Proctor & Gamble has declared victory, by a 6 million share margin, in its proxy battle with Nelson Peltz’s Trian Partners. With a collective cost estimated to be some $60 million, this proxy battle is the most expensive ever, surpassing Trian’s fight with DuPont a few years ago. And, similar to DuPont, some speculate the vote of the retail – or individual – investor played a pivotal role in the outcome.
I find this interesting. In the world of investor relations, retail investors are often an afterthought. True, few companies have significant retail ownership today, a major change from 20-30 years ago. A Wall Street Journal story (Oct. 6, Benoit) noted that according to S&P Global Market Intelligence the average retail ownership among S&P 500 companies is 12% as compared to approximately 40% for P&G. In fact, only 10 other S&P 500 companies have higher retail ownership than P&G. No doubt this was a key driver of proxy solicitation costs.
Are retail investors the new bulwark against activism? Certainly, there are benefits to having a large retail investor base: retail investors tend to be loyal customers, they don’t act in herds potentially mitigating stock price volatility and, as demonstrated with P&G and DuPont, they generally support the Board on proxy matters.
However, it can be expensive and time consuming to attract and maintain a critical mass of retail investors. Further, based on the 2016 Survey of Consumer Finances conducted by the U.S. Federal Reserve, you may be swimming upstream if you try to recruit them. As the table below shows the percent of families with direct ownership of stock or pooled investment funds (i.e., mutual funds) have declined since their 2001 highs.
If you already have a significant retail investor base, great. Think about how to leverage your website or social media to cost-effectively keep them informed and engaged … remember what’s important to them – long-term stock price appreciation and dividends … and consider them in your activism defense and proxy solicitation strategies.