December 2022

From Mom & Pop to Meme: Communications Considerations of BlackRock’s Retail Voting Proposal

As we put the US midterm election cycle behind us, voting rights has cropped up as a major issue in the corporate governance community as well. Issuers have long bemoaned the power of a handful of major institutions that could sway elections with the click of a keyboard. 

Now, BlackRock Chairman and CEO Larry Fink is determined to give his clients the power that BlackRock and its stewardship team wield—shareholder voting rights for individual investors of publicly traded companies. If his vision comes to fruition, in the same way that citizens are bombarded with every manner of social media posts, text messages, emails, phone calls, billboards and television ads received during political elections, we expect that proxy campaigns could end up looking a lot like political campaigns.

First, some context. In early November, Fink’s letter announced BlackRock’s plans to expand its Voting Choice program to allow more investors, including a pilot group of individual investors, the option to engage more directly in proxy voting. Institutional asset management peer Vanguard also recently announced plans to test retail investor voting capabilities starting early next year.

In many ways, these initiatives are the next step in a long-term trend of individual investors’ increasing influence in markets, which we have seen unfold via social media platforms like Reddit’s wallstreetbets and Stocktwits. Gladstone reflected on that phenomenon recently for Harvard Law’s Corporate Governance blog. The plans by BlackRock and Vanguard are also an expedient response to those who criticize the perceived outsize influence that large institutional investors and advisory firms ISS and Glass Lewis have in corporate decision-making.

Not all in the corporate governance world are pleased. Some believe these moves would end up giving ISS even more clout, arguing that it is hard to imagine individual investors will take the time to fill out vote preferences, let alone vote directly, on most proxy matters. Meanwhile, others have taken a “leave it to the experts” approach, pointing out that this adds costs and complications to an already complicated system. Some of those criticisms may be fair – for example, today only about a quarter of BlackRock’s AUM with access to Voting Choice seem to exercise it – however, they largely ignore the significance of these steps when it comes to high-stakes situations.

That’s because like in an election for a hotly contested house district, margins matter in corporate elections. Pass-through voting features have the potential to meaningfully impact outcomes of close votes on a range of issues from proxy contests and M&A, to environmental, social and other governance matters. On these matters, individual investors, and smaller institutions who are clients of BlackRock, Vanguard and others, may now be inclined to independently cast votes on certain issues that matter to them. They are new swing voters that will need to be persuaded, to continue the political campaign analogy.

In short, pass-through voting doesn’t mean that individual investors will, suddenly, begin voting on all of the proxies they are eligible to vote on. It means that investors will be increasingly aware that they will have the option to vote if they would like to. And for retail investors who may be voting for the first time, education will be crucial to ensuring both the rationale and process for voting is understood.

Management teams, legal departments and communications teams would be well advised to be prepared for the potential ramifications and plan their shareholder engagement accordingly.

Here are a few observations on what this might mean for communications from our discussions with clients and advisors:

  1. Plan for the new environment
  • Individual investor communications will now need to be part and parcel of communications planning around proxy issues. It will be important to create proxy solicitation materials that are easy to understand and clearly lay out the matters to be voted on.
  • Get-out-the-vote campaigns will be an even more important feature of proxy campaigns, as issuers and others will work to “activate” holders into exercising voting choice.
  • Issuers will have many more engagement demands as smaller funds may seek meetings or conversations; they will need to consider borrowing tactics from IR, including hosting conference calls, or creating dedicated solicitation websites to get their message across.
  • Don’t forget about employees. Employees can be important voters in situations where there is an Employee Stock Ownership Plan (ESOP) or employees otherwise own a chunk of shares outstanding.
  • Sharpen retail engagement strategies
  • Develop a coordinated, targeted communications strategy specifically tailored to the retail shareholder base – to ensure shareholders know what they’re voting for, how to vote and why it matters.
  • Ensure a presence across prominent social media platforms – LinkedIn, Twitter, Reddit and Stocktwits – well ahead of any significant votes so that accounts can be properly vetted and verified. Ditto for Robinhood.
  • Your retail base should be hearing from management throughout the year, from videos on social in which management provides critical business updates to opportunities for retail shareholder participation in earnings calls and more.
  • Just like in a political campaign, third-party endorsements can be powerful with the retail crowd and the backing of financial social media influencers could have a significant impact.

There’s still a lot to be understood about the rising power of the individual shareholder and how BlackRock’s expansion of its Voting Choice program will play out. One thing is clear, it’s time for more approachable and accessible communications to investors. 

Written by Christina Stenson and Felipe Ucrós, partners, with assistance from Danielle Fornabaio and Nick Staab.

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