Let them join AGMs! Retail investors shouldn’t be stuck on the sidelines forever
The tide is turning. For decades, influence over large company decision-making has been dominated by a handful of institutional investors. But recently, the number of everyday people who trade for themselves in small quantities – 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 per cent, a 30 per cent 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. The question is whether the FTSE100 is ready to open its doors to them.
The FTSE100 and the legislation regulating it are facing a turning point. In the last few weeks, the Digitization Taskforce has called for a new shareholder ID system aimed at providing companies with better insights into their investors. The online investment service Interactive Investor also wrote an open letter to FTSE100 chairs, advocating for improved communication with investors throughout the year.
Meanwhile, Marks & Spencer’s “share your voice” campaign calls for changes to legislation around shareholder rights and annual general meetings, which has remained largely unchanged since 1985.
Clearly, these issues have plagued corporate governance for decades. They are coming to the surface now because a new type of investor has emerged, one who cares more about executive pay, diversity and ESG standards. This AGM season alone proves that investors are not afraid to voice their concerns, and businesses can’t ignore them.
Retail investors want to be able to attend annual general meetings for the same reason as institutional investors – to find out how the company is being run. According to research by Lumi, just 29 per cent want to influence dividends, showing financial gain is less important than influencing governance for many of today’s investors.
Yet, retail investors are being locked out of important meetings and left in the shadows. The crux of the problem lies in the UK’s flawed share ownership system, which sidelines retail investors who purchase shares through intermediaries like Hargreaves Lansdown and Interactive Investor.
When shares are bought in this way, the individual’s name is not directly registered with the company they are investing in. This means these individuals are left in the shadows, and if they want to attend or vote at a company meeting, they have to contact the broker to be appointed as a proxy. However, this process is extremely difficult to navigate and results in the vast majority being excluded.
This red tape is gradually being dismantled. But businesses must start opening the door to retail investors. There is still a perception that DIY investors are the wild west of the investment world. Yet, businesses that listen to the voices of different stakeholder groups are the ones best setup for success. The “board knows best” mindset is outdated.
We’re already seeing this dynamic change, particularly with more businesses running investor relations meetings and inviting shareholders to express their concerns and have votes counted throughout the year. This proactive approach prevents issues from reaching a boiling point at the final meeting and improves communication between boards and investors.
The stage is set for a new relationship between investors and boards, and for the necessary legislative changes to take place. Now, it is up to companies to recognise the critical role retail investors can play in shaping the future of British businesses.