Why Finance Firms Should Pay Attention to Activist Investing

By Antoine Argouges
As people pay more attention to environmental, social, and governance (ESG) issues, regulators like the FCA and SEC have made it easier to voice concerns

Activist investing is nothing new. Carl Icahn’s been doing it since the eighties. Paul Singer’s hedge fund was started in the late seventies, and he’s since become one of the most prolific activist investors of our time. Even the end of the international apartheid movement in the nineties can be credited in part to shareholder activism. 

But activist investing was never really an activity for ‘the people’ historically. Perhaps because ‘the people’ hadn’t yet considered how being a shareholder could be used as a form of activism.

Now, we find ourselves amid a retail investor boom, and it shows no signs of slowing down. They even have a name tag for this pandemic-born phenomenon: ‘Gen-I’, short for ‘Generation Investor’, of course.

Meanwhile, activism has been pulled into sharp focus thanks to the intensity of the last few years, and now it’s starting to come for the corporate world in a big way. The wind has changed directions, and the financial sector can feel it. In 2020, the Google End of Year Report revealed that more people searched “how to be anti-racist” than “how to be a millionaire.” The same report shows that people also searched the phrase “how to help” more than ever before. And anyone who has been paying close attention has likely seen this mood reflected in the financial sector.

ESG issues will be a big topic in the next proxy season

The past two years have been monumental for grassroots environmental and social causes. After George Floyd's death, the Black Lives Matter movement became impossible to ignore, and the resulting protests sent shock waves from the streets right up to the global elite. Now, some of the biggest financial firms are acknowledging the movement's longevity by agreeing to racial equity audits – despite previous refusals to do so.

Greta Thunberg has taken her school strike protests to the world stage and refused to accept the various corporate greenwashing ‘blah blah blah’s. Now, 80% of the world’s global economy has pledged to aim for net-zero or carbon neutrality. The Paris Agreement and Glasgow Climate Pact have created at least some accountability towards getting there.

A recent Harvard Law article on corporate governance details the “tectonic shift in the focus toward environmental and social topics” that occurred during the 2021 proxy season. Social and political issues became the largest category of shareholder proposals submitted for the first time. The number of environmental proposals increased more significantly than any other category of submissions made in 2021. The upcoming 2022 proxy season will show even more promise if the trend continues.  

Shareholders are ready to vote

If you ask the average retail investor whether they participated in the last proxy vote for any of the shares they own, the answer will probably be “no.” But considering the new ‘values-driven’ investment trends we’ve seen, financial firms anticipate this to change. 

Robinhood is taking steps to make the proxy voting process easier for its investors, naming “Participation is Power” as one of its core values.

A report by Broadridge Financial found that almost half of retail investors aged 25-40 said they planned to vote for their proxy in 2021. The company also released a new app in 2019 to make the proxy voting process easier and a new AI platform to provide proxy voting data.

Innovations such as Tulipshare’s platform take things one step further, offering retail investors a way to invest and collectivise and back campaigns that seek to drive social and environmental initiatives at public companies. Tulipshare advocates for meaningful change and takes steps to keep the pressure on corporations by engaging in direct dialogue with companies’ IR teams and through the shareholder proposal process.

All of this points to a sector-wide effort to streamline and improve a process that has traditionally been convoluted and time-consuming – paving the way for more participation from shareholders. Even major financial regulating bodies are starting to take steps to make proxy voting easier.

The SEC and FCA are making it easier to vote

The Securities and Exchange Commission (SEC) in the US has been showing a growing focus on shareholder democracy under the Biden Administration, specifically with regards to improving the transparency and disclosure of shareholder votes. Aside from reversing Trump-era policies, which made it harder to submit shareholder proposals, the SEC has also proposed changes to make voting records easier to track, a move which aims to improve accountability, and also require more organised ballots so that investors stand a better chance of understanding how voting takes place during annual general meetings. 

Meanwhile, in the UK, the Financial Conduct Authority (FCA) has committed to “helping investors put environmental, social and governance matters at the heart of their investment decisions” after a Financial Lives survey found that 80% of participants wanted their money to ‘do some good.’ 

All of these changes suggest we are now at the ground floor of a new era for shareholder democracy. Short-term profits mean nothing without a long-term sustainable future. 

A decade ago, Occupy Wall Street sought to physically ‘occupy’ Wall Street. Now, activists are beginning to realise that physical presence alone is only effective if you actually have a plan. You can occupy whatever street you want, and yet the financial world will continue to turn, and the rich will find a way to get richer. But if you occupy the board rooms, the annual general meetings, and the proxy voter ballots – well, then you cannot be ignored.

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About the author: Antoine Argouges is the Founder and CEO of Tulipshare.

*Read more about Tulipshare’s ongoing shareholder activism campaigns to promote change within companies here.

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