Investor education needs to improve as retail shareholders gain more say in how companies are run, argued participants on a recent IR Magazine Webinar.
Traditionally, retail investors have struggled to exercise their rights as shareholders. But tech and regulatory changes are handing them more involvement in areas like AGM votes and capital raisings.
‘It’s a noble cause that the shareholders of a business can have a say in terms of where that business is going,’ said Neil Shah, director of content & strategy at Edison Group. ‘But votes carry power, and you could be pushing a decision that is actually to the detriment of the company.
‘There might be trade-offs – [for example], between sustainability and profitability – that you need to weigh up. Also, you do see the market often getting caught up in near-term fads… There are dangers and I think the response to those dangers is to make sure you are informing, educating and engaging with the people who have that vote.’
Cynthia Alers, director of IR and M&A at Elementis, concurred with Shah’s comments. ‘Democracy depends on having people make informed decisions,’ she said. ‘And I think that’s a danger in retail – it takes a lot of work to find information, do research and have a considered opinion
‘In the area of private wealth… you have fund managers helping retail investors manage that information flow and giving them informed opinions. If they don’t have those opinions, they tend to follow fads. There’s a lot of unregulated information on social media and the share-tip pages of newspapers.’
‘Clear and accessible’
Robert Irvin, partner at IR consultancy RMS Partners, said ‘fundamentally, reaching underlying holders is very difficult’. He suggested companies ‘make themselves and the issues they’re trying to address to investors very, very clear and accessible’, noting that corporate materials are sometimes unintelligible even to market professionals.
Michael Kempe, head of business development at Proxymity, said companies should make a greater effort to keep all investors informed throughout the year, not just around key moments like the AGM.
‘We now have tools and opportunities to engage with both retail and institutional in a way we never did in the past,’ he said. ‘Historically, these big investor roadshows would take place where you pick your top five or six major shareholders, the chief exec, the chairman, the finance director and whoever [else] would go to see them, and they would sit in a room and talk about strategy. And that wasn’t visible to every other shareholder.
‘It should be pretty simple… to put a video up, to actually have a Q&A session after the mid-year results or something like that, so that any conversations that have taken place with some investors can then take place with all investors should they wish to [listen].’