Corporate Governance at the Turning Point
PLUS: After Earnings with psychedelic drug company atai Life Sciences ($ATAI)
This week's edition of the Roundtable Roundup highlights the powerful confluence of our capital markets, democratizing technology and politics that continues to create new and rapidly evolving challenges for IR and corporate governance teams. The rapid pace of change can feel overwhelming and quickly create new corporate paradigms, as seen in the fluctuating focus on DEI and ESG initiatives and the swift integration of AI into boardrooms. We also highlight how Reddit RDDT 0.00%↑ engaged their retail shareholder community on their first earnings call and Robinhood’s HOOD 0.00%↑ recent challenges with the SEC. Additionally, we examine research from University of Washington professors Ed deHaan and Andrew Glover which argues that restricting market access for retail investors could actually lead to improved investment outcomes.
Reddit's first quarterly report follows Elon Musk's lead (Yahoo! Finance)
Innovation in Earnings Calls: Starting with Tesla in 2019, companies like Reddit, Robinhood, and Coinbase have shifted towards including retail investors in their earnings calls, allowing them to submit questions, often through platforms like say.com. This approach democratizes the financial reporting process, making it more inclusive of shareholder voices.
Expansion of Retail Investor Influence: The rise of retail investors, especially highlighted during the "meme stock" movement with companies like AMC and GameStop, has led to more companies integrating questions from this group into their earnings discussions, reflecting a significant shift in corporate-investor communication dynamics.
Alternative Formats in Financial Reporting: Beyond just Q&A sessions, some companies have adopted unique formats for their earnings disclosures. Netflix, for example, has opted for an "earnings interview" format where a single analyst or IR executive hosts the call, creating a more controlled and narrative-driven presentation.
Broader Changes in Corporate Communications: The landscape of corporate communications has evolved significantly, with more transparent and interactive methods of sharing information. This includes a mix of traditional financial reporting, enhanced public engagement through social media, and diverse content formats like podcasts and newsletters, aligning more closely with media company practices.
SEC issues Robinhood Crypto with Wells Notice, citing alleged securities violations (The Block)
SEC Issues Wells Notice: Robinhood Crypto, the cryptocurrency arm of Robinhood Markets, received a Wells Notice from the U.S. Securities and Exchange Commission on May 4, indicating a preliminary decision to recommend an enforcement action for alleged securities violations.
Background of Regulatory Interactions: Robinhood Markets disclosed that it has previously engaged with the SEC in a bid for regulatory clarity, including efforts to register its crypto operations, expressing disappointment over the receipt of the Wells Notice.
Response and Position of Robinhood: In response to the SEC's notice, Robinhood affirmed its position that the cryptocurrencies listed on its platform are not securities, stating readiness to contest any legal action by demonstrating the weaknesses in the SEC's case against its crypto unit.
Broader SEC Actions in Crypto Sector: This incident is part of a larger trend of increased SEC scrutiny in the cryptocurrency sector, with other prominent entities like Uniswap and Consensys also receiving Wells Notices recently, indicating a broader regulatory challenge facing the industry.
AI shakes up corporate boards (Axios)
AI Integration in Boardrooms: Leading companies are increasingly integrating AI into their corporate boards, with some appointing AI bots as observers. This trend highlights the growing importance of AI in strategic decision-making processes, exemplified by the UAE's International Holding Company appointing Aiden Insight, an AI tool, to its board.
Expertise Gap in Boards: Despite the rapid adoption of AI in corporate strategy, a significant gap remains in AI expertise among board members. Only 13% of S&P 500 companies have a director with AI-related expertise, and formal AI oversight systems are rare, indicating a need for boards to enhance their understanding of AI technologies.
AI's Impact on Decision-Making: AI tools like Aiden Insight offer real-time insights and data analysis during board meetings, which can significantly enhance decision-making. These tools utilize a combination of internal company data and external market trends to provide strategic advice, particularly benefiting sectors like energy, health, finance, and technology.
Future of AI in Governance: The increasing use of AI in governance is prompting a reevaluation of traditional board practices and the frequency of board interactions. AI's ability to provide predictive analytics could transform how boards monitor and guide corporate strategies, necessitating more frequent and informed engagements between boards and management.
