Bridging the gap between board and investor -Lumi’s Pete Fowler on the steps boards must take to repair and rebuild investor relations

by | Mar 3, 2023

Written by Pete Fowler, Chief Operations Officer at Lumi

Strong investor relations are a fundamental component of any successful business and the cornerstone of good governance.

Yet, the heads at some of the UK’s leading companies are concerned that investor relations have taken a sour turn.

The State of Stewardship report revealed a number of problems between investors and boards, with claims the model for public companies could even be broken. Relationships are said to have been reduced to box ticking exercises, with Chair claiming shareholders don’t understand their businesses. However, investors won’t give up without a fight, responding with a letter to FTSE 100 Boards claiming the report was not an accurate reflection of their relationships with companies and calling for fresh discussions to help settle contentious topics such as executive pay ahead of the 2023 AGM season.

To calm the brewing storm between these two powerful groups, bridging the communicative gap is key. If these issues are left to fester it could leave companies open to greater criticism and even threaten a businesse’s profitability. The most successful companies know that shareholder relations are more than an afterthought, requiring consistent time and work.

Understanding your shareholders

The first step to successful investor relations is to understand your shareholders and what matters most to them. Right now, shareholders are more passionate than ever, with ESG and executive pay at the top of the agenda. In fact, a study from EY showed the vast majority (90%) of institutional investors now pay more attention to a companie’s ESG performance when making investment decisions. Retail investors have similar priorities, with 50% of everyday shareholders shifting funds into ESG this year.

Although many organisations have a relatively small proportion of retail shareholders (the global average is 14% according to an IR Magazine report), this group is becoming increasingly important, and their collective power cannot be ignored. At the same time, the role of institutional investors has grown over time, with their voices becoming louder and louder.

There was once an attitude of ‘the board knows best’ but the landscape has changed, and executives must adapt and engage with a wider set of shareholder demands. The reality is it’s almost impossible to get everyone to sing from the same hymn sheet, but it’s crucial to work with investors to find common ground and reach agreements that work for both sides. A situation where the board rules and investors are regarded as an inconvenience is bad governance and is bad for business.

Empowering the shareholder voice

The proxy voting initiatives recently introduced by BlackRock and Hargreaves Lansdown are an important step to achieving greater corporate democracy, yet still, more must be done to give every retail investor a seat at the table. Holding companies must break the chains of complexity that exist for retail shareholders to attend AGMs, so they can not only vote but voice opinions and be actively involved in Q&As.

Hosting hybrid meetings has the potential to include everyone at AGMs, empowering shareholder voice and unlocking corporate democracy to previously unheard groups of investors. Effective corporate governance must include everyone in shareholder democracy.

Allowing all shareholders, not just those who can attend in-person, to have a voice in meetings enables listed companies to better understand the issues shareholders care about, building stronger shareholder relations. Listed companies that make a sincere commitment to clear and consistent investor relations stand to benefit from greater shareholder retention.

Keep investors engaged all year round

Beyond the AGM, boards should look to engage with their shareholders all year round, facilitating an ongoing dialogue between a board and their investors. Providing these multiple touchpoints throughout the year ensures that relationships aren’t left to fester, only to overspill at critical meetings like the AGM.

Regular shareholder meetings and company updates represent a critical opportunity for asset owners and retail shareholders to directly engage with companies, providing valuable insight into the real-world impact of the year’s corporate activity.

Modernising investor relations for the digital age

Communication is key. No Chair wants to feel as if their shareholders don’t understand their business. Yet quite often, investors are kept in the dark on important information and company updates. Communication needs to be more than a quarterly call, annual report, update email or an AGM get together. Businesses must do more to ensure a regular dialogue is being maintained with investors so that they are aware of important company issues and can voice any concerns.

However, investor relations is in need of modernisation. The majority of businesses continue to send paper documents to shareholders rather than digital assets, preventing quick and regular information sharing. In fact, our Shareholder Roadblocks report found that 75% of those who have voted on resolutions at an AGM said they were not confident in their understanding of the topic. The vast majority (85%) also said they would value more information in advance of AGMs to gain a greater understanding of the issues being discussed. Technology can work to facilitate a better sharing of information, empowering investors with the understanding required to confidently discuss and vote on company issues.

The State of Stewardship provides a stark warning of the consequences of letting relations sour. The focus for next year must be on building a strong partnership between institutional and retail investors and boards. If relations aren’t nurtured, Chair and boards risk more revolt in 2023 and beyond.

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