When it comes to pushing agendas and maintaining financial stability, more and more companies are courting individual retail investors. Are small shareholders back on the rise?
Although the number of mom-and-pop retail investors may be in decline, their influence has never been greater. According to the Wall Street Journal, in 2015 individual investors held only 34% of shares in U.S. public companies, a 5% dip from 2008. And even as they vote less (in 2008, they collectively voted 32% of their shares. In 2015, that number fell to 28%), an increasing number of public companies are relying on the support of retail investors, with some surprising results.
Recently, a growing number of companies have been coming under pressure from activist shareholders (that is, shareholders exercising their voting rights with the aim of influencing a corporation’s behavior) to significantly alter the company’s corporate makeup and governance. In 2008, for example, Nasdaq-listed railroad operator CSX lost four of 12 seats on its board to activist hedge fund firms after a contentious proxy battle that ended in a lawsuit.
CSX’s assistant corporate secretary Mark Austin said that since the defeat, CSX has spent hundreds of thousands of dollars on marketing packages with the intention of urging retail investors to vote more. In addition to this targeted packaging, the railroad operator has also offered to plant a tree for every registered shareholder who does vote. In 2015, the company saw a 2% increase in voted retail shares from 2013.
While spending so much time on and money courting a shrinking investor demographic may seem counterintuitive, the efforts can pay off — when they do vote, retail investors typically support management. Agricultural giant DuPont Co., for example, faced a similar board challenge earlier this year when billionaire investor Nelson Peltz launched a proxy battle against the company, reports Fortune. Peltz is a co-founder the $11 billion hedge fund Trian Fund Management, which was seeking four seats on DuPont’s board. According to Reuters, with a 2.7% stake in DuPont, Trian is the company’s fifth-largest shareholder.
In the months leading up to the vote, DuPont launched a targeted outreach campaign that included tailored messaging to retail investors. Holding an average of 30% of a given company’s stock, these mom-and-pop shareholders hold significant sway. About half of them ended up voting in the contest. DuPont won the vote by less than 6% of shares outstanding, a result Mr. Peltz himself credits to retail investors.
Reaching Mom and Pop
Clearly the influence of retail investors should not be minimized or ignored. If the DuPont and CSX examples prove nothing else, they demonstrate the importance of regularly engaging with smaller, individual investors. The fact that their voting numbers are down makes encouraging their participation all the more critical, and while outreach campaigns with tailored messaging and stimulating visuals have impact, they are not sufficient tools of engagement on their own.
To effectively reach mom-and-pop investors, IROs need to target the places where they typically spend their time: consumer-friendly channels. That more people consume more information on social media (increasingly using their mobile devices) presents IR teams with a unique and powerful opportunity. More than basic voting packages, these channels let IROs involve and engage individual investors in accessible ways that have very real implications.