DESPITE the risk that they might be reaping short-term gains while laying the foundation for long-term pain, 566 US companies used notice-only e-proxy mailings for their shareholder meetings by the end of April.
According to figures compiled by Broadridge Financial Solutions Inc., companies have saved about $132 million through lower print and mailing costs.
Unfortunately, that has come at the expense of retail investor engagement in the corporate governance of firms. Based on 164 completed meetings, Broadridge reports a 75% drop in participation among retail shareholders who received only a notice asking them to go online to view their materials or order print materials to be mailed to them.
Interestingly, participation jumps dramatically when retail shareholders receive a full set of printed meeting materials in the mail. More than 66% of retail investors who received full-set delivery voted in companies’ meetings. Broadridge reports that companies are increasingly stratifying their distributions, often sending their smallest shareholders notices only while larger holders receive a full set of materials.
Meanwhile, the lack of participation by retail shareholders is unlikely to worry companies in the short-term. The average quorum at shareholder meetings is still high, 88% compared to 90% last year.
However, the figures include the much-criticized broker vote, which are uninstructed votes cast by brokerage firms on behalf of their clients on “routine” matters, including director elections. Since 2006, the US Securities and Exchange Commission (SEC) has been sitting on a proposal from the New York Stock Exchange to eliminate the broker vote in director elections.
If the SEC agrees to scrap the broker vote, it could impact the ability of some firms to achieve a quorum and put the re-election of directors at many more companies in doubt, especially if they have adopted majority voting standards for board elections.
But even if the SEC does nothing, the lack of engagement by retail investors in the shareholder meeting process is likely to lead to disaffection in the longer term. That could put companies at even greater risk if they are targeted by activist institutional investors since the lack of retail participation magnifies the activists’ impact.
There is an additional concern for consumer-related businesses, which often can count on retail shareholders to be some of the best ambassadors and champions for their products. However, if these shareholders are not being engaged to keep informed about the companies whose shares they own, businesses could lose this valuable constituency.
Chasing short-term glory at expense of corporate reputation
In an age when technology enables virtually anyone to share their opinions with others almost instantly, companies cannot afford to alienate people who have such a strong vested interest in their success as do shareholders.
However, this appears to be exactly what many companies are doing. Individual corporate secretaries and IROs are chasing the glory of short-term savings without due consideration of the long-term impacts in terms of corporate reputation, word-of-mouth marketing, community support, and stakeholder engagement.
Few companies that have used voluntary e-proxy to date have made an effort to provide the online versions of their proxy statements and annual reports in usable and engaging formats. As we reported last week, almost 90% of companies chose formats that do not live up to the spirit of the SEC’s rules.
Electronic delivery has many benefits, but companies must be concerned about a lack of main street participation and take steps to increase retail engagement going forward. This is best done by investing in their web-based communications to create more engaging destinations for shareholders — not just annually around their shareholder meetings, but throughout the year.