Ep. 253: Jonathan Smalley - Proxy Voting Makeover: Shaking Things Up with Digital Transformation

Welcome to the Count Me In Podcast, where we bring you
conversations with top industry professionals and thought
leaders. In this episode, host Adam Larson sits down with
Jonathan Smalley, Co-Founder at Proxymity, for a deep dive into
shareholder engagement in the corporate world. They discuss the
critical importance of strengthening shareholder engagement, the
impact on investor relations, and the ongoing digital
transformation of proxy voting. If you want to gain insider
insights and valuable advice from industry experts, you've come
to the right place. Tune in to hear their engaging discussion on
the future of shareholder communication and the evolving
landscape of corporate governance.


Episode Transcript:
< Intro >


 


Adam:           
Welcome to Count Me In. I'm your host, Adam Larson, and in
today's episode, we're diving into the world of shareholder
engagement with Jonathan Smalley, co-founder at Proximity. We'll
uncover why strengthening shareholder engagement is more crucial
than ever, and why it's imperative for navigating the upcoming
political landscape. From climate change to the rising influence
of retail shareholders.


 


We'll explore the global factors impacting shareholder
engagement, and the shift towards digitalizing proxy voting.
Jonathan shares valuable insights on bridging the gap in
shareholder communication, and the potential benefits for
organizations. Get ready to gain a deeper understanding of the
challenges and opportunities, in shareholder engagement.


 


< Music >


 


Adam:           
Well, Jonathan, I'm really excited to have you on the podcast
today. And we're going to be talking about shareholder
engagement, which is something not everybody touches,
necessarily, but it's a very important part of your organization.
Especially if you have a board or shareholders, if you're a
public company.


 


And, so, what makes strengthening shareholder engagement more
critical, now than ever, for smoother investor relations.
Especially as we're going into 2024 here, as we're recording at
the end of 2023. What makes that so important, right now?


 


Jonathan:       Firstly,
thanks for having me, Adam. Yes, I'd say it's more critical than
ever, but I'd say it's been critical for quite a long time. But
when we look at what's behind us and what's ahead, there are some
really big global factors that are not going away. That are
continuing to heat things up, I feel like.


 


I think as we head into 2024, also, it's the biggest political
election year, globally, ever. Big elections in the U.S., India,
South Korea, Mexico, likely to be one in the United Kingdom. And
a lot of the factors, actually, that are going to impact
political elections are going to be considerations when people go
to the ballot box, are actually also transferable to the
boardroom, or to the annual general meeting hall.


 


Things like climate change is not going to surprise people, but
that is something that is extremely topical and is a key part of
issuer-shareholder engagement. Just this year, both inside the
U.S. and outside, more shareholders' climate proposals than last
year.


 


And there are groups that cite that as financially material to
their investment decisions now. And not just people on the
street, but powerful, influential, institutional investor groups
have got together and made that determination. And they're not
just asking issuers and, obviously, the regulators are also
calling for disclosures. It's also their service providers that
are asking to do more.


They want net zero policies. They want better climate integration
into things like voting policies. And another one that's been
heating things up for a long time now is Say-on-Pay. 94% now of
S&P 1500 companies have a say on pay vote every single year.
Ten years ago that would have been about 50%, so it's a big
increase. And, I think, this year they, against recommendations
from the leading two vote, advisors went down, but less against
recommendations. But those resolutions got less support this year
than last year.


 


So that makes those contests quite frequent. And, then, I think,
kind of linked to the climate change thing. You've got ESG versus
increasing anti ESG, pretty polarized, and I think that's also
something. As I sort of mentioned before, is going to also play
out in political elections as well, not just in company
elections. 


 


And then I'd say that the big kicker to all of that is that we're
just seeing year on year more votes, particularly, more votes
from retail shareholders. Institutional shareholder voting has
been quite high for a number of years now because of active
ownership, because of stewardship codes, because of regulation.


 


Retail, as a rule of thumb, has always been 20, 25% maybe in a
contest a little bit higher than that. So there's clearly much
more room for that to go into. And we've got some brokers going,
"We're getting 30% a year on year increase." Some retail shared
voting, and that's coming at a time where we're going through
millennials and Gen Z's inheriting anywhere between $68 to $84
billion. And millennials, at the moment, are the most likely
generational group to vote.


 


So big issues against the backdrop of a great wealth transfer
heading into a year that is going to be, probably, more
politically charged than any we've seen across all the democratic
countries, in the world, that are going to go to the polls. So I
think engaging shareholders and having an efficient way for
companies and shareholders to communicate back and forth is going
to be more important than ever before, just because there's so
much more coming. And I think we'll get on to maybe the
technology a little bit later.


 


But if you look at the legacy ecosystem about the way companies
and shareholders communicate, we urgently need to upgrade that to
deal with this. Because it's a good thing for companies and
shareholders to communicate back and forth. We should be allowing
it efficiently and digitally. And if we don't, and we're not
ready for what's coming, then, there's going to be more negative
headlines, I think, for companies to be worried about. As those
general meetings debate and have voted on very important
decisions for the company.


 


Adam:           
Yes, it's great how you outline all the different political
factors. All the things happening around the world, that are
causing more and more shareholders to become more engaged. And
before we get to the technology piece, maybe, you could elaborate
a little more about the importance of that communication between
shareholders, in the organization. How it can impact a company's
overall performance and even reputation?


 


Jonathan:       Yes, I mean,
starting with the reputational piece, it's probably easier to
talk about the downside, sometimes, because, then, that's the
thing that creates headlines. It creates headlines when results
are challenged. When there's uncertainty about the results. And
we saw a fairly infamous case a few years ago at the P&G's
meeting, votes counted three times and it was a different result
every time. And you're like, "How could that be?"


 


And that was very expensive, both for the company, it w...