Retail communications key for 2010 proxy season as Rule 452 and notice and access threaten turnout
For several years, IROs have paid lip service to retail investors, expressing an interest in attracting them without necessarily backing up their words with actions. This is changing: recent regulatory reforms have made the retail vote more vital than ever this proxy season.
Notice and access (N&A), which many US companies have eagerly embraced, has led to lower retail voting levels. At the same time, changes to Rule 452, eliminating the broker vote for director elections, have boosted the importance of the retail vote, and it’s no exaggeration to say individual investors could make or break a director’s bid for reelection now that brokers aren’t casting their clients’ votes.
Although the finer points of proxy plumbing differ by country, the same general situation prevails: keeping retail investors in the loop isn’t easy. Communicating with them can be a time-consuming task, observes Simon McGregor, managing director of investor analytics at Equiniti, the UK’s largest transfer agent. He notes that while many public firms evince ‘an emotional interest in retail investors’, a lot more could be done to boost the retail vote.
Other experts point out that efforts to communicate with retail shareholders are ultimately worthwhile because individuals tend to stick by a company in bad times as well as good. ‘Typically, retail investors love issuers,’ explains Charles Rossi, executive vice president at Computershare and president of the Securities Transfer Association. ‘There is a huge loyalty factor there.’ So what can issuers do to appeal to retail shareholders and make the most of that loyalty factor?
Appealing to the voters
1: Make sure your notice gets noticed. ‘Companies that sent out only a notice saw a significant decrease in the number of retail investors who actually voted,’ explains Rossi. He says this proxy season the SEC will almost certainly allow more latitude in how public companies can present information to investors. Issuers will be able to include educational materials, explaining why N&A is a good idea and why they want retail investors to vote.
Until now, everything about the e-delivery notice that public companies sent out, from its font size to its wording, was strictly regulated, Rossi adds. He predicts that the notices of the future ‘should be a little more eye-appealing.’
2: Make the case for e-delivery and electronic voting. In Canada, public companies can ask investors to consent to e-delivery but can’t simply send a notice with the assumption that it equals access. Therefore, Canadian IROs must persuade investors of the advantages of e-delivery.
‘Issuers need to focus on why e-delivery is a good thing for investors to sign up to,’ says James Hinnecke, director of product management at CIBC Mellon. He notes that the two most successful arguments for e-delivery are the ecological benefits and the fact that eschewing print and traditional mail saves a company – and thus ultimately its shareholders – money.
Rossi points out that the uptake of e-delivery for investors at companies that use Computershare’s eTree program has been higher than for those that don’t. The eTree concept is simple: for every registered shareholder who opts for e-delivery of proxy materials and the annual report, a participating company shows its gratitude by having American Forests plant a tree.
Karen Danielson, shareowner services manager at the Coca-Cola Company, calls this ‘a win-win situation’ because e-delivery saves the beverage giant money while helping the environment. She notes that since 2005, when Coca-Cola first signed up to the eTree initiative, 350,000 trees have been planted through this program.
Katie Sevcik, senior vice president of Wells Fargo Shareowner Services, urges companies to keep education about e-delivery ‘simple and direct’ and to ‘use plain English’. She emphasizes that education should occur all year round through dividend mailings and the company’s investor relations website.
Johnson & Johnson uses its IR site to argue that its dedication to improving the health and well-being of people extends to protecting the environment by offering electronic versions of the company’s publications. The site then tells investors, ‘You can do your part as well,’ and provides a link for them to sign up for e-delivery.
3: Pave the way for the notice card with a pre-announcement. Some issuers notify investors that proxy materials will arrive soon. A few send this message by traditional mail, while others prefer email. ‘Sending out an announcement ahead of time can help investors understand what they’re going to receive,’ says Sevcik.
In this scenario, email works particularly well. It costs next to nothing and using it helps an IRO identify non-working email addresses early so he/she can revert to contacting those particular shareholders via paper delivery. ‘It’s also a way to show shareholders they are very important to a company,’ Sevcik adds.
4: Consider a hybrid approach to N&A. Issuers can choose to send certain retail shareholders paper packages while communicating with others electronically.
