Robinhood Enters the Realm of Proxy Voting
the popular trading platform's recent acquisition is part of a bigger
trend--and how it impacts investors.
Robinhood (HOOD) recently
Technologies, a shareholder engagement platform that
simplifies the proxy voting process for investors and helps them
communicate with the CEOs and leadership teams of the companies in
which they're invested.
Proxy voting allows investors
to have a say in executive compensation, board director approval, and
a wide variety of environmental,
social, and governance concerns. Despite the growing
interest in ESG, few individual investors are putting their votes to
use. On average, individual shareholders vote on just 32% of their
shares, compared with the 80% rate of participation among the entire
shareholder base, according to a Harvard
Bringing Households Closer to Their Votes
Low engagement among retail investors is meaningful, since
collectively, they own more of the U.S. stock market (in terms of
directly held equity) than any other group.
Robinhood and Say Technologies aren't the only ones making shareholder
engagement more accessible to the individual investor.
For one, JPMorgan (JPM) announced
to acquire OpenInvest, a company built to help financial
advisors and individuals invest according to their values. These and
other advances in shareholder engagement technology are bringing
household investors closer to their votes.
Here are three ways such advances are breaking down barriers to proxy
1) Simplifying a Complex Process
Robinhood's Say Technologies provides a platform where investors can
communicate directly with other shareholders and pose questions to the
leaders of the companies that they invest in. In the style of Reddit,
investors ask and "upvote" questions ahead of earnings calls, and
executives answer a selection of the top questions.
For example, during Tesla's second-quarter 2021 earnings call, retail
investor Robert M. asked:
"Elon has said that Tesla will be opening up the Supercharger network
to other EVs later this year. Can you share more details on how this
will be structured? Will this be select brands? Will they contribute
to the growth of the network?"
Over 2,000 investors upvoted this question, representing a total of
367,000 Tesla shares. Elon Musk responded during the call, and Tesla posted
the answer on the Say platform.
Users are then reminded to submit their votes through the app at the
time of the annual shareholder meeting.
Other platforms like Proxymity are
also allowing investors to submit their votes easily online. The
technology is moving toward making shareholder engagement and proxy
voting simpler and more scalable than it is today.
The nuts and bolts of today's voting process are commonly referred to
plumbing." Proxy plumbing deals with distributing ballots,
counting votes, and communication with shareholders--three opaque,
complex tasks with many intermediaries. Most votes today are sent "by
proxy" (hence the name), meaning they are sent at different times and
through different channels. As such, vote-counting isn't fully
automated. It's common for votes to be over- or undercounted. But new
solutions are modernizing the process and allowing individual
investors to participate in a once-clunky process, all through online
platforms and modern, social-media-style user experiences.
2) Meeting Investors Where They Want to Be Met
Social media and intuitive user experiences are well-received among
millennial and Generation Z investors, groups that generally support
ESG ideas more than any
other generation. Robinhood's acquisition of Say
Technologies has the potential to bring engagement-style ESG investing
to the young crowd, giving it more
opportunity to speak out on corporate governance issues.
The median Robinhood investor is 31
years old, and over half of all the app's users are
investing for their first time.
Sustainable investing continues
to grow rapidly across all ages and investor types. For
investors who prefer funds over individual stocks, companies such as Tumelo offer
a channel for fund investors to communicate with their pension
providers to have a say in how their shares are being used to reach
ESG and impact goals.
Whether they're investing in individual stocks, pension plans, or
funds, new forms of communication are evolving to make retail
investors part of the shareholder engagement process.
3) Helping Investors Understand Their Options to Make Impact
Most individual investors don't have the time or money to understand
specific ESG issues related to the companies they're invested in, nor
how they can be addressed through proxy voting. The few who do tend to
have backgrounds in sustainable investing.
But other engagement-focused startups are working to change that.
Startups YourStake and
OpenInvest both provide tools to help investors understand the impacts
of their portfolios. Financial advisors can use either of these
platforms to generate reports on how their clients' investments are
reducing carbon emissions or improving diversity, for example, as
compared with a benchmark.
Gabe Rissman, co-founder of YourStake, explains the necessity of
having access to the right information. "YourStake got its start
providing individual investors an easier way to join shareholder
engagement campaigns," Rissman said in an interview. "But investors
didn't have a clear idea of what was going on in their portfolios. We
were putting the cart before the horse. Now we focus on helping
financial advisors communicate the impact of their portfolios to their
clients. And when investors see issues in their portfolios, they want
to fix them. The data motivates."
Disruptions in the shareholder engagement space offer new
opportunities to align the interests of all stakeholders, and
individual investors are a necessary piece of the puzzle.
Jackie Cook, Morningstar's director of investment stewardship
research, contributed to this article.
Lauren Solberg does not own (actual or beneficial) shares in any of
the securities mentioned above. Find out about Morningstar’s editorial
© Copyright 2021