Will the Power of the Retail Collective Endure?: What to Watch for in the 2022 Proxy Season

In just the last week, the 2022 proxy season has ramped up in a big way, with several high-profile campaigns beginning to take shape. As activists new and old continue to circle, and retail investors remain vocal, do companies need to rethink their approach to shareholder engagement?

The “meme stock” selloffs and additional market correction we’ve seen over the last several weeks suggest that last year’s wave of retail shareholder power is coming back to Earth, and lessons from past boom-and-bust cycles indicate that new retail investors may run for the hills when frothy bull markets turn bearish. Is there still an opportunity for a new generation of retail long-term investors to alter the current landscape of shareholder activism?

Historically, activism has been driven by large institutional holders that led the charge for change, with the overwhelming majority of retail shareholders simply along for the ride. In 2020, individual investors as a group owned 29% of shares, but only 28% voted their shares – and many of those supported management.[1] This means there is a significant untapped base of potential voters that could, if engaged and empowered, tip the scales of a close proxy contest or serve as the spark that ignites an activist campaign. And as the world saw with the frenzied activity around GameStop – which reached its peak a year ago this past Friday, retail holders can have a tremendous impact if they act as a united front under the right conditions.

Recent developments further indicate that this paradigm could shift. New SEC guidance has eased the path for ESG-related shareholder proposals, large asset managers like Blackrock are giving more clients the ability to vote their own shares, and there is new retail investor-focused technology on the scene, headlined by the shareholder voting app iconik. iconik enables investors to pool their voting power, and organize, launch and lead activist campaigns, which other investors can view and join, contributing their votes to the effort and potentially driving substantial change. iconik launched two ESG-focused activism campaigns in December, and other digital voting and investor communications platforms, like Proxymity, Lumi Global, and Say Technologies, have expanded proxy information and voting capabilities for individual investors.

Regardless of how quickly iconik and other similar apps are adopted or how impactful these investor reforms ultimately become, the question remains: will the rise of the retail investor loom in the background of the upcoming proxy season? Companies that are anticipating an active proxy season – or are already in the midst of a proxy fight – need to be mindful of the evolving landscape and may need to ensure their campaigns and messaging resonate with their retail investor base. Some important considerations include:

• Shore up potential weaknesses before an activist campaign launches. Review your ESG policies, goals and targets and compare them rigorously against industry standards. In addition, analyze your board structure, overall diversity and climate impact to identify and address potential weaknesses. Making these changes proactively conveys that your Board and leadership team aware of potential concerns and committed to addressing them.

• Monitor retail activity on social platforms. Don’t wait until you’re in the throes of a proxy battle. While responding to specific comments on social media is a slippery slope, it can be immensely valuable to find out where your retail base is actively discussing the company, take stock of what resonates with them and leverage your investor communications program to address any information gaps.

• Foster a dialogue. Ensure retail investors have a voice and are able to engage in an active dialogue with the Investor Relations team. The retail investor base is an increasingly tight knit community, and given the ubiquity of social media, seemingly minor issues or perceived slights can become big ones overnight.  Establish a dedicated email portal for retail holders and have a framework in place for managing the company’s responses to inquiries, with the understanding that all exchanges can be become public.

• Identify the best platform to communicate with investors and construct the applicable messaging. Many proxy contests are now fought and won on new digital battlegrounds, including social media and digital advertising campaigns. Fight letters alone may not be sufficient to reach your retail investor base and every digital platform requires a tailored messaging strategy. Maintain a presence across different financial websites and social media platforms and understand how to effectively leverage each of them.

• Build a steady drum beat of news. Retail investors will invest in and support companies they believe in, but an information void could undermine their confidence. A robust pipeline of substantive news related to business wins, personnel updates, ESG initiatives and community involvement can keep you top-of-mind and establish a clear track record of success.

The 2022 proxy season is shaping up to be an active one. Make sure you have assembled the right team to put your company’s best foot forward in this rapidly evolving environment.

[1] In 2020, institutional investors owned approximately 71% of all shares and voted 92% of their shares.