Collectivizing Retail Shareholders
Published: 15 Sep 2021
Will they or won’t they vote? If they do, how will they vote?
Retail shareholders are generally not engaged in corporate governance. As noted previously, in 2020, US retail investors owned c. 29% of shares outstanding, but only voted 28% of their proxies. Millennials, however, are more motivated: 46% of retail investors aged 25-40 said they plan to vote their proxy in 2021 (Source: Broadridge Investor Sentiment Survey). Additionally, millennials have said that they will vote in accordance with their values: 67% will vote on environment, 62% on social. Collectivizing retail shareholders is increasingly important for corporate issuers, because these shareholders are vocal and create information networks around key issues. Whether those information networks are correct information or its participants have integrity could be critically important for significant corporate governance decisions. Corporate issuers have an incentive to get their messages out there.
Engaging retail shareholders
Simply monitoring and engaging with retail shareholders on social media will not be sufficient to inform or influence them. Corporate issuers need to understand their motivations and values. Companies engage regularly with institutional investors and retain proxy solicitors to analyze and influence their votes. The existing recordkeeping complexities associated with the retail shareholder chain of custody and the lack of retail shareholder engagement with electronic proxies, render engagement with retail shareholders very difficult. Corporate issuers and market intermediaries, as well as regulators, can and should fix these inefficiencies. The critical question in the meantime is whether there are alternatives that can be implemented today.
Collectivizing retail shareholders
One concept that has demonstrably improved retail shareholder engagement is retail investor associations, which have a long history in Germany. Essentially, these not-for-profit investor associations provide information on proxies, as well as proxy advice. They also liaise with the companies on behalf of their membership. Functionally, these associations reduce the cost of getting advice and they empower collective action at the retail level. One could envision digitally facilitated adaptation for the US market allowing retail shareholders to express their values and views, mapping these values to specific proxies as well as connecting the retail shareholder to other shareholders focused on the same issues. The retail shareholder receives a simply stated default voting position notification on their most important issues. The voter can opt-out or change the vote. The ability to connect shareholders with shared interests and provide them with an easy mechanism to record their interests, we can reduce the costs that hinder retail engagement. Over time, we can also improve corporate understanding of their retail investors and their motivations.