Fintech startups offer a new way for
shareholders to express themselves.
Photographer: SOPA Images/LightRocket
November 23, 2022 at 12:00 AM EST
pandemic’s wrenching disruptions have had an array of unforeseen
economic and social consequences, from gluts of office
space to developmental challenges for children.
Not many forecasters are likely to have had “revived shareholder
democracy” on their bingo cards. Bravo to anyone who did.
The part that
lockdown boredom played in inspiring the meme-stock
craze is acknowledged. Less appreciated may be its role in
a shift to greater exercise of investor voting rights. UK startups
Tulipshare Ltd. and Tumelo are at the forefront of a movement to
bridge the gap between ultimate shareholders and the companies they
collectively own. This may not generate quite the same viral buzz as
the GameStop Corp. frenzy, but it’s a trend with potentially
longer-lasting and more profound effects on the investing landscape.
Think of it as
the serious elder sibling of the meme-stock mania. If the typical
GameStop or AMC Entertainment Holdings Inc. buyer was a millennial
lying on the sofa laughing about the fun of messing with hedge fund
short sellers, then the typical Tulipshare customer might be pictured
as a millennial lying on the sofa worrying about how the world will
The Tulipshare platform lets
individual investors pool their stakes so they can meet the threshold
for submitting shareholder proposals and put pressure on companies to
adopt more socially responsible behavior. In effect, it allows any
shareholder, however small, to become an activist. The company,
founded in July 2021, posted a 166% increase in users to 27,000 for
the third quarter. Founder Antoine Argouges said in an interview he
aims to have close to 1 million “from Berlin to Los Angeles” in 2025.
The rise of such
platforms hasn’t exactly flown under the radar, with Tulipshare taking
on some of the biggest companies in the world in its short existence.
Its campaigns have included pressing Coca-Cola Co. to use fewer
plastic bottles and urging Johnson & Johnson to end talc sales (a step
the health-care company took
in August). Most notably, it drew support from 44% of
Amazon.com Inc. shareholders for an unsuccessful
resolution in May calling for an
investigation of working conditions at its warehouses. “This is the
stuff of a financial revolution,” Argouges said.
meanwhile, is more focused on institutions such as pension providers
and asset managers, providing tools that enable more than two dozen
including Legal & General Investment Management Ltd. and Fidelity
International Ltd. to identify and channel the voting wishes of
beneficial owners. “The momentum is really increasing,” CEO and
co-founder Georgia Stewart told me, saying she expects the company is
on the cusp of “exponential growth.”
The question now
is whether these changes are permanent or fads that will disappear as
Covid recedes. Meme stocks have fizzled (while showing periodic signs
of life) and pandemic-fueled enthusiasm for crypto has
taken a beating from the collapse of FTX, but the trend toward
shareholder enfranchisement looks less likely to reverse.
Covid left millions with excess time to spend on their brokerage apps,
a confluence of factors was pointing toward greater shareholder
engagement, among them: the increasing attention given to
environmental, social and governance issues; the expanding
capabilities of fintech, and political polarization in the US — but
probably nothing as influential as the rising power of passive
funds have increasingly come to dominate the asset management
industry: BlackRock Inc., the world’s biggest money manager, had
almost $8 trillion of assets under management as of the end of
September. But this has left a democratic though — BlackRock’s Chief
Executive Officer Larry Fink sees a new era of “shareholder
democracy” coming and pledged to extend voting power to
more of the firm’s clients. How should the providers of index funds,
with their market heft, vote their holdings? The active manager, who
has chosen to buy stock X or Y, can be expected to have a view on
corporate policies and vote accordingly in the interests of the
ultimate owners. The passive manager, by definition, has no such
opinion — he or she just buys every stock in proportion to its
weighting in the index.
arrives just as investors become more interested in knowing that the
companies in which their money is invested are doing the right thing.
That’s easier said than done. Millions of us contribute to pensions
while having little idea of where precisely the funds go or how the
investment manager would vote on issues we might care about — like
net-zero targets or labor conditions. Imagine if you could log on to
your pension provider, see upcoming shareholder decisions and click to
indicate how you would like your vote to be used? That’s what Tumelo
and its competitors provide.
question how great the impact of returning votes to owners will be,
and argue it may be the opposite of what advocates expect. For one
thing, most US shareholder proposals are non-binding: Company boards
can ignore them if they choose. What’s more, it will have the effect
of dispersing votes. At present, a fund manager can vote an entire
block of shares, and can potentially use that leverage to influence
management. Once the company knows that the fund no longer controls
those votes, it has less incentive to listen.
That’s no reason
for not doing it. As a matter of principle, the votes belong to the
owners. The separation of ownership and control, a function of the
complexity of modern capitalism, has long been recognized as a
corporate governance challenge. Restoring that link may have results
that are as yet impossible to predict, but they are likely to be
mostly positive: driving new levels of engagement, encouraging people
to care about a process from which they have become alienated, and
potentially even reviving
faith in the economic system. This trend is to be welcomed.