Companies overlook retail investors at their peril, according to Bruce Goldfarb, CEO of investor response firm Okapi Partners.
As reported in the Wall Street Journal, 58% of American households now own stocks, up from 53% in 2019. Importantly, this includes a rise in direct stock ownership as well as 401(k) purchases, reflecting lower barriers to investing and increased interest among Americans.
Why it matters: Individual shareholders, including employees and customers, can wield significant collective voting power that can sway outcomes in activist campaigns. Although most companies focus on large institutional investors, those investors are increasingly rolling out programs to give retail investors more power over voting their shares. In addition, the increased use of social media platforms to rally retail investors means it’s easier for activists to harness the power of the retail vote in ways that weren’t possible a few years ago.
Eye-opening examples: Activists are actively courting the retail vote. Third Point’s four-minute YouTube video telling shareholders to “Change the Board” at Campbell’s Soup is just one instance. A similar campaign is ongoing against Starbucks, which grants equity to almost all employees in the company including store baristas, further strengthening the voting power of employees.
Moving forward: Goldfarb offers insightful advice for companies to engage individual shareholders:
- Targeted digital campaigns and active social media: Especially crucial during proxy contests, as younger retail investors often rely on social media for financial information.
- Understand your shareholder base: Go beyond the top ten and track changes over time.
- Assume engagement: Never underestimate retail investors' willingness to read proxy statements and vote. The 2021 meme-stock phenomenon exemplified how social media empowers amateur investors to collectively wield voting power.
By acknowledging the growing clout of retail investors and implementing these steps, companies can build stronger relationships with a powerful shareholder group.