Morris Nichols’ Kyle Pinder and Cleary’s J.T. Ho and Helena Grannis recently published this article on how to take the next step and implement a retail voting program. The authors note that the first step in the process is making sure a company understands its shareholder base, and then, as this excerpt discusses, determine whether that program will be effective:

Once the size and voting behavior of the retail investor base is understood, companies should consider how effective a retail voting program may be in helping meaningfully improve retail investor engagement over the long term, including participation in voting and potentially to help pass, or pass at higher levels, management proposals, before they decide to adopt such a program. A company with a significant concentration of votes with several large institutional shareholders or high levels of institutional holders may find that the retail program will not substantially impact voting outcomes.

Further, companies will want to consider how much movement there is in their retail investor base. Maintaining an effective program will depend on the company’s ability to have proxies as of a particular record date. If there is significant movement in the retail base throughout the year, the company will need to engage in continual program enrollment, the program may not be as effective as anticipated as a result. Similarly, the program permitted by the SEC requires that retail investors be allowed to opt out of the program at any time and override voting instructions in particular votes, which would allow movement in voting out of a program.

This illustrates a further consideration: companies will need to invest in significant long-term engagement with retail investors to implement, refresh and maintain a program. The platform and communications to get investors to opt in as well as annual reminders may not be insignificant from a process, administrative and, potentially, cost perspective.

Once these two steps are completed, the final two steps are to determine the design of the program and determining how it will be perceived by shareholders. The article offers guidance on both of these issues, noting some specific drafting requirements for the program’s terms that necessary to comply with Delaware law, and the need to engage with shareholders to determine their sentiment toward the program prior to implementing it.

– John Jenkins