Companies should pull up a (virtual) seat for retail investors in 2023

(ES Composte)

For decades, influence over large company decision making was dominated by a handful of institutional investors.

But this has been changing in recent years.

The amount of everyday people who trade for themselves in small quantities – so-called retail investors - has been steadily growing.

Fuelled by the availability of DIY investing apps, the percentage of UK shares owned by individual retail investors has swelled to 13.5%, a 30% rise since 2010.

Whilst an individual retail investor might not hold a significant proportion of the UK’s total shares compared to institutions, their collective voice is louder than ever. It is moving from a rumble to a roar as they gain better access to that most important of investor event – the AGM.

Pre-pandemic, the promise of a prawn sandwich at 11am in a central London venue did little to offset the pain of a three-hour train journey for many retail investors to attend an AGM. Most simply stayed away.

But the pandemic democratised access to AGMs, as we saw most companies move to virtual or hybrid formats.

This flexibility meant more retail investors were able to attend meetings and play a constructive role in discussion and decisions around important issues ranging from climate change to pay or diversity.

This is a good thing, and progressive companies have generally welcomed this important contribution to their governance.

Despite pandemic restrictions ending, in 2022 many countries - such as Canada, Australia and South Africa - continued to embrace the hybrid format. As a result, engagement and attendance flourished.

In fact, our data shows shareholder attendance and engagement at AGMs reached a global high in 2022 for the second year running.

However, there is some evidence that in the UK specifically, some of the gains made in the last few years are heading into reverse.  Whilst many UK companies kept their AGMs hybrid in 2022, some reverted to in-person only. This is perhaps why the UK experienced a dip in shareholder attendance. The same was true in Belgium and the Netherlands.

Whilst it might be tempting to revert to the old ways of doing things, this will stifle shareholder voice at a time when demand among retail shareholders to attend is growing.

In contrast, the UK is seeing positive progress in other areas, as intermediaries work to tear down other barriers which prevent retail investors from playing a role in AGMs.

For example, we’ve seen the likes of Hargreaves Lansdown, Interactive Investor and BlackRock take important steps to unravel the complicated red tape that previously made the task of getting into an AGM more like breaking into Fort Knox for retail investors.

This matters, since many retail investors purchase their shares through these kinds of intermediaries and therefore aren’t directly registered as shareholders. It’s now becoming easier to exercise your right to vote on AGM resolutions in proxy, though the huge issue still lies as many barriers still exist to actually attending and participating fully.

Ignoring retail investors is a short-sighted strategy. This fast-growing segment of investors tends to feature much younger people (62% are under 35), and we can expect their numbers to continue to grow quickly in the coming years.

Companies would be wise to fully include them in their AGMs and wider governance by letting them pull up a virtual seat in 2023

Lumi is the AGM provider of 5,000 global organisations including almost all the FTSE100.