The 2021 proxy-voting season was remarkable, in many ways. Shareholder proposals on environmental and social issues won record-breaking levels of support, and many say-on-pay resolutions were opposed by large fund managers. But proxy season could be even more dramatic next year, thanks to two developments – the universal proxy ballot and the growing clout of retail shareholders. Both factors will put a premium on effective communication by companies and boards.
Yesterday, the SEC approved a new rule requiring companies to use a universal proxy ballot in contested director elections. Long sought by major institutional investors, the universal proxy puts all board candidates on a single slate and clearly identifies the individuals nominated by the company and those nominated by activists. It replaces the cumbersome and confusing practice of using separate ballots for competing slates of directors that has long been a mainstay of proxy contests.
A move toward more inclusive capitalism
While the universal ballot has been a favorite of big institutional investors, it could prove to be popular with retail investors, too. Thanks to Robinhood and similar investment platforms, retail investors have been a force in markets over the past year, and they are poised to have a greater say in the affairs of companies they own.
That’s because Robinhood is building a way for investors to easily vote their shares and participate in events like earnings calls and shareholder meetings. It’s based on a proxy voting and Q&A platform developed by Say Technologies, which Robinhood acquired in August. It was created to help investors and companies engage more effectively, and Robinhood expects to use the technology to develop “new products and experiences that democratize shareholder access.”
So, just as retail investors whipsawed the share prices of GameStop, AMC and other meme stocks, the addition of an easy-to-use voting app could see them play a much bigger role in proxy contests. In fact, their votes could be decisive in some instances.
Take environmental issues, for example. The successful campaign by Engine No. 1 to elect new directors at Exxon Mobil drew headlines, but it wasn’t the only place shareholders flexed their muscles. There were votes on 108 environmental shareholder resolutions globally, and the average level of support nearly doubled to 27.2%, compared with 16.6% and 18.7% in the previous two proxy seasons, according to Insightia, a shareholder data firm.
In the year ahead, it’s not hard to imagine retail investors supporting resolutions on climate change, diversity, political contributions or other ESG issues. They could also have a lot to say about CEO compensation.
Effective communications: a strategic + tactical imperative
As we noted in a previous post, good communication has long been important for shareholder engagement, and these developments make it even more essential. Companies will need to sharpen their messages and, in some cases, move beyond technical or financial language. While effective with institutions, that approach might not persuade retail shareholders.
It may also be necessary to consider new communication channels to reach retail holders. Stodgy letters from the board with legalistic explanations aren’t going to do the job. Social-media campaigns, video, well-designed infographics, and purpose-built websites will likely have a role to play. They can be smart and substantive if they’re executed well and are part of a comprehensive communication strategy.
A single proxy ballot. Continued activism by influential shareholders. Newly empowered retail investors. The coming year could be very eventful indeed.
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