March 2020 budget to help spread “gigabit-capable” broadband ISP networks around the UK. In theory this money should ensure that every single property in the UK has access to high speed broadband by the end of 2025 – however given the ever-increasing COVID spend we ought to entertain the possibility this may be re-allocated. Assuming it isn’t, then even allowing 6 months of slippage to account for lockdown disruptions this target is quite near term, offering another reason for optimism.
Finally, not everyone will want to continue with virtual meetings, and it won’t always be appropriate to do so. We envisage a return of physical meetings as soon as it’s permissible and practical but believe that these will be complemented by virtual meetings, particularly outside the main financial centres.
Certainly, we will continue to offer companies the choice, and to advise them on best practice using the wealth of knowledge we’ve built up before and during this crisis, to ensure they meet the right investors. We will continue to engage with investors to ensure they retain access to the best opportunities on offer. We will continue to create a world of frictionless dialogue between investors and corporates.
Shocks and crises not only accelerate or reverse trends, they also test us. Our objective is to rescue some opportunity from this dreadful crisis, to offer an innovative and helpful service to our clients and investors. We, our clients, and our investors have all adapted well in the face of adversity, and life must go on – but it is not necessarily desirable that it be exactly as it was before.