Technology
Digital transformation is essential to connect shareholders and issuers
Digital transformation is essential to connect shareholders and issuers
Published by Wanda Rich
Posted on February 13, 2025
Global Banking and Finance Review
Company
Published by Wanda Rich
Posted on February 13, 2025
By Jonathan Smalley, COO and Co-Founder of Proxymity
A record number of shareholders took action last year, with 160 institutional investors pushing global companies to make moves, ranging from improving strategy and operations to firing chief executives - an 18% increase from 2023. This shows no signs of slowing in 2025, with 86% of corporates surveyed by Skadden expecting activism to increase this year, while only 23% had the same response when asked a year ago.
This rise in shareholder activism highlights a disconnect between shareholders and issuers. To bridge this gap, technology, such as Proxymity’s Vote Connect and Shareholder Insights solutions which are utilised by 87 of the FTSE 100, has a key role in facilitating seamless communication and enhanced engagement between parties.
We recently secured $26 million in financing from existing investors, including BNP Paribas, BNY, Citi, J.P. Morgan and State Street to further enhance our technology and continue our geographic expansion as we look to support the transformation of activism into a year-round, open dialogue, which hopefully should lead to a less confrontational and more consensual relationship.
Activist divide
The acceleration of shareholder activism can be attributed in the UK and Europe to a challenging business environment. The US, however, has become a hotspot for global activism trends, with nearly half of all campaigns occurring in the nation. Activists here often focus on issues surrounding M&As, ESG initiatives, and executive compensation. The Trump administration encapsulates the more polarised climate; the Securities and Exchange Commission (SEC), under Trump’s first term, implemented proposals to more closely regulate proxy advisory firms, and despite efforts by Biden’s SEC to roll these back, the proposals remain hotly debated by the Circuit Courts. As corporate governance here often intersects with broader sociopolitical divides, US companies face mounting pressure to address shareholder concerns proactively.
With last year seeing a 35% increase in the rejection of company resolutions by shareholders in the FTSE 350, this divisiveness underscores a failure of the proxy voting system to create a transparent connection between issuers and investors. Though many shareholder activists advocate for positive change and claim to do so to develop more constructive relationships with companies, their actions can conflict with the long-term growth objectives of boards. Getting this balance right can only be achieved with constant communication that reassures shareholders and fosters trust.
Unengaged investors
On the other end of the spectrum from activist shareholders are the unengaged shareholders, which pose an entirely different challenge. A large portion of retail shareholders, and to a lesser extent, professional shareholders, typically do not use their voice in capital markets, and only vote when disgruntled. A recent study by non-profit investment decision-making research institute FCLTGlobal revealed that boards found these investors often less informed, or that they prefer to vote in the best interests of their portfolios rather than the companies where they held shares. In addition to the cost-intensiveness of the proxy voting system, boards cited a lack of transparent communication as the primary hurdle.
However, the landscape is changing. Retail investors are increasingly involved in corporate governance, with more than a third (37%) of Gen Z now investing in stocks, while 89% of Gen Z shareholders have either voted or are interested in voting in annual general meetings (AGMs). Indeed, the 2024 AGM season saw a record-breaking 18% rise in governance-related shareholder proposals.
Another significant development in shareholder engagement, particularly in the US, is the growing focus on pass-through voting, which allows owners of shares held in mutual funds or ETFs to have their voices heard directly in proxy votes, instead of asset managers voting on behalf of them. Firms in the UK and Europe adopted pass-through voting for the first time in 2024, highlighting the need for boards to empower investors with the tools to meaningfully engage in corporate governance and promote shareholder democracy.
Connection is key to shareholder engagement
Technology can provide this fluidity for both issuers and shareholders, with investors operating in an increasingly digitised world. Over 90% of investors now manage portfolios online, with 75% of investors preferring digital updates, according to a survey by investor relations association NIRI. Furthermore, 60% of investors have expressed dissatisfaction with current, traditional forms of communication.
Investors are not the only ones pushing for digital transformation. For example, the UK government has cited modernisation and digitisation of capital markets and shareholder frameworks as essential to maintaining London’s position as a financial centre. Last summer, companies including BP, Shell, BAE Systems and National Grid all advocated for fully digital shareholder registers to ensure London remains competitive with global financial hubs.
It is therefore the digitisation of shareholder communications, such as through Proxymity’s solutions, that can facilitate this more transparent, efficient, and meaningful engagement. Proxymity developed its Vote Connect offering to ensure real-time communication between issuers and investors, allowing users to send and receive meeting announcements, proxy vote, and track live vote progress. This enables companies to more meaningfully engage with their shareholder base, keeping them consistently informed and involved in corporate governance decisions.
Leveraging data-driven insights for proactive governance
Technology also plays a pivotal role in understanding shareholder concerns, with data-driven analytics allowing companies to understand voting patterns and shareholder sentiment, and identify potential areas of contention to address before escalation.
Proxymity’s Shareholder Insights suite is a comprehensive reporting tool that provides companies with details of the structure of their shareholder base, including visibility of ownership through the intermediary chain. This helps them to spot trends over time and analyse the impact of significant business changes, such as new strategies, including M&As or entry into a new market. Indeed, M&As remain the primary topic of shareholder activism, making up a three-year average of 43% of all campaigns. By identifying these concerns early and aligning investors with long-term board strategies, firms can create a more open, transparent dialogue.
The rise in shareholder activism, coupled with the growing participation of retail investors and the demand for greater transparency and communication, presents both challenges and opportunities for companies. It is technology such as Proxymity’s Vote Connect and Shareholder Insights that can empower both issuers and investors to navigate this evolving landscape.
Ahead of the 2025 AGM season, by embracing digitalisation and fostering year-round communication with shareholders, boards can build the necessary trust to align investors with shared long-term goals. It is time for technology to bridge the gap and create a more connected world.
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