Retail Investors: An Interview With Rachel Waterhouse (ASA)
Exclusive: Rachel Waterhouse (ASA) Interview
Now, when I say “retail investor”, I know you all have someone who comes to mind. That annoying $500 holder who corners you every AGM, or the anonymous HotCopper poster who posts, with absolute conviction, something they know absolutely nothing about.
But that is like choosing not to harvest a whole crop because a few bad apples fell on the ground.
Retail holders are many, they are valuable, they are powerful and they are underserved. Just cast your mind back to AGL - where Mike Cannon Brookes was able to take over the whole company whilst only buying 10% of the stock. He changed the board, the direction of the business, and did it all by communicating with the shareholders in a weekend more effectively than AGL had in the 10 years prior.
So let’s approach the below thinking about what we can do as issuers. Not just to get a better raise away now, or a higher share price tomorrow - but because we want a great long-term business where our shareholders are on the same path as we are, and there is alignment and support.
Over to Rachel now, and if you want more content like this then let me know!
Rachel, when it comes to Australian shareholder behaviour, what changes are you seeing?
We have seen direct investment for retirement income purposes, a focus on franking, diversifying exposures via Exchange Traded Funds (ETFs), a greater proportion engaging online and via electronic communications, and a greater use of online trading platforms.
There is also an expectation that company leaders and organisations operate ethically and don't pursue a profit-only approach: last year's ASA member survey found that 69% of respondents avoided investments in certain industries due to ethical or sustainability concerns.
What hasn't changed?
Diverse investors with broad backgrounds investing while earning income or spending their time on non-investment activities and different investor strategies (e.g. growth versus dividends).
Direct ownership feels unchanged now by a number of investors. Many used to use custodians, and now new investors are using low-cost trading platforms and wealth management platforms.
In light of these changes, what are the critical elements of successful shareholder engagement?
Keep the retail shareholder top of mind. Think about how you can best engage with them over the course of a year, not just at the Annual General Meeting.
Companies should engage with their retail shareholders regularly about their vision, strategy, and progress towards it. This can be done via roadshows (face-to-face and online), webinars, the annual report, and the Annual General Meeting. You may even want to engage directly with retail shareholders where they congregate (e.g. investor events).
ASA's annual awards in May this year recognised Northern Star Resources (ASX:NST) for Enhanced Company Governance and Woolworths Group Ltd (ASX: WOW) for Most Effective Shareholder Communication for exemplifying these principles.
Are there any examples of companies that engage retail shareholders well?
Some companies rotate the location of their AGM so they can engage in multiple locations and see more shareholders over multiple years.
In addition to the AGM, a once-a-year engagement exercise with shareholders, we have seen companies fly their CFO and team to regional and city locations to share their company’s vision, strategy, and progress with retail shareholders.
Looking at specific companies, we’ve seen BHP’s CFO participate in online sessions with retail shareholders; CSL, Qube, and Telstra have held site tours and briefings for shareholders, and Altium hosted a pre-AGM information session.
What are the common frustrations of shareholders?
ASA expects retail shareholders to be treated fairly and equitably by companies, in the following ways:
- capital raisings (not just to institutional shareholders);
- communications distributed in accordance with each shareholder’s preferences (digital versus hard copy); and
- providing hybrid Annual General Meetings (face-to-face with an online option allowing engagement and questions) to give greater flexibility to shareholders.
A risky assumption that companies make is that all shareholders have the same level of engagement, and all electronic engagement is the same for all participants.
Another common frustration is when companies raise capital from professional and sophisticated investors without a Share Purchase Plan. We had a recent complaint from a shareholder who was told, “if you don't like how we raised capital you should sell your shares.”
In your experience, are there any companies in recent times that have successfully adapted their shareholder engagement to suit the changing public environment?
Mindset matters. It’s all about respecting the retail shareholder.
Some companies are expanding their shareholder engagement and are holding focus groups with shareholders as a way to expand company thinking.
CBA also recently explained a lot of their Annual Report in plain language. They pointed out that some information was required by law and addressed the fact that there would be shareholders who don't know how the market works or what reporting is required.
Again, respect the retail shareholder. If you raise capital over Christmas - give a longer-dated SPP to allow more shareholders to participate. If always raising capital selectively - look to use an SPP for working capital.
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