Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

See related case examples of

Dell Inc.

investor rights to intrinsic value realization

and

Walgreen Co.

stock buyback policies

"Fair Access" Home Page

"Fair Access" Program Reference

For graphs of specific company and related industry returns, see

Returns on Corporate Capital

See also 2011-2019 analyses of

Shareholder Support Rankings

 

 

 

Forum distribution:

A professional's reactions to report of large fund managers establishing private communications directly with CEOs

 

For the news report referenced in the article below, see

See also a subsequent commentary of the author on a related subject:

 

Source:  Bloomberg, June 27, 2019 commentary

BloombergOpinion

Money Stuff

 


Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit.

Read more opinion

 

The Owners Want to Meet Their Companies

♦ ♦ ♦


By Matt Levine

June 27, 2019, 12:00 PM EDT

 

Corporate access

Here is a story about how big asset managers used to rely on brokers to set up conferences where they could meet with corporate managers, but now they’re doing it themselves:

Fidelity Investments, Capital Group, Wellington Management, T. Rowe Price Group Inc. and Norway’s government fund are planning a series of private conferences where their analysts can meet CEOs, according to people familiar with the matter. The agenda: cocktails and dinner, followed by a full day of one-on-one meetings, 75 minutes each. CEOs only.
“There was this idea that brokers had magical access to the C-suite,” said Octavio Marenzi of Opimas, a consulting firm to banks. “Asset managers are starting to realize, ‘I can pick up the telephone as well.’”

Honestly when you put it like that it is a little amazing that they …  missed this? Fidelity and Capital and Wellington and T. Rowe are among the biggest shareholders of hundreds of public companies. They vote to elect directors and endorse CEO pay and approve mergers, they can move the stock price with their purchases and sales, the executives have fiduciary duties to them, surely if they called the companies someone would call them back?

This story hits on any number of long-running Money Stuff themes. Most obviously, we have talked before about “corporate access,” which is the name for this sort of business, in which banks set up meetings—ad hoc or at conferences—between their investing clients and their corporate clients. I have argued that corporate access is essential to understanding the business of investment banks’ research departments: Bank research is notoriously positive, much more likely to rate a company “buy” than “sell,” which some people find outrageous but which is more sympathetic when you remember that (1) a “buy” rating helps the bank maintain good relations with the company and (2) those good relations are much more valuable to the bank’s investor clients than an accurate rating would be. The investors mostly do their own work to decide what stocks to buy; they rely on the banks not for stock picks but for access to the corporate managers. But if the investors don’t rely on the banks for access—if they just get the access themselves—then the value of the research departments is rather diminished.

But you shouldn’t worry too much for the banks, because they have a lot of clients who aren’t Fidelity or Capital or T. Rowe. The value added by banks’ corporate-access businesses is not mostly in introducing huge household-name investors to huge household-name companies; presumably BlackRock’s Larry Fink and Apple’s Tim Cook have, like, heard of each other. The value added is in introducing smaller—but still institutional—investors to smaller public companies; it’s coordinating a whole big complicated market rather than just a few big names at the top. But the ownership of public markets is becoming increasingly concentrated in those few big names at the top, and we are not too far from a world in which, as Harvard’s John Coates puts it, “roughly twelve individuals will have practical power over the majority of U.S. public companies.” That’s bad for the banks—those dozen people can cut out the banks and do their own corporate-access work—but it is also sort of weird and unsettling for public markets generally. If you add a couple of names (BlackRock, Vanguard, etc.) to the Fidelity/Capital/Wellington/etc. conference circuit, pretty soon that circuit will control a majority of the shares of a majority of public companies, and then those conferences will be a good replacement for shareholder meetings. Why care about or talk to your other shareholders, when you can meet with the only ones who matter in a single day?

That points to another theme, “should index funds be illegal?” The particular names here aren’t the traditional index-fund names, but still it is interesting to see several of the biggest owners of public companies explicitly banding together to chat with all their companies. Chat separately, of course, but still. If all of the CEOs of all of the airlines go to a Big Investors Airline Conference, and all of the CEOs meet sequentially one-on-one with all of the airline analysts for all of their big investors, then … look, the meetings are all in separate rooms, but they’re in the same building, and isn’t that sort of odd from an antitrust perspective? “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices,” wrote Adam Smith, and here the merriment and diversion (cocktails and dinner) are just a prelude to the full day of 75-minute shareholder meetings. It would be weird for the airlines analyst to walk into each of those meetings and urge the CEO to try to cut prices to take business away from the other airlines. She’s meeting with them next! They can’t all take business from each other! But if they raised prices ...

Also, of course, if you are a retail investor who owns 100 shares of stock in a few big blue-chip companies, try calling up those companies and inviting them for dinner and cocktails at your house, followed by a full day of one-on-one meetings to talk about their businesses. “CEOs only!” It won’t happen. I am constantly making fun of the notion that insider-trading laws are meant to ensure a “level playing field” for all stock market investors, and this right here is why. Yes yes yes sure of course Regulation FD prohibits the CEOs from giving the analysts any “material nonpublic information” at these meetings, but these analysts’ time is valuable, and if they are spending the time and money to set up the meetings then presumably they expect to learn something from them. We talked yesterday about the popular belief that there is some sort of high-level insider-trading conspiracy in which powerful hedge-fund managers are constantly getting secret tips from a network of highly placed sources, but this is just the straightforward and open and legal version of that: Powerful asset managers really are constantly having private meetings with the CEOs of public companies. Maybe they learn nothing useful in those meetings that they couldn’t get from the companies’ annual reports, maybe they only go to the meetings for the cocktails, but I think you’re entitled to doubt that.

♦ ♦ ♦

 


This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.


To contact the author of this story:
Matt Levine at mlevine51@bloomberg.net


To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net


 

 


©2019 Bloomberg L.P. All Rights Reserved 

 

 

This Forum program is open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to access@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.