The future of retail proxy voting may be standing instructions

For public companies, retail shareholders represent an important, but often underrepresented, constituency. But what if technology could improve retail vote participation, reduce the uncertainties and costs of attaining quorum and provide their boards with greater visibility into how their retail base is thinking before the annual meeting?

This challenge is becoming more urgent. The number of U.S. households invested in the stock market has been inching up in recent years.  According to the Federal Reserve Board’s Survey of Consumer Finance, 21 percent of American families directly owned stock in 2022, the most recent year available, up from 15 percent in 2019.

Yet retail investor participation in corporate governance remains low.

As issuers consider ways to improve engagement, some are exploring a new solution that gives retail shareholders the choice to participate in voting based on board recommendations, as published in proxy statements filed with the SEC.

Broadridge is among the providers now providing such technologies, known as Standing Voting Instructions and early indications suggest the model holds real promise in fostering participation.

In our initial issuer pilots, including with ExxonMobil and BigBear.ai, the initiative is leading not just to higher shareholder voting participation but also to what Michael Tae, Broadridge’s group president of funds, issuer and data-driven solutions, describes as ‘a deeper and more durable relationship with retail investors, which could make shareholder engagement more representative and more efficient.’

A key reason issuers have shown interest in Standing Voting Instructions is that the method addresses a challenge they have identified among their retail investors. ExxonMobil, for instance, noted in a letter to the SEC that many of its retail investors are retirees who depend on the company’s dividends and face a large number of proposals requiring time and attention each year. Shareholders of other public companies face similar challenges.

Working with these early adopters, Broadridge has found that the service can help issuers increase retail voting participation, reduce the costs and uncertainties of attaining quorum, reduce the time and expense associated with repeated shareholder communications and provide a more consistent view of retail shareholder sentiment.

How the program works

We’ve seen strong engagement from prior voters, former non-voters and new shareholders opting into the program at a significant rate. We look forward to sharing more detailed results as the program matures.

The SEC has provided clear guidelines that foster adoption across issuers. The contours of the program ensure retail investors are notified, protect against accidental ‘opt-ins,’ make it easy for them to opt out and ensure that they continue to receive all proxy materials along with the right to change their votes.

The process begins by providing shareholders with proxy information in an engaging, customized format that incorporates both the issuer’s branding and that of the trusted bank or broker that holds the account. These communications are delivered either by email or mail.

For shareholders who receive communications by email – the most common delivery method – the message includes a link to a fully branded website where the issuer can communicate directly with the shareholder. For shareholders who receive printed materials, each communication includes both a QR code and a URL directing them to a customized website.

Signing up is simple and straightforward.  Investors can choose either to agree to permit the issuer to vote the shareholder’s proxy on all matters (including contested matters or transactions such as mergers) or to apply their voting instructions to all matters except certain specified issues.

Shareholders who opt into the program can override their instructions at any time by submitting their vote as they normally would; that action takes precedence over their standing instructions.

At the time of the shareholder meeting, the corporate issuer files its proxy and other documents with the SEC. Once that happens, Broadridge executes the vote based on the shareholder’s standing instructions.

Participating shareholders receive an annual communication reminding them that they have opted in and informing them that they can change their status, adjust their preferences, or opt out and return to their prior method of voting. An additional reminder is sent when there is a contested election of merger.

What does the future hold?

At Broadridge, we’re proud of how smoothly these pilots have been implemented and how well they have progressed so far.

All indications are that Standing Voting Instructions will continue to evolve. Companies that are already participating – as well as those considering participation – are bringing us ideas to make it work for them and their shareholders.

Standing Voting Instructions could significantly increase retail participation by fostering shareholder engagement in governance matters and avoiding the manual process required each year. The implications are significant for companies seeking to broaden shareholder participation and the capability is available now.