By Jessica Tasman-Jones
This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards
M&S has launched a campaign to reform company law to empower retail investors – an increasingly important component of share registers in the UK.
In an open letter to the business secretary this month, M&S chairman Archie Norman notes that an increasing proportion of the retailer's shareholder register is held by nominee accounts - investment platforms acting on behalf of retail investors.
While institutional investors and certificated shareholders communicate directly with companies, retail investors that use nominee platforms only receive the communications their intermediary allows. These platforms have “no obligation or duty to provide their customers with information about the companies in which they invest (outside of purely investment return information)”, notes Norman.
Other retail investors who do not use nominee accounts “are constrained by an outdated, paper-based system”, he adds.
Boards have a problem – they are losing sight of their end investors. Some 34 per cent of the average FTSE 100 share register is unallocated, according to the UK Secondary Capital Raising Review.
Indeed, M&S is “losing visibility of over 1 per cent of our register annually”, notes Norman, as nominee accounts grow and certificated shareholders reduce. At this rate, within 30 years the retailer “will not be able to speak to a single shareholder without a change to legislation”, he adds.
M&S proposes a number of measures, including using digital communications as default, recognising digital AGMs and increasing communications between companies and shareholders. The retail chain is talking to other corporations about backing the campaign, a spokesperson says.
The UK government is already taking steps to improve retail shareholder rights via the Digitisation Taskforce, with final recommendations expected next year. But this means the impact is unlikely to be seen before the 2025 AGM season, says Eversheds Sutherland legal director Sarah Turner.
The Financial Conduct Authority is also seeking feedback on investor engagement. This includes whether investor voting initiatives by managers and intermediaries should remain optional or be mandated.
In the US, the SEC passed the 'Notice and Access' rule over a decade ago. It introduced digital proxy materials and rules to ensure intermediaries give shareholders opportunity to vote. Retail investor voter turnout is still low there, but research suggests it is better than in the UK. In the US, 31 per cent of shareholders vote regularly compared with 22 per cent in the UK, according to data from Equiniti.
New rules from the SEC will empower retail investors further, including allowing individuals with as little as $2,000 to submit proposals for shareholder votes. In the UK, shareholders must own at least 5 per cent of the company or a group of 100 individuals must own at least £10,000 of stock to file a resolution.
Some investment platforms are strengthening communications between companies and investors. In 2021, Interactive Investor made customer shareholder notifications for UK listed securities opt out, rather than opt in. The number of votes processed increased 30 per cent in the year that followed, according to the company.
Retail investors – particularly younger ones – want to shape the companies they invest in. A recent survey by the activist investor platform TulipShare found that 52 per cent of retail investors between the ages of 18 and 24 voted at AGMs – a higher proportion than in any other age group.
Historically, retail investors largely vote in line with management, according to Mike Tae, corporate vice president of corporate strategy at Broadridge. But this may not be so with younger generations who are increasingly interested in environmental, social and governance issues.
This will ratchet up pressure on boards to ensure they are engaging retail investors effectively. Redesigning proxy materials to make them more investor-friendly, sending reminder letters and duplicate ballots to those that have not voted, and offering incentives to vote can all help, according to a white paper from Donnelley Financial Solutions.
Boards can also use new communication strategies and channels to tap into the young investors. Several recent “get out the vote” campaigns from companies including Lucid Group and Nikola Corp used social media, videos and other tools to drum up support ahead of contentious votes.
This article is based on a story written for Agenda by Lindsay Frost.
