UK companies need to wake up from their status quo bias.
We have had two years now of the best of British business either being snapped up by private equity or choosing to list in the US or elsewhere. In the past few weeks, Darktrace has agreed a buyout, Flutter has moved its main listing to New York and now there is talk of Shell following suit.
It certainly paints a bleak picture of things to come.Throughout this period, there have been repeated calls for the government or regulator to step in and ‘revitalise’ public markets. And yet no one seems to want to address the elephant in the room. That the City and companies themselves might be the ones that need to change (as well).Listed companies need to stop blaming the government or Brexit for low valuations and instead look at their own practices with a clear, unbiased eye.Step one - what determines the value of a public company? The price at which the buyers and sellers in the market agree to pay. How do you make that price as accurate as possible? Have a large number of buyers and sellers in the market (in other words, investors). So let’s start there.Fewer than a quarter (23%) of people in the UK own stocks and shares, far behind the US and Australia where the figures are 37.6% and 31% respectively.
Retail investors move markets and ignoring them is contributing to the UK’s laggard status as a global stock market. It should be exciting for British businesses to list on the LSE and it should be rewarding for British investors to follow them. Both are possible.Improving this participation figure, and changing the culture of investing in the UK would go a long way toward reversing London’s declineStep two – how do you bring retail investors back into the market?The way we invest has fundamentally changed. Particularly for retail investors. Most of us are now self-directing our investment decisions. Gone are the days when we open the paper to check a share price or call our broker to place a trade. Our relationship with our investments now closely mirrors our relationships with consumer brands.This presents a very simple roadmap for listed companies. Start treating investors like customers.Current practices for investor engagement are decades behind peers in the US and certainly wouldn’t pass muster for consumer brand. You simply cannot expect a ‘webinar’ alongside a trading update, or half yearly results to suffice in a digital world where retail investors do so much to drive share prices. These strategies belong in the paper age, and US companies know this. They engage on social media, shout about their successes and have created a culture of investment and optimism. Companies that have taken proactive steps to build relationships with these investors are much more likely to retain them. So how do we do this? Every listed company should be able to answer these questions about all their investors:
- How do investors find my company?
- How do they learn about my company?
- How do they end up with buying intent?
The exciting thing is, technology and the fact that the investment experience has moved online, means that companies can manage all these questions themselves.Consumers are loyal to brands they have a relationship with. Institutional investors are loyal to companies they have a relationship with. It shouldn’t be any surprise that retail investors enter the market to support companies they can have a relationship with. It's time to end the pity party and do something about the depressed valuations that have been reported ad nauseum, and no, the British ISA is not the silver bullet.
