Proxy Advisory Battle is Joined, and Predicting Material ESG Issues
Week Ending 22 November

November and early December always seems to be "strategy session time" as your business looks to the end of this year and any new initiatives that will kick off January 1; you're not the only one at offsites going through SWOT analyses and opportunity matrices and PPT slides printed out with the "Notes" section at the bottom. Done right, these are an opportunity for IR, as you'll bring a better "external" view to these sessions than many of your colleagues in management.  You're not just the devil's advocate in the room when you're the stand-in for how Elliott, Third Point, or ValueAct might think about any changes to your strategy.  So, quick, read The Autocorrect, get caught up, then get back to what's left of the coffee and the breakfast pastries that are still sitting there before they get stale. 

(Editors' Note: Nobody wants to show up to Thanksgiving dinner empty-handed. This year you'll be able to bring a fresh, piping hot Autocorrect to share with family and friends; we'll be publishing a slimmer edition next Wed, Nov 27, and will resume our Friday schedule on Dec. 6).

Buy Side

- Maybe we should change our section header from "Buy Side" to “Renowned Hedge Fund Managers Shutting Down This Week.”  Headliner here is Louis Bacon of Moore Capital Management, which according to P&I has notified investors this week that it will be returning outside investor capital (though it may continue to manage partners’ money in-house).  FT’s take mentions that those partners may launch some of their own funds within the Moore brand, but in total roughly $9b is headed back into investors’ pockets. Bacon was known for the global macro hedge strategy, but Moore has managed a wide range of funds; we’ll note that Moore is a common participant in new equity issuance based on information our corporate clients have shared with us over time – it’s been willing to take the naturally higher level of risk associated with helping companies raise equity capital in secondary offerings, for example.  Either way, add another name to a long list of major managers that faced tough performance (relative to their fees).

The Autocorrect Poll

- The calendar contraction for the holidays means that nearly every client of ours is hosting their last board meeting of the year in early December – and we’re busy helping many of them prepare for the IR view that’s presented therein. That said, every board meeting is different, and depending on the company the IR team may be more or less directly involved with the board. So, board meeting season is a great opportunity to learn from your fellow Autocorrectees -- how does your IR team interface with the board?  Anonymous poll:

Looking back over the last 12 months, how often does your IR team present directly to the board at your company?

A)  At every board meeting

B)  At least quarterly

C)  At least semiannually

D)  We have not presented to the board in the last 12 months.

- As before, choose one above; we’ll collate the results and publish them in next Wednesday’s edition of The Autocorrect – and, if you have any suggestions for future polls, let us know (email

IR Best Practices 

-File this section under “Dispatches from the Proxy Advisory Battlefront.”  With a 60-day comment period on the SEC’s proxy advisory rule proposal underway, we’re starting to see the public results of lobbying from both sides.  In issuers’ camp, a survey of companies conducted by the US Chamber of Commerce and Nasdaq noting that, among other things, only 39% believed that “proxy advisory firms carefully researched and took into account all relevant aspects of a particular issue.”  (We’ll admit, our favorite statement was on page 12: “a striking 58% of companies reported being approached by ISS Corporate Solutions during the same year in which the company received a negative vote recommendation.”)  

On the other side of the firing line, Carl Icahn published an editorial in the WSJ entitled Let Proxy Advisers Do Their Work – suggesting that the ability for companies to label anything they disagree with in a proxy advisor report as “false” or “misleading” while such statements carry legal liability with the SEC, would be “a recipe for disaster.”  Further, a Bloomberg story suggested that the comment letters originally used by the SEC to inform their decision-making may have been the result of “astroturfing” based on common errors and interviews with the individuals that signed them.  Either way, these battles are fought both in the media and in public comment letters on, and to date nearly all the published comments on proxy advisory oppose the SEC rule; any issuers hoping to see its passage may want to attach their support to it soon. 

-We always keep an eye on IHS Markit’s Sam Pierson’s take on the securities lending market and how it affects the companies issuing those securities. Sam’s latest, Securities Lending Q3 Review, shows investors seeing a sharp jump in revenues from lending North American equities (totaling over $1.1b in Q3), but with much of that loan revenue isolated into two categories: 2019 IPOs that have yet to be added to indices, and Canadian cannabis stocks.  Both US and Canadian equities loan revenue spiked over 40% for the period, with one US-listed stock (Beyond Meat) generating nearly $200 million in revenue, or 18% of the total lending revenue during the quarter.  Check page 11 of Sam’s report for the average % of shares on loan in your sector as a baseline – semiconductors saw a sharp drop in % of shares on loan during Q3 2019 vs. Q3 2018, for example. 


- For those not already reading everything Harvard Business School’s George Serafeim publishes, it’s time to join the club.  (Don’t worry, you won’t find a single Greek letter in Serafeim’s work – it’s written for a broad audience). Serafeim and Jean Rogers from SASB here think about the thought process going on in the ESG materiality exercise that takes place inside a company, and look at the lifecycle of how an “E” or “S” issue progresses from nascent, to catalyzed, to becoming part of stakeholder and regulator dialogue.  In particular, we liked the short checklist on page 22 – Serafeim and Rogers note that issues are more likely to rise to material level in regions where media and NGOs are more powerful and politicians are more responsive, where effective regulation exists, and where it is easier for stakeholders to gather information about the alignment between the business and society, among others.  Using this frame on your list of nonmaterial E&S risks might help you predict the next issues that cross a materiality threshold.

- We’ll start this discussion by giving you our opinion first – you can look at any portfolio and find at least one security that someone might find objectionable, if you cast a wide enough net.  News articles on this topic pretty much write themselves (hmmm, scalable business model idea?)…that said, if you’re running a state or local pension plan, this type of bad publicity might mean your job is on the line.  And, if you’ve made the decision to own an index, and outsourced security selection with the goal of lowering your costs, well, that may not matter in the court of public opinion.  CIO Magazine covers the criticism of the Oregon State Treasury, both for a public equity index position and an investment in a private equity firm that owns a stake in a spyware company.  Either way, expect the increasing public pressure on state and local pension fund managers to follow ESG principles to flow back into both their active and passive investment process, and further, expect more direct scrutiny of your company from both these asset owners and the asset managers working for them.

Questions? Comments? Sick of pumpkin spice everything, but dreading the impending arrival of peppermint everything? Reach out to your IHS Markit team, or