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Improve Your Retail Vote

Interview with Ellen Philip, ELLEN PHILIP Associates

The Optimizer's Editor In Chief Interviews Ellen Philip of Ellen Philip Associates

“Among the first things that issuers need to do this year, is to step back a bit, take a hard, fresh, numbers-oriented look at their retail investors and employee plan participants - and then to re-assess their strategic importance in light of the proxy-voting math…and then to come up with a good plan.”

Carl: Every year, for about 20 years now, we’ve been asking you to comment on what’s new in the world of proxy voting – especially where so-called retail investors and employee owners are concerned. We know you have very special insights and expertise in this space. What sort of trends have you been seeing?

Ellen: The big trend we’ve all been seeing for some time, of course, is the emergence of institutional investors as the dominant force in share ownership. When you read the business news and see the rip tides that are scouring the financial industry it’s hard to shake the feeling that the individual investor is now part of an endangered species. Sometimes you think you might wake up one morning and read that the last one of them had been sighted in Tasmania or somewhere.

We also know that the participation of individual investors and plan participants in the proxy voting process has fallen steeply. Every year we see fewer and fewer individual investors who bother to cast their proxy votes at all. And, unless issuers make some special efforts to encourage employee-plan owners to vote - and make it easy for them to do so - proxy voting has been falling sharply here too.

What would disturb me the most, if I were an issuer, is that proposals that issuers most want to pass - and many activist investor proposals that issuers do not want to see pass - are being decided by smaller and smaller margins - and in many instances we see, it’s because retail and employee investors - who are normally inclined to vote with management - are sitting the sidelines.

Carl: Why do you think this is? What’s really behind the growing apathy where individual and employee-plan voters are concerned?

Ellen: First, is the simple fact that most investors are already over-busy these days. Why would anyone - other than a ‘professional investor’ - bother to vote unless they are convinced that it really matters? In the absence of any consistent message of substance, that forlorn little one-liner you typically find on the envelope or proxy card – YOUR VOTE IS IMPORTANT – has no impact whatever.

It’s also no secret that the burgeoning influence of institutional investors has been accompanied by what I would call a gross neglect of retail investors by issuers in general. Anyone close to the process will know how retail investors are commonly regarded as a bothersome cost factor - and sometimes as nuisances - rather than as potentially important allies. By and large they get herded into giant automated systems that are geared to mass-production techniques that aim primarily for speed and low cost. Special handing, and “special treatment” is usually a no-no. So while these systems are quick and easy to implement, most of them could not in any way be accused of fostering a good degree of outreach or meaningful communication. In the face of such neglect it’s small wonder that participation by retail investors in the proxy voting process has plummeted.

Carl: How would you advise issuers to best re-asses their situation?

Ellen: The first thing that issuers need to do this year, is to step back a bit, and take a hard, fresh, numbers-oriented look at their retail investors and employee plan participants - and then to re-assess their strategic importance to management in light of the proxy-voting math - and then to come up with a good game-plan.

Most corporate staffers don’t seem to really understand how much of their company’s voting power is still in the hands of retail and employee-plan shareowners. Many companies we see still have 40 to 45 per cent retail ownership, and many still have a majority of voting power in the hands of holders who are basically friendly, like employee-plan owners, retirees, customers and local investors. Many companies - even the mega-cap ones - will often find that the strategic value of their retail population hasn’t diminished at all. In fact, I think that most companies - even those with only a 20% retail population - will find that the strategic importance of retail investors has actually increased.

Carl: So let’s say an issuer does discover that it needs to pay more attention to its individual and employee-plan investors, and to reach out to them more proactively to increase the voting rate. What are the most important steps to take - and the most important keys to success?

Ellen: First-off is to allow sufficient time to develop and launch a good program. The best time to begin is about two or three months before the record date, since there is a lot to do, and there’s a fair amount of planning and coordination that’s required. I would hasten to add, however, that we are experts at ‘pulling rabbits out of a hat’ in a hurry here - but sadly, a lot of issuers fail to wake up until it’s too late to meaningfully move the numbers. Don’t let this happen to you. I’d also say that it will not cost a ton of money to launch a really good plan. It’s usually a lot less than what most companies spend trying to chase down votes when their margins are flagging.

Second, of course, is to develop a very carefully thought-through and flawlessly executed program to (1) identify the target audience - being sure to include all of your retail investors, above a certain de-minimus size, and every single employee-ownership plan, and plan participant - and, very important, the Plan Agent and (2) to develop your communications - and your communications strategies in terms of content, forms-design and delivery methods and (3) to get all of the investors on a common platform - with robust delivery, voting and monitoring systems that will take maximum advantage of technologies like telephone and web voting, and allow for fast and easy follow-up actions if necessary.

Carl: Tell us exactly what Ellen Philip Associates brings to the table here? And what should an issuer look for in choosing a provider?

Ellen: For one thing, we have been at this for forty years - so we really know what we are doing: We know virtually all of the major Employee-Plan providers - including transfer-agent providers. And we know how to work quickly and well with them - to convert and consolidate records from multiple sources and systems onto a single and very strongly functional platform, which allows us to handle paper and web-based mailings, vote tabulation - using strong and highly customized telephone and web-voting systems along with paper votes - and to track and report results, to facilitate fast follow-up activities if needed.

We are very familiar with confidential voting requirements, which are especially important to Plan Providers, issuers and to many Employee Plan voters, where the lack of clear assurances as to confidentiality is, in our experience, a major reason for many employee investors not to vote. We also have extensive experience with ‘proportional voting’ which is important to many Plan Providers. We know how to work closely with them, to make sure that all of the votes are properly calculated and filed on time and in full. We have very robust and “challenge-proof systems” to handle not just close-votes but full-fledged proxy contests. I also think we are the only voting agent whose telephone and web-based systems are fully equipped to handle cumulative voting.

Carl: Any closing thoughts on why issuers should be checking in with you if they are looking to improve their retail voting percentages?

Ellen: In past years I’d stress our know-how, accuracy and overall responsiveness. Nowadays, given the all-pervasive role of computers and the relentless pressure toward standardization, I’d add one more element to the list: flexibility. The services we provide, and the way we provide them, deliver to clients a degree of flexibility they didn’t have before. It’s an additional dimension –and in my view - along with the ability to act quickly - it is one of the most important elements we bring to the game.

We now have a world in which activist shareholder groups are doing their best to defy established convention and to reshape the proxy voting process in ways that best serve the strategies they invent. It’s their business to be disruptive in absolutely any way they can. So where does an issuer go, when it’s found that, indeed, one size does not fit all? Very often we’ve provided the solution. We’re delivering, essentially, the same custom-tailored services we’ve always delivered – services that can be easily plugged into a broader processing environment without disturbing anything that’s already in place.

One last thing I’d say strongly to every issuer: “Don’t wait until a two-by-four comes down on your head, and maybe you lose the voting margins you want and need to get - before opening a conversation with us. Let’s start talking right away, when there’s no immediate pressure. We’ll soon be able to tell you whether there is an easy way - and above all, a cost-effective way - to broaden your processing capabilities - and to improve your retail vote.”

www.ellenphilip.com
(212) 807-0477