“Since World War II, I would say we have never had a situation like this where it has been very difficult to predict outcomes in terms of where the world is going. These are unprecedented times and investor management is front and centre. In some ways it has taken a beating, but in others it’s trying to correct itself,” states Sankar Krishnan, EVP and Industry Head, Banking and Capital Markets, Capgemini. Over the last four months, the entire investor management ecosystem has been significantly disrupted which is creating new challenges for organisations and how they effectively maintain open communication with shareholders relating to company performance and guidance for the future, as well as providing a deeper understanding of the industry.
The best strategy for effective investor management
Prior to COVID-19 Krishnan believed that the best strategy for effective investor management was “transparency, followed by leaders providing a consistent strategy, followed by a measurement process that gives a true representation of how an organisation is doing compared to what was discussed in the previous shareholders meeting. This approach has an effective impact on an organisation's valuation, velocity in the stock market. I believed that this was a very good model because you could easily compare a company's performance based on previous history. This was a good system across many sectors that brought together the consumers, the asset management industry, the wealth management industry and investment management industry, and from an investor management perspective, the better CEOs, are also the better communicators.”
However, post COVID-19 Krishnan details that although, “due to nobody’s fault, there are a lot of unknowns. We don’t know much about this virus in terms of when it will disappear or when there will be a vaccine. As a result it is very difficult to predict the future of any organisation or industry at the moment. Therefore from an investor management perspective we are witnessing on average a 95 to 97% work from home raito, as well as a lot of organisations unable to predict with any accuracy the future cash flow, with COVID-19 costing them between 10 and 25%, as well as entire economies being propped up by their governments - the US alone has announced close to US$2.3trn in the first phase with more to follow. As a result, it is very difficult to predict business outcomes, therefore some have decided that to give this guidance after a time of total economic uncertainty would be wrong due to there being so many variables.” Giving examples of these variables Krishnan explains that “we do not know when a vaccine would be ready, in a country like the US even if a vaccine is developed, what will be the process to reach over 250 million Americans. We also don’t know if there is going to be a variation of the virus that comes in winter and what the retail sector is going to look like. A lot of the traditional companies have fallen down due to being replaced by technology companies that can meet the change in customer behaviour and demands.”
Ultimately, Krishnan highlights that all of these inputs in the investor management models would provide outputs, which would be shared with the entire investment community, fostering good investor relations. However, “the models are not able to produce the outputs with a high degree of probability. At best you can give a range or a best guesstimate, because investor management is facing global impact that crosses industries, companies, consumers and governments. While the virus may affect regions differently, there is no doubt that each country and industry will be impacted considerably, unfortunately a lot of the survivors will depend on having at least an 80 to 90% capacity utilisation. This creates problems for the investment management industry, because you are faced with the challenges of not being able to give guidance on any aspect of it, but life must go on. You have to make some assumptions and carry on, and I'm sure the public will understand if you've got some elements wrong. But I think we've got to deal with fighting the virus at the moment and I have no doubt that things will get better however this is the current landscape for the investor management industry.”
Emerging trends and innovations as a result of COVID-19
Krishnan believes that “every cloud has a silver lining”. First and foremost, Krishnan highlights that the drive to digital has been extremely fast. “I think a lot of the industries due to COVID-19 have become digitally savvy and responsible. A record number of people have begun to use digital apps - at Capgemini we conduct a lot of research reports relating to retail, banking and fintech - interestingly 80% of people surveyed do not want to go into a bank, and will not choose a bank if they are not able to use a digital way to access the banks products. As a result we are seeing new business models are emerging, such as massive organisations moving to a 95 to 97% worked at home situation which was not easy to achieve. I believe we are also seeing improvements in business contingency planning, as people return to work we are seeing a lot of new technologies emerging as well as ways of working. It is interesting to see different sectors adapting to the current environments such as restaurants becoming drive thrus or takeaway only; the healthcare industry adopting 3D printing capabilities to mass produce personal protective equipment (PPE); the insurance industry using drones to survey damages; and the finance industry using chatbots to continue its services to customers. Across each industry, we are seeing these kinds of deployment, resulting in business operations, as we know them, evolving very quickly and out of this will come new business models.”
With digital innovations and implementations on the rise, Krishna believes that this increase in use of digital solutions for investor relations due to COVID-19 is an interesting concept to see how these disruptive technologies will be used in day to day operations. “Given the fact that 2020 is pretty much written off, it is not going to be so much about 2020, it will be more forward looking at 2021 and beyond. One of the good things that have come out of the virus is the lowering of interest rates. So even though you may lose 2020, 2021 and beyond will have low interest rates for discounted cash flow, the challenge however is to show this in your digital model. I would also say that now digital channels are the single largest revenue channel for most organisations, it will be very interesting to see from an investor management viewpoint, the impact that this has on an organisations performance, and whether a more digital approach will be a model of choice post COVID-19. Then there are aspects such as negotiation of contracts for office space where companies have been vacant for the last four months and how that shows on the balance sheet. These are some of the things I see from an investor relations perspective - how will the investor management teams be able to digitally communicate with the shareholders and how you can make the information digitally available. I think overall it is about finding out how traditional companies can save a lot of costs as they get called upon to invest more and more in digital for the rest of the year.”