August 19, 2022

Corporate Governance Education: The Key to Orderly Markets?

I blogged yesterday about my dismay in reading that today’s retail investors find equity investing to be hopelessly complicated. Law Profs Christina Sautter & Sergio Alberto Gramitto Ricci sent a word of encouragement, by pointing me to their latest paper. It was just posted last week and addresses the important topic of “investing education” in the age of mobile apps & financial inclusion. The paper is a response to another recent analysis – “Regulating Democratized Investing” – by Abraham Cable, which proposes a way to encourage investor choice & access on new apps, without people losing their life savings in misguided day trading.

In their paper, Christina & Sergio walk through the rise of “finfluencers” – social media influencers who have become informal educators to a huge number of retail investors, for better or for worse. Companies that get mentioned often have to contend with misinformation & rumors. The professors suggest that mandatory investing education at the high school level would help the public navigate information sources (and save corporate secretaries from headaches).

Here’s the part that I found especially thought-provoking:

Private Ordering: … In the future, Fisch’s “just-in-time education” recommendation could also be extended to proxy materials and proxy voting to make materials and corporate governance more accessible and engaging for retail investors. Although many retail investors care about corporate governance engagement, they are not generally well versed in corporate governance legal terminology. There are examples on social media of retail shareholders showing a lack of knowledge regarding the meaning of a “record date,” what happens on the record date, and when voting occurs.

Retail investors are not just unfamiliar with corporate law terminology but also the mechanics of corporate governance as well as the substantive issues at play in proxy items. For example, some technicalities like a partially completed proxy card resulting in the remainder of votes being cast in accordance with management recommendations is not necessarily intuitive. Investing education courses should include instruction not just on investing but these intricacies of corporate governance to empower retail investors.

Including Corporate Governance in Education: Civics education has been found to nurture political engagement with positive ramifications on equality and citizens’ agency. In a globalized world, with corporations rivaling nation states in power and influence, the benefits of widespread investing education cannot be overstated. Corporate governance allows citizens to partake in decision making affecting virtually all aspects of their lives. Share ownership is the key that provides access to corporate governance.

Including corporate governance in investing education curricula not only completes the set of knowledge necessary for investing in companies’ shares, but also enhances the agency of investors as citizens. Investing education bridges the gap between citizens and Wall Street. It also provides citizens with the tools to engage with the companies in which they invest.

There you have it: a call to action for corporate governance experts to save the world. Maybe I can finally convince my non-lawyer friends to follow this blog.

Liz Dunshee