Public companies have many different audiences to which they must answer. As this week’s Facebook hearings remind us, Congress is one of them. So too are shareholders, who seem to be exerting increasing control over the debate around public companies, if not the companies themselves. We’ve discussed here the shareholder proposals that companies have been forced to hold votes on, many involving “ESG” issues. With massive shareholders like BlackRock pushing social responsibility – and tipping votes on climate change proposals – they are certainly making issuers pay attention to their concerns.
It’s almost enough to make you forget about analysts. But here they come again, as they do every earnings season, to question public company executives on their quarterly earnings calls. Analyst grilling remains an important ritual in issuer life, and an important vehicle through which investors can learn about listed companies. We conducted a quick search of the Intelligize platform to see what analysts are asking about, and how issuers are responding.
As noted, climate change has been the subject of some of the most closely watched shareholder proposals in recent memory. The tide seemed to turn last year when climate-change-related proposals won surprising victories (against issuers’ expressed wishes) at ExxonMobil and other energy giants. It’s unsurprising, perhaps, that it remains a popular topic of conversation on earnings calls.
This season, Disney executives faced a rather innocent question on the subject, and the response of Robert Iger may not engender a lot of confidence. Yes, it’s a good thing that Disney World sits on relatively high ground, but that’s not the first positive you want to hear in the company’s environmental report:
When it comes to the environment, we’ve taken a number of steps to the extent that we can make a difference. And doing just that, I can’t say that we’re expecting – we have a picture in our mind of our theme parks floating away. It’s sort of I guess comforting that Disney World in Orlando is in Central Florida and not on the Coast. But you are right to point out that Hong Kong and Tokyo are right on the water. The property in Hawaii that’s right on the water. And I don’t know how far Disneyland is from the sea, but I think that these issues are very real and things that we need to take very seriously. As a company, I think the best thing that we can do is set examples and behave, as I mentioned earlier, as a good global citizen of the world . . . .
Earnings calls are revealing, in part, because executives must answer on the spot. Arguably, having little time to refine their answers, executives can sometimes give away more than they’d like–if only in their tone, or choice of words. For instance, repeatedly referring to women as “ladies” in a question about board diversity.
One Barry Callebaut AG’s recent call, an analyst asked whether the company was “a bit afraid you send the wrong signal with an all men’s board?” CEO Antoine Bernard de Saint-Affrique responded: “I’m a bit passionate about our diversity. I actually appointed the first lady on the executive committee, and we are actively working in the company at fostering diversity, accelerating diversity. We do that extremely actively and we will keep doing that extremely actively. When it comes to the board, I mean, there were ladies on the short list. They declined at the last minute. And we wouldn’t compromise on quality, but we would certainly keep looking at our women on the board definitely.”
In other instances, executives succeed in not saying much at all. That seems to have been the case for a number of companies on the popular topic of tax reform. Land’s End COO and CFO James Gooch, for instance, batted away an inquiry about whether the tax law would lead the company to repatriate cash, and if so what the company would do with the repatriated amount.
“It’s not a significant amount,” he said. “I don’t have the exact number. We could discuss that later, but it’s probably not as large as it might be with others. We are looking at that, but we don’t look that as a major opportunity.”
Likewise, Robert Rozek, CFO and CCO of Korn/Ferry International fielded this question: “Bob, do you have any preliminary thoughts on what tax law changes could mean for your book and cash taxes? His response: “Yeah. I think, Tobey, we’ve done some internal analysis, but I would prefer to wait until we see where everything settles down and at that point, we’ll come out with a more formalized point of view.”
You never know whether an earnings call question will result in a non-answer like that, or something much more informative. Therein lies its excitement, and its value. We’ll keep watching in this and future seasons to see which topics crop up most frequently–and which prove hardest for issuers to answer.