WALL STREET JOURNAL.
Companies Forgot About Mom-and-Pop Investors...Until Now
Under pressure, companies turn to individual shareholders to help
fight their battles
stung by defeat in a campaign against activists, jazzed up its
shareholder mailings and now even plants trees to encourage
individuals to vote. PHOTO: LUKE SHARRETT/BLOOMBERG NEWS
July 19, 2016 5:30 a.m. ET
Companies under pressure from shareholder activists and other big
investors are increasingly turning to an unlikely source for help: mom
are analyzing voting data and adopting new marketing techniques to
target individual investors in corporate elections over everything
from board makeup to executive pay.
CSX, stung by defeat in a campaign
against activists, jazzed up its shareholder mailings and now even
plants trees to encourage individuals to vote. DuPont launched an ad
blitz aimed at small shareholders as part of its successful effort to
fend off activist investor Trian Fund Management LP. And
phones to secure enough votes for its proposed merger with
To win over those shareholders, companies are borrowing
tactics from the political realm, where voter turnout may help
determine who becomes the next president, said
Eric Cantor, the former House
majority leader who is now vice chairman at investment bank
retail investor is not too dissimilar to an unlikely voter who is not
registered,” he said. “The universe of voters is what matters. If you
expand the universe, you’ll be more successful.”
On their face, the costly
and time-consuming efforts don’t make a lot of sense given trends in
shareholding. A small number of big holders like
BlackRock Inc. control most shares and vote religiously.
Meanwhile, individuals who directly buy stock are shrinking as a
portion of the total pool of shareholders and often don’t even open
ballot packages before throwing them away.
But crucially, retail
shareholders tend to support management when they do vote. That makes
them attractive in close calls and in say-on-pay votes, where anything
less than 70% support can raise red flags for governance watchers and
activist investors looking for an opening.
Fla.-based CSX. In 2008, it lost a bitter challenge from two activist
hedge funds that wanted to split the chief-executive and chairman
roles and change the company’s compensation structure. Since then, it
has been keen to woo retail investors, who own about 30% of the
company’s stock, said Mark Austin, CSX’s assistant corporate
Three years ago, the
company sought help from
Broadridge Financial Solutions Inc., which prepares, ships and
counts most of the proxies U.S. companies send out each year.
Broadridge also taps its database to develop profiles of likely
CSX’s proxy packaging, replacing formerly nondescript black and white
documents with ones featuring trains streaking across sunlit fields.
The packaging also prominently displays messages encouraging
shareholders: “Exercise our *Right* to Vote.”
CSX also now offers to
plant a tree for every registered shareholder who votes. Since 2013,
it has planted 18,459 trees, according to a company spokeswoman.
Mr. Austin of CSX
estimated that the company has spent hundreds of thousands of dollars
on the expanded packages. He says it wanted to boost retail voting to
“reduce the likelihood of unexpected results.” In 2015, 22% of CSX’s
retail shares were voted. That’s up from 20% in 2013 but still below
Cantor of Moelis & Co. says, ‘A retail investor is not too
dissimilar to an unlikely voter who is not registered.’, and
former House majority leader, speaks while delivering closing
remarks at t
Photo: Andrew Harrer/Bloomberg News
Humana last fall needed approval from 75% of its shares outstanding to
proceed with its planned sale to Aetna. To pick up insurance votes,
its proxy solicitor, D.F. King & Co., made more than 40,000 calls,
according to a person close to the deal. In the end, the vote wasn’t
close, with Humana shareholders overwhelmingly approving the deal.
(Before it can happen, the proposed tie-up still needs approval from
Proxy solicitors caution that big investors still hold sway in
corporate elections. Individual investors held just 34% of shares in
U.S. public companies in 2015, down from 39% in 2008, Broadridge
says. And getting smaller shareholders to participate is no easy
task. Mom-and-pop investors collectively voted just 28% of their
shares in 2015, down from 32% in 2008.
Still, the efforts to mobilize them show that measures to improve
corporate governance—such as making directors stand for election each
year and giving investors a nonbinding vote on executive pay—may be
making companies more accountable to all shareholders.
Meanwhile, activist investors have grown in influence and the pension
and mutual funds that once could be counted on to support management
have become more demanding, meaning smaller shareholders are
increasingly important for companies under attack.
DuPont’s ability last year to use retail shareholders to help fend off
Trian has been widely discussed among companies looking for advantages
Trian wanted a breakup of DuPont and board seats, including for its
Nelson Peltz. The company’s
outreach included tailored mailings to retail investors, which held
about 30% of the stock, and ads in hometown papers in Wilmington,
Del. About half those shares voted in the contest—overwhelmingly in
favor of DuPont’s chosen slate of directors.
When DuPont eked out a win by less than 6% of shares outstanding, Mr.
Peltz credited retail voters.