Investor-Corporate Engagement | Report – 7 March 2023
Unlocking Value by Targeting Long-term Shareholders
The investor-corporate dialogue remains one of the most important avenues for unlocking the value of a long-term corporate strategy. Research has revealed that having a significant long-term shareholder base is associated with positive outcomes, including higher return on invested capital, greater allocation towards value-creating investments like R&D, and reduced reliance on quarterly guidance.
Still, companies struggle to engage shareholders to support their long-term strategy, and there remain serious disconnects between investors and companies in the engagement process. Tailoring engagement strategies to long-term shareholders provides a solution to this dilemma.
Attracting the right shareholders can make or break a long-term corporate strategy. But many companies struggle with how to engage shareholders to support their long-term strategy and instead focus on the broader investment community. Creating a targeted shareholder strategy can unlock significant long-term value.
Research of 250 of the largest companies across the U.S., Canada, and Europe revealed that the presence of a notable long-term shareholder base is associated with positive corporate results. All else equal, a 10% increase in the proportion of long-term shareholders is associated with:
8% higher long-term ROIC over a cumulative 5-year period
3% and 4% higher allocation towards R&D and Capex projects, respectively
5% lower propensity to issue quarterly guidance.
However, responses to our survey of 50 companies and investment organizations, including FCLTGlobal members, show that major gaps exist in current engagement experiences between companies and investors.
Over 60% of corporations surveyed face hurdles in attracting long-term-oriented investors.
85% of investors surveyed aim to talk to either senior management or the board of directors when engaging with their portfolio companies, but only 40% actually do.
50% of corporations surveyed aim to talk to portfolio managers when engaging with their shareholder representatives, but only 28% of them actually do.
Only 50% of the companies proactively tailored their investor communications by investor type, even though 90% of investors consider who else holds the stock.
Understanding a company’s shareholder base can provide support for its long-term corporate strategy. Segmenting a company’s shareholder base – and tailoring engagement strategies to long-term shareholders rather than the entire investment community – is the key to unlocking long-term value. To strengthen this alignment, companies can leverage shareholder base characteristics to engage with the right people. To learn more, read Unlocking Value by Targeting Long-term Shareholders.
25 July 2022 - For companies, cultivating a base of longer-term shareholders allows managers to refocus their strategy on the future. As expected, evidence shows having the support of long-term shareholders provides a buffer against being derailed by short-term shareholders and activists.
25 June 2020 - Having a strong investor/corporate dialogue well before an activist campaign arises is the way to encourage companies to proactively improve the drivers of long-term value creation—such as bolstering their governance, honing strategies for growth, and...