By Dean Little, co-founder, Proxymity
In such a period of uncertainty, with razor-sharp geopolitical tensions, eye-watering inflation, the specter of recession and the sobering reality of the climate emergency made clearer following the UNFCCC Conference of the Parties (COP27), increasingly astute shareholders are demanding their voice be heard more than ever.
So the commitment by corporates to better communicate and engage with their investor base has rapidly become a major priority for senior executives when making pivotal decisions.
As we head into 2023 and the lead-up to proxy voting season, one solution is the digital development of a dynamic and clear investor relations system. Improving the communications between company management and shareholders can only be a positive for both issuers and investors.
The concept underpinning shareholder democracy is not new, of course – that shareholders should play an active role in shaping a company’s direction, and not merely rubber-stamp whatever proposals management and boards put forward. But these ideas have taken on a new urgency of late. They have also been amplified in the media.
A feature published earlier this year in The Economist, titled: ‘The push for shareholder democracy should be accelerated’, argued that it is still too difficult for small shareholders to be heard. Last October, the New York Times noted that shareholder democracy is getting bigger trial runs, amid new initiatives to ask investors in funds about what issues concern them and how they would vote.
In the past, though shareholders had visibility as to where their investments were being deployed and – in theory – had a degree of say in the process, in practice very few cared as to the source of the returns yielded, as long as they were robust and consistent.
There has been an evolution in the psyche of investors. They now want both a promising return on investment and the knowledge that the companies they have invested in do not have propositions that run counter to their views and beliefs and have a positive impact on wider society.
This has driven a far greater emphasis on shareholder democracy. More accountability on the part of the issuer, and more transparency in the process, is exactly what Proxymity, a strong advocate of delivering such an ecosystem, is consistently calling for to improve investor communication.
Listening to the retail voiceIndeed, the macroeconomic climate has intensified the need for enhanced communication with shareholders, many of which will be concerned with ongoing market headwinds. Amid soaring costs, profit warnings issued by UK-listed companies rose 69 percent year-on-year in the third quarter of 2022. This will only intensify investor scrutiny of strategic decisions made by C-suites and boards. If issuers want to keep shareholders onside, they must heed their demands.
Much has been written about the role activist hedge fund shareholders have played in the last few years in demanding corporate reforms.
Until fairly recently, however, retail investors had little opportunity to have their voices heard. That is changing, with digital solutions such as Proxymity’s at the forefront of this shift.
In November, as reported in this magazine, BlackRock CEO Larry Fink heralded a ‘new era of shareholder democracy’. In a letter to clients, he wrote: ‘There is no going back. The next generation of investors will increasingly demand to be heard. Technology has the potential to transform corporate governance in ways we cannot fully imagine’.
In the UK, BlackRock is working with Proxymity to extend a program that already allows institutional investors to decide how they want their shares to be voted to encompass retail investors – all in time for the 2023 proxy season.
We feel the corporate governance process is in pressing need of a technological overhaul. Something of an analogue relic in a digital world, it lacks efficiency and transparency and increases the risk of errors and non-compliance, even if unintentional. Under the current proxy voting system, issuers have no direct notification channel to investors, which can impede effective communication and require expensive research to decipher voting activity.
Typically, the system allows little time for shareholders to research and finalize their investment decisions before voting deadlines, and a degree of uncertainty as to whether their vote has been heard. With companies increasingly looking to engage with and empower their investor base, as it stands, impediments need to be reduced.
Modern proxy voting technologies, such as those offered by Proxymity, are essential to any push for a more effective and transparent form of shareholder democracy. By providing investors with instant meeting notifications and true confirmation that each vote has been received and recorded, these technologies can ensure shareholder democracy is accessible for all investors.
Conversely, many firms increasingly take seriously the views of their informed and vocal shareholder base and need to know that they are hearing from as many investors as possible. A digitised process mutually engenders dialogue between issuers and investors, where previously the obstacles may have been too burdensome.
In July 2022, the UK’s Financial Reporting Council (FRC) for the first time published specific guidance for listed companies to bolster shareholder participation when planning and conducting AGMs. Integrating advice and contributions from firms including Proxymity, the guidance emphasizes that ‘integrity, accountability and transparency are essential for good governance.’
Among its key principles for good governance, the FRC says it is critical that any investor communications are clear, that companies should use appropriate technologies to enable real-time votes or vote by proxy and that shareholders should, regardless of size, be offered updates on company matters throughout the year.
The why is readily evident from the surge in enthusiasm for shareholder democracy that will help define the next proxy season. Now it is vital that issuers, investors and custodians focus on the how.
Proxymity connects the world’s ecosystem of issuers, intermediaries and investors digitally in real time, bringing unprecedented transparency, efficiency and accuracy to traditional paper-based processes. Trusted by the world’s largest financial institutions, it is the leading digital investor communications platform providing scalability, efficiency, transparency and full compliance, and our global solutions give public companies confidence that their AGM/EGM agendas are transmitted as ‘golden source’.
Proxymity is backed by the industry's leading financial institutions, including seven of the world’s largest global custodians managing more than $200 tn in assets under custody: BNP Paribas, BNY Mellon, Citi, Computershare, Deutsche Bank, Deutsche Börse, HSBC, JPMorgan, Mediant and State Street. For more information, please visit https://proxymity.io/.
