A trend among brokerage firms to eliminate discretionary voting is becoming an increasing concern. Most issuers require a quorum of 50 percent or more of their outstanding shares, either in person or by proxy, to conduct business at their annual meeting. With discretionary voting in decline, a need is growing for issuers to directly engage with retail shareholders and secure their votes.
An aptly named solution for building relationships between retail investors and issuers, Mediant Engage™ is a suite of omni-channel tools that helps issuers achieve quorum and proposal passage by generating greater participation from retail shareholders. Rich Babineau, Director of Issuer Solutions at Mediant, shares his insight about the new solution and how it can help issuers.
Q: What prompted Mediant Engage?
Rich: Mediant provides an end-to-end annual meeting solution to our corporate issuer clients, including the technology for virtual meetings and the proxy voting process. Engage is a natural extension to this end-to-end approach.
Over the past two years, we have had millions of first-time shareholders and most are beneficial holders through their bank or broker. The lack of a direct relationship can be a problem when discretionary votes are eliminated. Listed companies face the risk of not achieving a quorum and the inability to complete the business at their annual meeting.
Q: Could you clarify what you mean by a quorum?
Rich: A quorum is a minimum level of attendance required before an official shareholder meeting or action can take place. It could be a simple majority or something more complex and will be set out in the corporate bylaws. Traditionally, a broker would make discretionary votes on behalf of shareholders for routine matters such as ratification of auditors, so a quorum was easily achieved. Now, issuers are having to go to retail shareholders directly. This has never been easy, but changing demographics and privacy opt-outs mean in some ways it’s getting harder.
Q: How can issuers get ahead of this problem?
Rich: We work with corporate issuers to examine voting patterns from previous years, assess the likely impact of eliminated discretionary votes, and make a projection. If it looks like they’ll fall short, we can offer a range of options to close the gap. For example, their bylaws might say 50 percent of the outstanding shares constitutes a quorum and our projection is 47 percent. Based on the size of the gap and the urgency, we can recommend Engage to bring that number up and enable the meeting to go ahead.
Q: What does that mean in practice?
Rich: As it sounds, Engage is about connecting with unvoted shareholders and encouraging participation. The reality is that many shareholders are unaware of their proxy rights. We send well-presented, highly branded messages that inform shareholders of their rights in an engaging way. That could be an eye-catching postcard, or when we have consent to email, we can go further such as linking to a video message from the chair of the board. If we think this may not be enough, we can add outbound calling and take votes over the phone.
Fortunately, issuers have an opportunity to initiate this communication since they are required by regulation to send shareholders proxy materials and voting forms. Engage builds on this opportunity.
Q: Is this the same as solicitation?
Rich: Not really. First, Engage is for retail investors and not institutional investors. Second, solicitation can be expensive but Engage gives issuers economic options that build relationships not only votes. Most clients using Engage will also have chosen Mediant’s end-to-end annual meeting solution, so it’s an additional tool that fits into this.
Q: So, is Engage about more than reaching a quorum?
Rich: Absolutely. The retail investor market is both growing and changing. Today’s shareholders are demographically different to what we’ve seen traditionally, so it makes sense to get to know them and inform them.
Achieving a quorum might not be the primary reason for using Engage. For example, there is a trend for investors to buy stocks that are meaningful to them. Engage helps those investors better understand the company they’ve bought into and educate them about their voting rights as a shareholder. That communication can extend beyond the annual meeting, enabling issuers to develop a base of informed and engaged shareholders.
Q: Does Mediant advise shareholders how to vote?
Rich: Absolutely not. Our role is to provide proxy information and field questions about it. We can explain that the board is recommending a favorable vote, point them to the relevant information, and take their vote. We don't influence, but we do encourage informed participation.
Q: Do shareholders find messages or calls annoying?
Rich: We work in multiple ways to avoid this. First, we don’t message at times when people are relaxing, such as dinner or through the evening. Second, we do our best to show the issuer’s brand name so that shareholders can recognize that they’re being contacted by a familiar company.
Q: What options does Engage offer?
Rich: Engage offers three levels of service, giving issuers the opportunity to choose what suits their needs. ‘Essential’ offers a range of messaging formats, from emails to postcards, so it’s great if you just want to get your brand in front of retail investors. ‘Enhanced’ adds more ways of messaging and live resources, with proxy voting specialists available on a toll-free number. They will answer shareholders’ questions and can help them understand what a vote is about by directing them to relevant information in a proxy document. They can also accept verbal votes during the call. The final option is ‘Ultimate’ and here we increase the urgency of communications and make calls to unvoted holders.
In all cases, it’s worth mentioning that Mediant is the only proxy provider that provides true, real-time voting. Everything is in sync, so our clients see results as they happen, and we never annoy shareholders by contacting them again after they’ve voted.For additional information, please contact us.