In business, when the going gets tough, the tough go to dinner. So it was that business leaders met hostile institutional investors over nursery food at London’s RAC club on Monday night in an attempt to find an alternative to the megaphone diplomacy that has characterised corporate governance of late.
The choice of the RAC club was interesting. Everyone calls it the RAC club, but that is a terrible tautology – in full, it becomes ‘the Royal Automobile Club club’. We could just call it the RAC, but this makes it sound as though captains of industry and the City’s finest were meeting for conciliatory dining purposes at the headquarters of a breakdown service. While that’s quite an appropriate image for the rest of us, I imagine it isn’t one that the dinner’s hosts were hoping to convey. At least it’s not the AA club, which has altogether more ambiguous associations.
The dinner was held on the back of research published by MORI and commissioned by communications consultancy Blue Rubicon, which shows that British industry defers only to Saddam Hussein in its ability to underestimate the threat to its sovereignty. The poll reveals that, while about half of publicly listed UK companies believe they anticipate the concerns of fund managers and maintain continuous dialogue with them, only three per cent of the City agrees that this is the case.
Both British industry and the City cannot be right. And, since the act of communication can only be considered successful if it is received by its target, we have to assume that the City is correct in its analysis that British industry fails to address it properly. This is extraordinary, if only for the realisation that there is a vast and expensive financial public relations industry out there that is failing to meet its most obvious objective.
Hence, I suppose, Monday’s dinner at the RAC. It follows weekend talks in late February, when companies such as Sainsbury’s and WPP Group tried to reach a corporate-governance accommodation with asset management groups such as Henderson and Fidelity. What these “peace talks” must make clear is that lines of communication between industry and its institutional investors have collapsed – and the reason for that is that British industry is rubbish at keeping them open.
A lot of self-proclaimed investor- relations experts should rub their hands with glee at this prospect, given that assistance in this process of communication is their alleged province of expertise. But the fact is that many of them are rubbish too, as MORI’s poll makes clear.
So much for the existing state of corporate affairs. But does it matter that the City and British industry have such differing views of companies’ abilities to communicate? Furthermore, is it not economically more healthy to have an investment community that is constantly challenging the companies in which it invests – as Her Majesty’s opposition is meant to do with the Government – rather than one that is cosy and complacent in the company of industrialists?
During the 17 or so years that the most protracted equities bull market in history ran, pension-fund trustees largely left their investment managers alone, because any old fool could make money (and they were, anyway, more interested in pension-contribution “holidays”, for which we are all now paying). Today, the pension funds lean on their fund managers, who in turn are making the businesses in which they invest sweat.
This, it seems to me, is a good thing. It is good for investors, because fund managers are obliged to keep companies’ performance up to scratch. And it is good for companies, because its best managers will be brought to the fore and asked to perform.
It may be no coincidence that Sainsbury’s new chief executive, Justin King, is planning a management shake-up following last week’s profits warning from his luckless predecessor, Sir Peter Davis. This comes after the embarrassing and abortive appointment of former Bass chairman Sir Ian Prosser as chairman-designate of Sainsbury’s – an appointment that was rescinded under pressure from institutional investors.
A while ago, institutional investors would have been as indolent about the appointment of Prosser as the Sainsbury family is about its 35 per cent stake in the company. Not now. And that has to be good for industry, investors and the economy.
I’d now like to see the heat of investors’ ire turned onto other areas of non-financial performance, such as corporate social responsibility, which has to date been so much do-goody window-dressing. But none of this can be achieved if “peace” breaks out between companies and their investors.
So long live dissent, I say. The investor-relations communications process should be about argument, not accord.
George Pitcher is a partner at communications management consultancy Luther Pendragon