Data on key voting patterns shows companies need to improve engagement to retail shareholders.
Broadridge Financial Solutions and PwC’s Center for Board Governance on June 4 released the first edition of ProxyPulse, which provides data and analysis on major voting trends and shareholder behavior. The first edition covers the 549 annual meetings held between January 1 and April 23, 2013, or 11 percent of the total number of meetings that will be held during this proxy season. ProxyPulse is a collaboration between Broadridge, an expert on investor communications for financial services firms, mutual funds and corporate issuers, and PwC's Center for Board Governance, a group within PwC that helps directors better fulfill their responsibilities.
The analysis is based on Broadridge’s processing of shares held in street name, which accounts for over 80 percent of all the shares outstanding issued by US public companies.
According to the report, very few retail investors are voting, despite the fact that retail ownership is often higher than companies believe. Roughly, 67 percent of shares are owned by institutions on average, while retail investors own about 33 percent. An average of 70 percent of the street name shares were voted, but only 10 percentage points were voted by retail shareholders (the remaining 60 percentage points of shares were voted by institutional investors). Given that 70 percent of all retail shares were not voted on at all, companies need to rethink the approaches they take to encouraging voting by all shareholders.
Company size had little discernible impact on voter participation except at micro-caps, where only 67 percent of institutional shareholders voted their shares, compared with between 90 percent and 95 percent at large, mid and small-cap companies. Voting among retail investors was more consistent across the board, with 33 percent of shares voted at large and micro caps and 30 percent and 29 percent at mid-caps and small-caps, respectively.
Improving participation by retail shareholders can make a difference in company’s gaining higher approval rates on certain critical issues such as say-on-pay, the data suggests. Proxy advisory firms more closely scrutinize compensation plans at companies that get less than 70 percent approval of their executive compensation plan from the prior year. Where support levels are falling just short of that threshold, retail shareholders could move the needle. The fact that roughly 5.0 percent of the companies that completed their annual meetings this season had say-on-pay approval rates between 60 percent and 69 percent shows these companies could have passed the 70 percent mark had half of their non-voting shares been voted with the company. For the whole 2012 proxy season, 107 companies had approval rates on say-on-pay between 60 percent and 69 percent.
Newer communication channels make it more efficient for companies to engage with retail shareholders and make it easier for these investors to access proxy materials and vote. Consistent dialogue throughout the year with institutional shareholders, who vote at very high rates, is needed to avoid ‘surprises’ at the annual meeting.
Electronic distribution of proxy materials to institutional investors keeps growing and the prevalence of this distribution method may be a key reason that institutional voting is much higher than retail participation. While practically all institutional investors received proxy materials through electronic platforms, only 32 percent of retail investors did, with 60 percent receiving materials in full paper format and 8.0 percent via a mailed notice of Internet availability. Despite the cost savings of mailing a notice, just 17 percent of retail shares receiving a notice were voted over the last six years, versus 36 percent of shares who received full paper packages. Since newer channels, such as voting by smart phone and tablet computer, can increase shareholder conveniences in voting, companies need to assess the costs and benefits of relying only on a mailed notice if they care about shareholder participation.
Broader engagement can give companies a more thorough understanding of investor sentiment, the data shows. ‘While some companies have ramped up their shareholder engagement programs over the last few years, many of these efforts focus largely on communicating with institutional shareholders,’ Mary Ann Cloyd, leader of PwC's Center for Board Governance, said in a press release. ‘The data shows that retail shareholders hold one-third of the shares, and that opportunities exist for companies to better connect with these potentially influential voters.’
The full version of the ProxyPulse report can be accessed at proxypulse.com.
