Is our industry meeting shareholder expectations?
As we approach the third decade of the 21st Century, it is increasingly possible to operate almost entirely online. Banking, ordering food, even submitting tax returns can be done – and is often preferred – via a smartphone app or website. But amid this push into ever-greater automation and better use of technology, one part of our professional lives is stubbornly stuck in the past.
For the vast majority of public companies around the world, the process of engaging with shareholders has barely changed since the internet was invented. Despite receiving digital reminders about renewing road tax and submitting gas meter readings, shareholders can often expect to find bulky annual reports and proxy voting cards stuffed in their letterboxes still.
While we can FaceTime and Skype our family and friends anytime and almost anywhere, in order to make our voices heard at an annual general meeting, which can take place anywhere in the world, most shareholders need to turn up in person. Unlike most financial aspects of our lives, which have undergone a technological evolution, shareholder engagement has been slow to embrace these digital advancements.
But apart from this clear mismatch of technology with behaviour, why should it matter?
Shareholder engagement has become a common catchphrase for the investment industry since the financial crisis. Investors want to know that their capital is holding company directors to account and if there is something wrong, they can (or at least try to) change it.
However, Link Market Services data show that, on average, only 6% of a company’s registered shareholders actually vote at AGMs by proxy representing 54.5% of capital. The FTSE100 constituents fare better with proxy appointments of circa 63% compared to the overall average. Attendance at the meeting is often represented by as little as 0.1% of capital with varying levels on physical membership present. For retail shareholders, who are often based miles from a meeting, the travel cost and time considerations are usually prohibitive. For institutional investors, who commonly hold hundreds of different stocks, the logistical feat of physically attending all shareholder meetings would be bordering on the impossible.
Interestingly, 96% of paper proxy cards are never completed and returned for counting. We can only speculate as to whether the weighty documentation packages are ever read. That said, around 55% of an issuer’s capital is regularly voted, with the majority lodged via electronic means. Our evidence shows companies that provide for electronic communications receive 9.5% more proxy submissions than those that just offer paper.
Apart from the issue of wasting precious resources, which should chime with an investment industry increasingly attuned to its environmental responsibility, it is a chronic waste of effort and cost. In 2019, we expect to see a major shift in this area with over a fifth of Link Market Services’ clients removing paper proxy cards as a default proxy voting method.
Most companies know they are not engaging fully with their shareholders – they can count the voting cards that come back – but so far, as a large amorphous group, they have been hesitant to grasp the digital opportunities.
In their defence, there have been barriers to overcome. Making even the slightest change to an Articles of Association is a task not always welcomed by issuers. Just to make a small amendment to allow digital voting options can often open the whole process up to an inordinate amount of scrutiny and review.
Things on both sides are changing however, and now that the touch paper has been lit, the digital revolution can rapidly take hold.
Claims that a technological shift would impede older shareholders from communicating with a company appear largely unfounded. According to a June 2018 survey from Deloitte, 77% of 55 to 75 year-olds said they had access to a smartphone, up from 29% in 2012, with a further 64% claiming to have a tablet.
With these instruments readily at hand, there are plenty of options and opportunities for companies to bring their shareholders into the fold – and the more forward-thinking of them are already out there exploring. For example, the document repository app developed by Link Market Services – Signal documents – is proving to be popular. It allows Link Market Services’ clients to hold electronic versions of their reports and accounts in one place, both for viewing and electronic annotation.
Whilst virtual and hybrid meetings have been limited in the UK, take up of such facilities in the USA, Australia and New Zealand has been growing. Though there has been some criticism of moves to introduce completely virtual AGMs, hybrid AGMs have emerged as a viable and positive solution that combine the merits of physical and online attendance.
In Australia, Link Group was the first ASX200 company to hold a hybrid AGM. It attracted twice as many attendees as its previous physical meeting, with shareholder participation from across the USA, Australia and New Zealand. After the initial development outlay, this model could be adopted and used by plenty of other companies to cut down on the out-of-date processes that waste back office time and money.
This would enable retail shareholder attendance, without the significant travel time and cost, to bring them closer to the company.
For institutional fund managers, deluged in AGM season, this virtual connectivity lets them gauge a wider shareholder sentiment, while still allowing for their usual, behind the scenes engagement channels during the rest of the year.
There is no reason this digital mindset cannot apply to dividend cheques, too. Although almost obsolete in personal finances, most companies make at least 50% of their dividend payments – representing less than 5% of total value – with paper cheques. Replacing them with direct bank account payments would solve the administrative burden of lost or uncashed cheques, and avoid shareholders having to update their address each time they move. For many institutional holders the choice is clear with the facilitation of payment via the CREST system, although sadly that is a facility not supported by 33% of the Registrar industry despite pressure from this major investor group.
As the investment world evolves – with the advent of defined contribution pension funds, greater personal responsibility for investing for retirement, and the social imperative to do better with our resources, financial or otherwise, grows with younger generations – the need for change is here.
Luckily, the technology is already here too and is advancing every day.
Like the rest of business – if not the world – the shift is only going one way and with just a bit of forward thinking, shareholder engagement can readily embrace tomorrow, today.