November 9, 2017

Retail Shareholders: Vote Levels Decrease Further

Yesterday, SEC Chair Clayton gave a speech about transparency – here’s an excerpt about the lack of retail voters:

I have become increasingly concerned that the voices of long-term retail investors may be underrepresented or selectively represented in corporate governance. For instance, the SEC staff estimates that over 66% of the Russell 1000 companies are owned by Main Street investors, either directly or indirectly through mutual funds, pension or other employer-sponsored funds, or accounts with investment advisers. And, if foreign ownership is excluded, that percentage approaches approximately 79%. Yet it is not clear whether in our rulemaking processes the views and fundamental interests of long-term retail investors are being advocated fully and clearly, either by individual investors or groups that represent them.

Since I arrived at the agency, I have made concerted efforts to reach Main Street investors across the country, and this has resulted in productive conversations with individuals, as well as those who advocate for them. Many others at the SEC, including Rick Fleming, our Investor Advocate, and the Office of Investor Education and Advocacy, concentrate on retail investors generally and have outreach efforts focused on investors who are teachers, students, serve in the military, or live in retirement communities.

A majority of Main Street America’s dollars are invested in vehicles where the investor – the person with their money at risk – is not the voting shareholder. Often voting power rests in the hands of investment advisers who owe a duty to vote proxies in a manner consistent with the best interests of the fund and its shareholders. A question I have is: are voting decisions maximizing the funds’ value for those shareholders?

In situations where the voting power is held by or passed through to Main Street investors, it is noteworthy that non-participation rates in the proxy process are high. In the 2017 proxy season, retail shareholders beneficially-owned 30% of the shares in U.S. public companies; however, only 29% of those shares voted. This may be a signal that our proxy process is too cumbersome and needs updating.

Meanwhile, NY Times’ Gretchen Morgenson wrote this column recently entitled “Small Investors Support the Boards. But Few of Them Vote”…

Has “Notice & Access” Caused Retail Holders to Stop Voting?

Here’s a note from Lynn Turner: “The proxy retail investor participation rate use to be much higher but dropped dramatically when the SEC took action to eliminate distribution to investors of paper proxies and ballots a decade ago with ‘e-proxy.’ If the SEC wants to increase retail investor interest and voting, the could likely get a good start by undoing their previous mistake! Many people told the SEC at the time that they were making a mistake. History has now proven those people right.

Interesting that the retail investors in this country holding equities are typically older people who have lived long enough to build up larger investment balances. Those are the people who you have to reach to get to vote. In our general elections, many of those use paper mail in ballots which has increased participation in voting. Unfortunately, the SEC took an opposite tack several years ago and chose to reduce participation by retail investors. Their objective was achieved as Chair Clayton notes his speech.”

Novel Ways to Boost Retail Voting: The BofA Story

Some companies with sizable retail bases have found novel ways to boost retail voting. Remember this podcast with Peggy Foran & Ed Ballo about Pru’s “Trees (& Totes) for Votes” program.

More recently, Bank of America’s Ross Jeffries & Gale Chang talked to Carl Hagberg – as reflected in this article in Carl’s “Shareholder Service Optimizer” – about how BofA’s campaign to donate $1 if a shareholder voted produced real results. The number of BofA accounts voting went up 8% with this unique campaign (nearly 50k more voters). Nice!

Here’s an older piece from Carl entitled “A Short-List of Incentives That Might Get More Folks to Vote Their Proxies…

Broc Romanek