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Aug 05, 2014

Improving engagement with retail shareholders

Besides potentiallly helping firms improve their say-on-pay votes, maintaining contact with these investors can stave off costly unclaimed property audits  

Typically, when we think of shareholder engagement, it’s outreach to key institutional investors that comes to mind. We think of those with formidable portfolio weight in a security that can affect a say-on-pay vote or potentially support hedge fund activists. But some companies are taking pains to ensure they’re on top of their retail shareholder base as well.

As the second edition of Broadridge’s ProxyPulse report shows, retail shareholders account for 30 percent on average of outstanding shares at all but micro-cap companies; 29 percent of them on average across all market caps, including micro-cap, had voted their proxies as of May 22, compared with 90 percent of institutional investors. This proxy season, the number of companies that failed to get majority support for their executive pay plans rose from 54 to 72 and support in the 70 percent-89 percent range was down or flat at all but small-cap companies – so increasing engagement with, and proxy voting by, retail shareholders could be critical to help many companies get past that vital 70 percent threshold in their say-on-pay votes.

But there are other reasons for companies to pay more attention to retail shareholders. Contract auditors such as Kelmar Associates have been making more aggressive efforts to get hold of companies’ lists of active accounts and run them against the Social Security Death Master File to identify ‘abandoned’ property ripe for escheatment to the state in which a company operates. That has motivated companies such as Coca-Cola to work with their transfer agents and unclaimed property consultants to locate retail shareholders who haven’t been cashing dividend checks or otherwise haven’t been heard from in a long time.

At the Shareholder Services Association’s annual meeting in Denver last week, representatives from Coca-Cola, BP and Prudential spoke on various panels about their efforts in this regard. Coca-Cola, which spent more than a year on a Kelmar audit in five states, had Keane conduct a call campaign to retail shareholders that resulted in preventing several hundred people’s property from being turned over to the state of Illinois, according to Karen Danielson, manager of shareholder services at the beverages behemoth. She and others at the conference said it’s just a matter of time before a company is selected for an unclaimed property audit.

Recently, Coca-Cola included a notice in its dividend mailings that urged shareholders to contact the company if they received a dividend payment as otherwise they were at risk of having their property confiscated by the state, according to Danielson.

BP worked with its US DR depositary agent, JPMorgan, to adapt a program designed for UK shareholders to work for ADR holders in the US to help minimize potential for unclaimed property claims. BP has decided it wants investors who are known and ‘consciously investing’ in the company as opposed to having inherited shares and not engaged.

‘We’re encouraging those who wish to stay by providing programs to meet their needs like investment plans, scrip dividends, dividend payment options and online tools,’ said Hannah Ashdown, BP's head of group secretariat. BP also has a plan that helps shareholders who don’t want to consciously invest to sell or donate their shares.

Prudential has been able to convert many retail accounts from dormant to active by training telephone agents to help callers fill out stock transfer forms on the phone and then make follow-up calls to those who have not returned packages within 30 days. By asking shareholders whether they preferred paper or electronic delivery of proxy materials, Prudential reduced its fulfillment costs and has increased its voting quorum at annual meetings by 13 percent over the last five years.

Maybe your company could see similar benefits by expanding engagement efforts to retail owners.

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary