Why investor engagement is key to long-term success

Maintaining strong investor relationships has always been essential for companies looking to achieve their long-term goals. Traditionally, this responsibility has fallen within the realm of Investor Relations. However, there is now a growing expectation for Company Secretaries to play a more active role in investor engagement. With shareholder activism on the rise and proxy advisors exerting greater influence, failing to engage investors can lead to unexpected challenges, such as opposition to key resolutions at AGMs.

A proactive approach to investor engagement isn’t just about damage control; it’s about building trust, ensuring stability, and safeguarding the company’s long-term interests.

The risks of poor investor engagement

Companies that neglect investor engagement leave themselves exposed to several potential risks:

• Proxy Advisor influence: Proxy advisor firms’ sway is increasing year-on year for institutional voting. A negative recommendation can shift the outcome of key votes. In 2021, AstraZeneca faced a shareholder revolt over an improved pay package for their CEO that saw ISS, Glass Lewis, and PIRC recommend that investors voted against the improved package.
• Activist Investor pressure: Activist investors push for strategic or governance changes that can place them at odds with the company’s long-term vision. BP made the news in February of this year as they found themselves under pressure from a hedge fund investor to abandon their green energy pledge./li>
• Disruption of voting at meetings: Shareholders that aren’t properly informed or engaged ahead of time can cause key resolutions to receive a high percentage of objections and thus potentially damage investor trust.
• Loss of investor confidence: A lack of engagement can erode trust and cause damage to the company’s reputation and share price over time.

How company secretaries can strengthen investor engagement

Build relationships with institutional investors year-round

A proactive approach in maintaining relationships and communications with these investors by:

• Providing regular updates on governance change and corporate strategy
• Sharing the rationale behind key resolutions well in advance of voting deadlines
• Addressing concerns early to avoid last-minute opposition

Imperial Brands saw that investors had concerns about the potential of long-term organic growth of the company, especially about next generation products and the company’s ability to adhere to the stated dividend policy. By conducting a strategic review and working with key investors to formulate a plan. Their Chairman proactively engaged with the Investor Forum and addressed many of the highlighted issues in their interim results. Continuing with this initiative to the full year results, the company managed to address a substantial proportion of the highlighted issues. Their investors valued interaction with the board as a way to keep them informed and on-side as to the short to mid-term decisions that were due to be made.

Engage with proxy advisory firms

Proxy advisors play a significant role in shaping voting outcomes and so the ability to understand and influence their recommendations is vital. At a minimum, companies should:

• Stay informed about proxy advisor guidelines and methodologies
• Devise a meeting schedule for discussions with shareholders to provide context on key resolutions
• Challenge and correct inaccuracies in their reports and provide supplementary information where needed

By doing so, companies can address concerns ahead of time and maximise the chance for a positive outcome in the face of first resistance.

Understand and align with shareholder expectations

In recent years, investor focus has moved towards Environmental, Social, and Governance (ESG) factors alongside strong ecosystems for internal controls. Forward-thinking approaches should focus on:

• Conduct regular reviews of investor voting policies and corporate governance trends: By being able to understand investor expectations, companies can prevent potential conflicts and ensure they align with best practices
• Align internal governance practices with shareholder priorities: Companies that proactively review policies, such as executive pay, board diversity, and sustainability, demonstrate responsiveness to investor concerns, strengthening trust and reducing competition
• Develop clear ESG narratives that show corporate responsibility: Investors are placing greater importance on ESG. Ensuring transparent, measurable ESG commitments can improve investor confidence and support for key resolutions

In recent years, Burberry have taken significant steps to boost investor trust by integrating sustainability metrics into their executive payment plans, alongside improving disclosures around sustainability

Anticipate and address controversial resolutions early

Contentious resolutions such as executive pay, board reappointments or shifts in strategy should begin with early engagement with investors to properly explain and win over the voter base.

• Identify key investor concerns in advance: By analysing past voting patterns, engaging in dialogue with key investors, and monitoring governance trends that could influence stances, companies can increase their chances of achieving their goals votes against near or exceed the 20% threshold.
• Devise a meeting schedule for discussions with shareholders to provide context on key resolutions: Regular ‘check-ins’ with your voter base places you on the front foot and allows you to explain the rationale behind a proposal with a setting for constructive dialogue, increasing the likelihood that these decisions will be supported by key investors
• Be open to adjustments to proposals, where reasonable, to address concerns: Facing shareholder backlash about executive pay in April 2018, Unilever withdrew the proposal to align with investor sentiment. This led to their share price picking up in value over the next few months.

If these feedback sessions identify strong opposition, making sensible modifications, such as revising executive pay structures or strengthening governance commitments, can help secure shareholder backing.

Leverage digital tools to enhance investor engagement

Digital tools have transformed shareholder engagement, making it easier to communicate with global investors. You can achieve this by:

• Hosting virtual investor roadshows or town halls ahead of AGMs: These sessions provide an interactive (and environmentally friendly) platform for the executive team to discuss key resolutions, corporate performance, and governance updates. These enable organisations to address concerns in real-time and strengthen investor confidence.
• Create investor portals for easy access to governance materials: The provision of a well-structured investor portal ensures transparency and aids informed decision-making. These could include AGM notices, board policies ESG reports, and voting guidelines.
• Implementing digital proxy voting to streamline participation: Allowing for digital voting improves accessibility for global investors and increases participation rates, ensuring a more representative voting outcome.

As a warning for virtual shareholder meetings, some companies have been criticised for using this format to restrict investor participation. Organisations have come under fire for requiring shareholders to read proposals verbatim, muted off-script speakers, and filtered or ignored submitted questions. These practices have raised concerns about transparency and genuine engagement in this area. It’s imperative for companies that open up this channel to facilitate open dialogue and directly address shareholder questions to maintain trust and uphold good governance.

Strengthen retail shareholder relationships

• Simplify AGM materials with clear jargon-free communication: By breaking down governance topics into simple terms, you encourage wider participation from your investor base.
• Ensure easy access to voting platforms and participation tools: Building digital voting and mobile-friendly investor portals will improve the accessibility for your retail investors.
• Use social media and digital channels to provide updates and encourage engagement: The use of LinkedIn and targeted emails, alongside traditional offline methods such as post, keeps your investor base informed.

Monitor and adapt investor engagement strategies

• Track engagement effectiveness:Assess not just participation levels and investor feedback but also the voting trends that occur to refine your approaches to maximise positive sentiment from your shareholders
• Adjust engagement based on emerging issues: Like all initiatives, flexibility should be baked-in to allow you to be responsive to governance trends and shareholder concerns.
• Benchmark against industry best practices:Use your peers to compare engagement efforts and guarantee you apply a competitive and effective approach in engaging with your investors.

In short, investor engagement isn’t just a responsibility for the Investor Relations team but is increasingly becoming a crucial function for Company Secretaries. By being proactive in your approach you can mitigate voting disruptions, strengthen governance, and build positive and long-term investor relationships.