More Time To Trade Isn’t a Good Thing for Many Retail Investors (Insights by Stanford Business)
Accessibility and Trading Costs: The evolution of trading technology has significantly reduced the barriers and costs for retail investors, moving from expensive and slow trades to instant, zero-cost transactions.
Proposal for 24/7 Trading: Some platforms, like Robinhood, are advocating for the stock market to operate 24 hours a day, arguing it would level the playing field for non-professional investors by giving them the same access as professionals.
Research Findings on Market Access: A study by Ed deHaan and Andrew Glover suggests that retail traders might benefit from restricted market access. Their research, comparing traders across different U.S. time zones, found that those with less access to early morning trading hours tended to have better-performing portfolios, indicating potential disadvantages in extended trading hours.
Recommendations for Retail Investors: The study advises retail traders to consider more passive investment strategies like investing in diversified exchange-traded funds (ETFs) rather than actively trading stocks or cryptocurrencies, to avoid small but cumulative financial losses.
DEI is getting a new name. Can it dump the political baggage? (The Washington Post)
Reduced Public Emphasis on DEI: Companies are increasingly moving away from publicly emphasizing DEI (Diversity, Equity & Inclusion) in their communications and strategies, partly in response to legal and political challenges. High-profile cases and legislative actions have prompted firms like Eli Lilly and Starbucks to reevaluate and modify how they discuss and implement DEI initiatives.
Shift Towards Inclusion and Talent Focus: In reaction to changing societal and legal landscapes, companies are reframing their diversity goals to emphasize broader concepts of talent and inclusion over specific DEI metrics. For example, Starbucks has shifted its executive bonus incentives from diversity representation goals to broader talent performance metrics.
Legal and Financial Considerations: The legal environment, including recent Supreme Court rulings and ongoing lawsuits, has influenced companies to adopt more cautious and race-neutral approaches. This is reflected in the renaming of diversity programs and the overhauling of internal DEI teams to mitigate legal risks and adapt to the evolving regulatory framework.
Continued Commitment Despite Changes: Despite these changes, many companies continue to recognize the value of a diverse workforce and are finding new ways to integrate these goals into their corporate strategies without overtly referencing DEI. Companies still assert the business benefits of diversity, with leaders like JPMorgan Chase’s CEO highlighting the positive impact of diversity on business outcomes.
A Trump SEC would aim to reverse climate disclosure rule, ratchet up ESG fights, sources say (CNBC)
Rollback of Climate Disclosure Rules: A second Trump administration would likely prioritize dismantling recent SEC regulations regarding climate disclosures, which currently mandate large publicly traded companies to report their greenhouse gas emissions levels starting from fiscal 2025. These changes reflect a broader opposition to Biden-era environmental policies.
Impact on ESG Standards: Trump’s administration would also likely continue efforts to limit the influence of Environmental, Social, and Governance (ESG) standards in investment practices, including reinstating previous restrictions on ESG funds in 401(k) retirement plans. This could affect financial institutions like BlackRock and Vanguard, which have been under political pressure for their ESG-focused investment options.
Potential Legal Repercussions for Investment Firms: Large investment management firms that have embraced ESG principles might face increased scrutiny and pressure from a Trump-led government, potentially influencing how these firms manage and offer environmentally friendly investment options.
Continued SEC Focus on Cryptocurrency Regulation: Despite a general tendency towards deregulation, the SEC under a second Trump presidency would likely maintain a stringent regulatory approach towards the cryptocurrency industry, continuing efforts from his first term to clarify and enforce cryptocurrency regulations.
This Week on After Earnings: atai Life Sciences ($ATAI)
In this week’s episode, hosts Katie Perry and Austin Hankwitz explore atai Life Sciences with Founder and Chairman Christian Angermayer, covering its mission and the rise of mental health issues. Together, they discuss the current state of psychedelic regulation, atai’s drug development phases, how retail investors should approach atai post-product launch, and the company’s go-to-market strategy. ATAI 0.00%↑