Ron Schneider, vice president of business development, proxy solicitation and meeting services at BNY Mellon, notes that one of the most widely used cut-offs for hybridization is share range: a public company might send all retail shareholders who own, for example, 1,000-1,500 shares or more a traditional paper package. Another approach, he says, is mailing the paper package to anyone who has received paper in the past and actually voted.
Sevcik recommends that companies decide upon a hybridization strategy only after they have studied voting patterns. For instance, she points out that it makes sense to use e-delivery for investors who previously used the internet or phone to vote.
5. Reach out to employees, many of whom are also retail shareholders. Public companies tend to communicate with employees on an ongoing basis. As many of these employees are also shareholders, IROs should ensure employees understand the proxy process – and vote their proxy cards.
‘Companies have an ongoing dialogue with their employees, so they’re easily able to use that by prepping employees on when and how they’re going to receive notice of the proxy materials, as well as the ease of various means of voting,’ says Schneider, adding that the response can be ‘quite significant’. At BNY Mellon, for instance, a large percentage of retail shareholders are also employees.
6: Phone up retail investors and help them vote. McGregor has heard of public companies using call centers to elicit a response from retail investors, but he believes the practice is still the exception rather than the rule.
‘Companies can look at their top registered holders and see whether they vote,’ says Schneider. ‘You can follow up with phone calls to make sure they saw the materials and give them assistance with the mechanics of voting. Phone calls traditionally help boost the retail voting returns, although calling everybody is cost-prohibitive.’
7: Simplify your voting process. Sevcik points out that phone or internet voting should be simple and easy to use. She says some companies detail every proposal on their phone-voting systems, alienating the precise audience they’re hoping to attract. ‘Investors have generally decided how they want to vote,’ she warns. ‘Lengthy explanations can make them frustrated and they may hang up.’
8: Promote direct investment. Direct stock purchase plans and dividend reinvestment plans ‘really encourage loyalty,’ says Rossi. ‘When there is a plan, you’d be amazed by how many shareholders take advantage of it. It’s a wonderful opportunity for individuals to get capital appreciation and low-cost investing using just their dividends.’
9: Meet with retail investors and intermediaries face to face. In the past year, CGI Group, a Montreal-based IT and business processes company, has hosted three separate luncheons and breakfasts for brokers and bank salespeople so they can convey the latest information about CGI to their retail investor clients, says Lorne Gorber, vice president of global communications and investor relations at the firm.
‘If you get 50 brokers in a room, maybe a quarter of them are there for the free sandwich, but the others might like to hear something and share it with their clients,’ Gorber says. He notes that this retail tool can also prove a boon for cultivating institutional interest: ‘One thing that can motivate an analyst to start coverage is having the sales people ask questions about a name their firm is not currently covering.’
Gorber also says CGI invests considerable time and effort in its annual meeting, which usually attracts around 300 attendees. ‘Because of how the regulatory bodies set the rules, this is the one and only day of the year we can interact directly with the people who invest their money in the company,’ he explains.
Be more sociable
10: Use social media like Facebook, YouTube and Twitter. ‘The introduction of social media has helped us to communicate with retail investors. We get a lot of followers on Twitter,’ says Gorber. Over the past eight months, CGI’s Twitter audience has increased from zero to 500.
Studies have shown that roughly 80 percent of individual investors use the web as their primary channel for information gathering, says Darrell Heaps, CEO of Q4 Web Systems in Toronto. ‘Individual investors don’t have access to subscription services like Reuters and Bloomberg, so the web and social media are really important to them,’ he observes.
Succeeding with social media depends on gaining a prominent place on Google and the other search engines, adds Heaps. He also emphasizes that retail investors have a better chance of finding your company if you’re present on a wide variety of media.
11: Encourage regulators to let companies communicate directly with retail investors. Studies have shown ‘there is widespread ignorance in the beneficial owner world about how beneficial shareholders hold their shares and how the voting is done,’ says Rossi. ‘There’s a need for significant education at the shareholder level about what it means to hold shares in Street name.’
To this end, the Shareholder Communications Coalition has approached the SEC about changes to the objecting beneficial owner/non-objecting beneficial owner system. The SEC is looking at the issue, and Rossi urges IROs to speak with regulators about ways issuers can communicate more directly with retail shareholders who want to be identified.