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After almost 20 years in this business, there’s one thing I know for sure: The annual meeting and proxy process is complex.
Given the sheer number of interactions between issuers, broker-dealers, shareholders, financial printers, transfer agents and solicitors, a dizzying array of factors can impact outcomes. Even experienced professionals find there’s always something new to learn, regulations to digest and strategic nuances to consider.
At Broadridge, we’re here to help you navigate. This article is the first of an ongoing series designed to explain the process for proxy communications and voting. Understanding the process can help clarify options — and illuminate new ways to achieve your proxy goals.
Leading governance professionals recognize the need to maximize shareholder engagement. Connecting with shareholders means opportunities to strengthen relationships, build trust and cement long-term loyalty.
Shareholder engagement is a 365-day job—but it’s especially vital during proxy season. If there’s a contentious item on the meeting agenda, your team must do everything possible to get quorum and ensure passage.
You can’t engage shareholders unless you understand who they are and what drives their behavior.
Registered vs Beneficial shareholders
Registered shareholders hold a stock certificate or have an electronic position of shares directly with the issuer. Typically, issuers use a transfer agent to manage the records associated with stock registration and transfer.
Beneficial shareholders, by contrast, do not own shares directly with the issuer. Instead, shares are held by intermediaries, like the Depository Trust Company, whose records show ownership as assigned to a bank or broker-dealer. Although stock ownership technically resides with the bank or broker-dealer (i.e. “in Wall Street name”), the end shareholder assumes all the rights and privileges associated with share ownership.
You may be seeing more beneficial shareholders holding your stock. Fintechs are pulling more investors into the market by offering zero-commission trading for US stocks and ETFs. Some even offer free shares in popular companies to incentivize new deposits.
The rise of low- and no-fee trading has ushered in a new, fast-growing group of shareholders. But there are still plenty of opportunities to engage this group as well. According to current SEC rules, banks and broker-dealers must provide issuers with information for non-objecting beneficial owners,” or NOBOs. The information includes names, addresses and share positions. All beneficial shareholders are NOBOs by default until they affirmatively object to sharing information. If a beneficial shareholder asks their bank and broker-dealer to withhold all personal information from issuers, then they are called “objecting beneficial owners,” or OBOs.
The good news is that social media and the availability of branded, personalized communications make it easier to connect with all shareholders—OBOs and NOBOs included.
Institutional vs Retail vs. Employee Plan shareholders
Institutional investors are entities that pool together resources to purchase equity shares. These investors include hedge funds, endowment funds, mutual funds, investment advisors, pensions, insurance companies, banks and more. Retail investors, by contrast, are individuals who hold positions in brokerage and retirement accounts, or directly with the company (i.e., registered). Your employees may also be shareholders—those positions can be managed by a broker (i.e., beneficial) or in a plan managed by the company (i.e., registered).
Here’s why these categories make a difference.
Shareholder participation
Institutional investors hold on average 70% [1] of outstanding shares in US public companies. Because of fiduciary obligations, institutional investors account for most shareholder voting participation. That’s why it’s critical to cultivate goodwill, tell your corporate story and strengthen long-term relationships.
Although they hold a comparatively smaller number of outstanding shares, retail investors matter, too. They are more likely to vote with management—and those votes can make a difference. So, it’s important to maximize retail participation.
But effective engagement requires understanding the landscape. Consider that on average only 30% of retail accounts vote their shares (compared to 90% of institutional investor accounts).
Several factors contribute to lower retail participation. Most prominently, investors believe their votes don’t make a difference, or they simply don’t have a desire to participate. Compounding matters, investors who rely on robo-advisory services sometimes don’t know what stock they hold—and they don’t have a human advisor to help navigate the process.
Employee plans shareholders bring a few added opportunities. You can easily reach them with your message and encourage them to vote their shares. Many leading companies are finding creative ways to turn employees into proxy allies.
Challenges create opportunity
As you look toward proxy season, what challenges do you confront? Stay tuned for the next post in this series where I'll explain the nuts and bolts of the proxy process.
[1]Source: ProxyPulse A Broadridge & PWC Initiative, 2019 Proxy Season Review
