Why 2024 Should Be the Year of Shareholder Democracy

As we step into 2024 AGM season, it's clear that shareholder voices are getting louder, both from institutional and retail investors.

Retail shareholders have risen in prominence in recent years, fuelled by the availability of DIY investing apps. These investors aren't just in it for the money; they want to have a say on how companies are run

At the same time, institutional investors are using their financial power to push companies to be more environmentally conscious and accountable.

There's a noticeable shift happening where decision-making power is moving from company boards to investors, signalling a move towards shareholder democracy.

But there's still a lot of work to do. This year is crucial for improving shareholder access and governance. By learning from past mistakes and successes, businesses can make real change happen. Here are the top four trends shaping the investment landscape in 2024 and how we can improve the shareholder system.

The rise of the DIY investor

In the UK, retail ownership of shares has grown to 13.5%, a significant increase of 30% since 2010. While individually their holdings may not match those of institutions, their combined impact is increasingly noticeable. In 2023, retail investor turnout at AGMs soared, sparking discussions on ESG, executive pay, and diversity across a spectrum of meetings.

Shareholder voice will only get louder in 2024. As companies begin to gear up to organise their AGMs this year, facilitating shareholder participation therefore becomes crucial. Prioritising open discussion, and debate at these meetings is not something businesses should shy away from this year.

The reality is the businesses that actively engage with stakeholders and embrace diverse perspectives at their AGMs are better positioned for success. On the other hand, those that exclude shareholders will suffer the consequences.

Moving beyond the AGM

With shareholders increasingly eager to engage, the prominence of IR meetings is also on the rise. While the AGM remains a cornerstone event in the shareholder calendar, offering investors multiple platforms to voice their opinions throughout the year is becoming essential. This trend gained momentum in 2023, with major players like Shell and BP organising a series of IR meetings to maintain engagement. 

To facilitate this, businesses need to increase access to their investment relations calendars and proactively communicate these meetings. These gatherings offer regular opportunities for shareholders to raise any concerns, preventing issues from spilling over throughout the year.

Mending relations between boards and institutional investors

With some progress, we have seen relationships strain, especially with boards and institutional investors. Earlier this year, The Investor Forum expanded its efforts to include listed companies, aiming to improve dialogue between boards and institutional investors.

For some time, tensions have simmered between major investors and company boards. Investors hesitate to approve substantial pay raises for executives and many feel that their concerns are overlooked during crucial company meetings where votes are cast.

Repairing these relationships in 2024 demands concerted effort from both parties. Boards must prioritise transparency in their communications and decision-making processes. This means providing clear information about company performance, strategies, and governance. Boards must also hold themselves accountable before institutional investors intervene.

At the same time, investors must remain open to gradual changes within boards and acknowledge that transformation takes time. Taking a long-term perspective when assessing companies beyond financial metrics is essential. This includes evaluating performance across cultural, innovative, and sustainable dimensions and how this can change over time.

Hostile relations benefit neither party, openness is required from both sides.

AI takes over investment

No 2024 prediction is complete without AI, and the investment industry was not immune to tech developments. Investors turned to tools that help them to understand executives' speech patterns during earnings calls, offering deeper insights into their intentions. On the flip side, AI can also be used to understand stakeholder sentiment during other crucial events such as AGMs and ahead of voting scenarios.

The industry's enduring challenge of maintaining frequent communication between boards and shareholders could also be solved by AI this year. In fact, the tech could help provide personalised, round-the-clock shareholder chatbots, promising increased accessibility and responsiveness. Only time will tell with advancements in AI, but it’s important for investors and businesses to stay ahead of them.

Achieving democracy

In 2024, businesses face a clear choice: risk backlash by excluding investors or benefit from embracing new voices. The key lesson for boards, IROs, and governance members remains the same: prioritise transparent, regular communication, and honesty with investors. For investors, keep raising your voice and holding businesses accountable. With investors and boards on the same page and working together, real transformative change becomes possible.

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Peter Fowler is COO at Lumi

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The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group