Retail Shareholders: The New Frontier of Shareholder Engagement
Retail investors now account for 25% of daily fund flows,[1] making them a significant variable in the value equation for an effective IR strategy. In fact, nearly half of millennial investors proactively plan to vote their own shares.[2] With this comes enormous potential for companies to leverage these voters in combating activist challenges. Companies should actively ask themselves, “Who is influencing my retail base and how can I ensure our Company’s voice is the loudest?”
A New Approach to Engaging with Retail Investors
The rise of retail investor’s interest in voting, often cited as a component of recent meme stock events, is a natural byproduct of technological innovation that has made retail investing accessible and prominent in capital markets. In light of this reality, company leadership should employ a robustly developed and nimble retail investor engagement strategy to maintain keen awareness of investor issues and communicate management viewpoints, which wins over shareholder trust. If the first time the Board or management engages with investors is during an activist campaign, the hurdle the company must overcome is much higher. Thoughtful, proactive engagement can successfully prepare companies to mitigate the costs of, and in some cases prevent, expensive proxy fights. Ahead of a contentious activist situation, and leaders must evaluate if they are currently doing enough to defend company strategy and shareholder value with their retail holders.
Retail shareholders can be elusive in engagement strategies: they are disaggregated, unorganized, demographically diverse, and should not be expected to pay extremely close attention to ongoing company decisions, unless big headlines are generated to grab their attention. However, new fintech developments have made it easier than ever to directly engage this base, who in turn want to be more involved.[3]
Retail shareholders have played a crucial role in some of the most controversial meetings of 2024. Nelson Peltz’s proxy contest at Disney’s AGM was highly publicized and went on record as the most expensive proxy fight in history. It cost Disney $40 million to fend off Trian Partners. Disney faced a legitimate challenge that prompted the company to mobilize its retail shareholder base, who own over 33% of outstanding shares. Realizing the importance of the retail base, both Disney and Trian spent significant resources to reach shareholders, including sending text messages, glossy direct mail, traditional proxy solicitation letters, online videos, and phone calls. With roughly 60% retail shareholder turnout across key votes, Disney overwhelmingly defeated Trian Partners, with Lagomasino defeating Peltz by a 2-to-1 margin and former Disney CFO Jay Rasulo by a 5-1 margin, and retail voters giving Iger 94% of the overall vote.
Tesla’s annual meeting was another high-profile example of the importance of retail investors, who make up over 40% of Tesla’s base. Management had a novel strategy to convince shareholders to support two controversial proposals on their ballot: the approval of a $56 billion pay package to Musk for work he had already completed, and reincorporation in Texas. Tesla opened their proxy with a letter to shareholders explicitly detailing why they should support the management backed proposals and devoted over 80 pages in the proxy to Tesla’s campaign for reincorporation. As a further measure to reach retail investors, Tesla had a dedicated Vote Tesla website, a QR code to make voting easily accessible, and hired a campaign advisor. Further, Tesla benefitted from several Twitter and YouTube fan pages, which helped promote management’s message. It is safe to assume these fan pages did this out of love for the brand.
Lessons learned from the Tesla and Disney situations include:
- Retail shareholders respond to brand loyalty
- The higher the voter turnout amongst retail investors, the greater the odds are stacked against shareholder activists
- A mobilized, and consistently engaged with, retail shareholder base presents a more sustainable, lower cost, alternative to defeat and deter activist campaigns
FTI Consulting’s Shareholder Engagement Framework
Management will need to deploy creative, more technologically-savvy strategies to gain retail investors’ support. Large-cap companies that comprise the S&P 500 have, on average, a retail shareholder base of roughly 12%.[4] This reality offers tremendous upside for companies who can effectively engage with retail. We suggest the below framework for companies seeking to execute a comprehensive year-round engagement strategy:
Throw out the old adage “retail doesn’t vote.”
Train your shareholders in peacetime - engagement should be routine and cyclical.
Retail shareholders are often accessible via social media channels: be creative with curated campaign ads to keep them close.
Brand matters to your retail shareholders because they are your consumers. Keeping their support means keeping the brand strong.
Conclusion
Companies today face a historically unprecedented amount of challenges from prospective activists on a number of key issues from financial to management to ESG and anti-ESG. In one form or another, activist challenges will come and companies that are prepared for those challenges are best positioned to defend leadership’s vision and ultimately shareholder value. To ensure limited disruption to the company, a comprehensive year-round strategy to engage with retail investors, who are rapidly growing in proportion and interest. That is the most effective and cost-efficient way to defeat and deter prospective activist campaigns.
Related Expertise
[1] Zak Mehan, James Condon, James Dominick, “Understanding Retail Investors in 2023,” FTI Consulting Strategic Communications (June 2, 2023), https://fticommunications.com/understanding-retail-investors-in-2023/
[2] Garnet Roach, “Retail investors: Millennials most likely to vote their proxy, finds new survey,” IR Magazine (May 4, 2021), https://www.irmagazine.com/shareholder-targeting-id/retail-investors-millennials-most-likely-vote-their-proxy-finds-new-survey
[3] Page 5, “The State of the U.S. Retail Investor: Insights & Implications, 2022 BNY Mellon Retail Investor Survey,” BNY Mellon (2022), https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/insights/the-state-of-the-us-retail-investor.pdf#page=5
[4] Data sourced from Bloomberg Intelligence (July 2, 2024).
The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals. FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm. FTI Consulting is an independent global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. FTI Consulting professionals, located in all major business centers throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges and opportunities. ©2024 FTI Consulting, Inc. All rights reserved. www.fticonsulting.com |
