Why retail investors pile up in general meetings can become a ‘nightmare’ for companies

Companies are set for a “snowball” of voting activity this season, as new platforms appear to break down traditional barriers between shareholders and companies.

After online trading turned into a frenzy over the pandemic, with novice investors wading into the markets in search of returns, newcomers are now taking a deeper interest in shareholder activism.

Historically, a “hard core” of investors who own companies for long periods of time appear for general meetings year after year, according to Lee Wild, head of the equity strategy at the UK investment platform Interactive Investor.

“They’re always visited the general assembly, and that’s the cliché of a cup of tea and a biscuit and a sandwich, and you get a talk with the chairman and the top brass,” he said.

But that is about to change. Smaller investors who prioritize environmental, social, and managerial credentials are eager to make a difference and are increasingly taking advantage of the opportunities to vote.

They do not care about the tea and biscuit treatment.

“We will try to move away from it. Cups of tea and biscuits are fine, but it’s more about customers holding companies accountable,” said Wild. Financial news.

In November 2021, Interactive Investor automatically decided to give all customers the opportunity to vote at shareholder meetings. Since then, if a customer does not want to participate, they would have to opt out instead of signing up, as was the case in the past.

Less than half a percent of retail investors on the platform have so far opted out.

Interactive Investor found that the number of votes processed in 2021 increased by 110% compared to the previous year. Data released by the platform in April showed that Abrdn, Easyjet and BHP Group were among the top 10 corporate meetings ranked by percentage of registered customers who voted.

UK investors have been “very good at giving companies a bloody nose” over the past few years, Wild added, pointing to the shareholder uprising AstraZeneca faced over executive pay last year.

He expects the new race of shareholders to have a big impact, as those who are not voting at the moment, “see what can be done when people gather and actually go to shareholders’ meetings, physically or online”.

“I think it’s going to snowball over the next few years,” he said.

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A spokesman for Hargreaves Lansdown, another UK investment platform, said customers are also automatically eligible to use their voice service.

“Typically, only about half a percent of customers exercise their voting right at the company’s general meetings, but with an ever-increasing focus on the role that retail investors can play, it will be interesting to see how this develops and whether behavior changes. sig. ” said the spokesman.

“The idea of ​​holding companies more accountable through your savings has been massively democratized over the past five years,” said Tom Powdrill, head of stewardship at PIRC. He also notes that there has been a “shift” in terms of ESG issues and activism, with more people interested in what impact a business can have on society.

It is unlikely that the trend will slow down, as institutional investors are also facing pressure to be more transparent.

On April 13, Fidelity International and fintech Tumelo launched a “stewardship hub” that aims to provide “greater visibility of fund managers’ stewardship decisions” to pension clients, administrators and their advisors.

Leading investment platforms are not the only ones that have made changes – the fund service provider Link Group announced last month that it launched a new mobile app to “simplify how shareholders interact with the companies they invest in”.

The app, LinkVote +, will also “facilitate the process by which [the shareholder’s] voice can be heard ”, the company’s statement states.

The group decided to roll out an app when it found out that turnout at general meetings had fallen – the average capital voted at each general meeting was 73.9% in 2021, down from 75.9% in 2020.

“Disruption caused by the pandemic has in many ways challenged the relationship between boards of directors and their shareholders, as they have had to navigate to a more hybrid format,” said Ian Stokes, CEO of corporate markets for Emea at Link Group, in a 31 March statement.

“While UK companies are held more accountable by their investors, the overall level of participation and engagement risks getting in the way.”

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“This is part of a broader trend,” Richard Stone, CEO of the Association of Investment Companies, told UN. “Retail investment platforms and the emergence of these in recent years have made it much easier for individuals to buy shares and invest in companies at their own expense.”

Virtual or hybrid general meetings, which have become more common through the pandemic lockdowns, mean it is easier for retail investors to attend: “There is no reason why a retail investor can not engage in management,” Stone added.

Technology can also help companies understand the extent to which certain views are shared and calculate how much weight they need to give to a particular problem, Stone said. “There is a potential risk that vocal minorities will gain more influence, to give the impression that their perception is general,” he said.

Lumi, a U.S.-based startup that created a digital platform for general meetings, published research showing that retail shareholder engagement is booming, largely due to increased interest in ESG issues.

Tulipshare, a London-based investment platform that enables retail investors to raise equities to reach the threshold for submitting shareholder votes at general meetings, brings together these two pandemic-inspired trends: a growing interest in sustainable financing and the emergence of retail investors .

Founded in 2020 and launched in 2021, the platform has six campaigns underway on various ESG issues, including against JPMorgan and Apple.

Increased engagement can also present challenges for those companies that need to meet the renewed voting power.

“It could be a bit of a nightmare,” said Patrick Ghali, co-founder of Sussex Partners, a hedge fund advisory firm. “With activist investors, they have a single problem they want to tackle … they put a lot of effort and volume into it. How do you handle the cacophony of hundreds of different ideas?”

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In Stone’s case, the engagement with shareholders should not be isolated in order to hold a general meeting once a year. Companies “should have a year-round program that provides shareholders with updates, potentially having calls with management”.

“A general meeting is part of the possibilities, no [only] one, “he added.

To contact the author of this story with feedback or news, send an email to Bérengère Sim

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