The Significance of Investor Communication
The 12th standard of our online investor relations series underscores the importance of actively distributing annual reports and proxy voting guidelines. Standard 12 asks company executives to ensure these critical documents reach stakeholders, more specifically shareholders. The delivery of these documents is critical because they disclose financial performance, business strategy, risks and other material information to stakeholders. It’s the right of shareholders to receive these documents, a right that has not been at the forefront of communications governance in our markets.
The three things that have resulted in the dilution of shareholder rights:
- Minimum share trading lots being too low
- Share registrars losing direct contact with shareholders
- The investor relations function being seen as a chore or cost and not a strategic function
Regulatory Standards: The US vs. Kenya
Differing global regulatory norms demonstrate varied approaches to this requirement. For example, US regulators mandate direct delivery of proxy voting materials to all shareholders, including those who hold their shares indirectly through intermediaries. These intermediaries are legally bound to deliver the materials. The rationale behind this directive is to safeguard investors’ rights to vote and participate at the Annual General Meeting (AGM).
On the other hand, in Kenya, executives can fulfil their obligation by simply publishing their annual report and proxy voting materials on the corporate website. Post-48 hours, these materials are ‘deemed’ to have been delivered to their shareholders.
The Case for Active Distribution
From the perspective of stakeholder reputation, a shareholder register with directly contactable entries (which are always updatable at any time by investors) is an invaluable asset. Full contact might seem marginal at first, but it carries significant weight in the age of digital clutter.
For proxy statements in particular, active distribution is key to maximising voter participation at shareholder meetings. Low voter turnout can call into question the legitimacy of management proposals. High voter turnout can elevate a board’s governance reputation.
More recently international stakeholder engagement frameworks and guidelines have added impetus to the investor relations function, particularly because feedback is needed by companies to determine what is “material” to their successful continuance.
Reaping the Benefits of a Pre-Qualified Audience
A direct line to this pre-qualified audience, especially shareholders, gives you a strategic advantage. The rationale here is simple: If you can communicate effectively with your shareholders at a low cost, why wouldn’t you?
Something we have not seen in our markets is leveraging shareholders as customers. This strategy has a long history.
Here are three examples of successful retail investor strategies involving commercial incentives from companies:
- Costco – Offers 2% rewards to shareholders on purchases with their membership card. This incentivises shareholders to shop more frequently at Costco.
- Home Depot – Provides a 10% discount on certain purchases to shareholders who sign up for their stockholder benefit program. This encourages loyalty and more spending from shareholder customers.
- Starbucks – Gives free coffee, tea or packaged food/drink item rewards to shareholders enrolled in their rewards program. This drives shareholder engagement and retention.
Conclusion: Ensuring Active Distribution and Direct Engagement
Active distribution of annual reports and proxy voting guidelines is not just about meeting legal requirements. It’s a proactive approach to investor relations that can significantly boost your company’s credibility and the quality of investor engagement (and now sustainability). While it may require extra effort, the payoff regarding heightened stakeholder attention and stronger relations is well worth it, especially so given sustainability trends.