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Navigating Shareholder Communications in the Digital Era
In today’s fast-paced business world, effective shareholder communication is more crucial than ever. With over 90% of investors now managing portfolios online, companies must adapt to meet these expectations. Traditional engagement methods are being supported by real-time digital interactions.
A NIRI Research survey found that 75% of investors prefer digital updates, while 60% are dissatisfied with current communication, citing a lack of clarity and responsiveness. This gap presents a chance for companies to enhance shareholder relations through digital tools.
In this article, we’ll explore the importance of effective shareholder communication, offer strategies to build trust and align communication with business goals and provide the benefits and challenges of different methods of communication.
Understanding Shareholder Communications
Shareholder communication is a broad term that encompasses all interactions between a company and its investors. This includes providing updates on financial performance, strategic initiatives, and governance issues, as well as soliciting feedback from shareholders. It also includes all aspects of proxy voting communications, such as AGM meeting notifications and notifications of vote results. Effective communication ensures that shareholders are well-informed about the company’s operations and strategic direction, fostering a relationship that is built on transparency and trust.
Importance of Shareholder Communication in Modern Corporate Governance
Timely and transparent shareholder communication is crucial for building trust and maintaining a positive reputation. It plays a significant role in corporate governance, ensuring all stakeholders are informed and engaged. It has been noted as one of the top governance issues affecting companies today. According to a survey by Edelman, 70% of institutional investors claimed they are more likely to invest in a company with a clear and consistent communication strategy.
6 Key Principles for Effective Shareholder Communication
In order to ensure that you have an effective shareholder communication strategy, your company must adopt these six key principles:
1) Integration with Business Strategy
Effective shareholder communication is not just about disseminating information—it’s about ensuring every message aligns with the broader business strategy. This not only keeps shareholders informed but also reinforces the strategic direction of the organisation, creating a unified narrative that enhances investor confidence.
Aligning Communication with Corporate Objectives
Aligning your shareholder communication with your company’s strategic objectives ensures investors are well-informed about the direction and goals of the business. This alignment helps to build confidence and demonstrates your company’s commitment to transparency and accountability.
2) Timeliness and Relevance
Providing timely and relevant updates to shareholders is essential for maintaining good relations. This includes regular financial reports, strategic updates, and immediate communication in response to significant events. Utilising digital platforms can enhance the speed and reach of these communications. According to a recent report by Deloitte, companies that provide timely updates to shareholders are more likely to retain investor trust and support.
3) Full Disclosure and Transparency
Effective communication with shareholders hinges on transparency and openness. Companies must regularly share both positive and negative updates to build trust and meet investor expectations, navigating regulatory requirements and enhancing overall credibility. Here are a few things to keep in mind when it comes to transparency in shareholder communications.
Maintaining Open Lines of Communication
Maintaining open communication with shareholders is vital for building trust and loyalty. Companies should proactively disclose both positive and negative information, ensuring transparency and preparing investors for market fluctuations. This approach reinforces shareholder confidence in management. A key suggestion we mentioned in our recent article on shareholder activism is to publicly disclose the contact information of key stakeholders (e.g. Head of Investor Relations, CFO, Company Secretary etc.) to build trust and make it easy for shareholders to gather necessary information.
Tesla exemplifies this by regularly updating investors on achievements and challenges through earnings calls, reports, and social media. CEO Elon Musk and CFO Zach Kirkhorn provide candid insights, addressing concerns directly. Tesla’s real-time updates on platforms like X (formerly Twitter) keep shareholders informed, fostering a sense of partnership and loyalty.
Legal and Ethical Considerations
Adhering to legal and ethical standards is essential for full disclosure, helping companies maintain integrity and avoid legal issues. Key regulations across different regions emphasize transparency and timely communication.
In the U.S., the Sarbanes-Oxley Act (SOA) of 2002 mandates accurate financial reporting and timely disclosure of material changes. The Securities Exchange Act of 1934 requires companies to file regular reports with the SEC, while Regulation Fair Disclosure (Reg FD) ensures all investors receive material information simultaneously.
In the European Union, the Shareholder Rights Directive (SRD) promotes shareholder engagement by requiring clear and timely communication of corporate actions like shareholder meeting announcements, dividends and mergers.
In Canada, National Instrument 51-102 mandates continuous disclosure, and National Instrument 52-109 requires CEOs and CFOs to certify the accuracy of financial reports.
In Australia, the Corporations Act 2001 and ASX Listing Rules enforce the disclosure of price-sensitive information and regular financial reporting to keep the market informed.
4) Performance-Based Communication
Clear communication of performance metrics and ESG initiatives is essential for demonstrating a company’s financial health and commitment to responsible practices. Investors rely on transparent reporting to gauge performance and align with their values. Here are a few things to keep in mind when showcasing your company’s performance.
Connecting Messages to Company Performance Metrics
Communicating company performance metrics clearly and effectively helps shareholders understand the financial health and strategic direction of the business. This includes metrics related to revenue, profit margins, and market share. PwC’s Global Investor Survey 2023 backs these conclusions, finding that clear communication of performance metrics is a key driver of investor confidence.
Metrics on the Company’s ESG Performance
Environmental, Social, and Governance (ESG) metrics are increasingly important to investors who seek alignment with their values and wish to mitigate risks associated with unsustainable practices. Today’s shareholders prioritise both financial returns and the social and environmental impact of their investments. Transparent communication about a company’s ESG performance is crucial in attracting these socially conscious investors.
Unilever is a strong example of effective ESG communication, integrating sustainability into its operations and setting ambitious goals like becoming carbon neutral by 2030 and ensuring all plastic packaging is recyclable by 2025. The company regularly reports on its environmental, social, and governance impacts, including diversity initiatives, community engagement, and ethical business practices.
The rise of shareholder activism also highlights the importance of ESG communication, as investors increasingly push for sustainable and socially responsible practices. Transparent ESG reporting helps issuers align with investor expectations and attract ESG-focused investors, ultimately enhancing long-term financial performance and brand value.
5) Building Strong Relationships
Personalised engagement strategies and targeted communication foster stronger relationships with shareholders. Leveraging digital tools and segmenting investor bases can enhance interaction and ensure relevant updates reach each investor group.
Personalised Engagement Strategies
Personalised engagement strategies are crucial for strengthening relationships with shareholders, as they allow companies to address the specific interests and concerns of different investor segments. For instance, Salesforce effectively engages with various groups of shareholders through personalised newsletters and targeted updates. These tailored communications ensure investors receive relevant information that resonates with their particular interests.
In addition to these efforts, companies can leverage digital platforms like Proxymity to enhance their shareholder engagement, especially in the lead-up to their shareholder meeting. Proxymity’s Vote Connect platform facilitates real-time, transparent communication between issuers and their investors, allowing for more direct and personalised interactions. This can be particularly valuable in ensuring that critical updates and shareholder meeting details are efficiently and accurately communicated to all relevant participants.
Segmenting Shareholders for Targeted Communication
Segmenting shareholders based on factors such as investment size, geographical location, and investment goals allows for more targeted and effective communication. This ensures messages are relevant and resonate with each group of investors. Recent research has evidenced that audience segmentation improves overall communication effectiveness.
Additionally, a recent case study on Apple’s marketing strategy revealed segmenting shareholders for targeted communication improved overall engagement and satisfaction.
6) Crisis Management
A well-crafted crisis communication plan is crucial for managing unforeseen events and maintaining shareholder trust. Transparent, timely updates and effective CEO messaging are key to navigating negative situations and protecting the company’s reputation. Here are a few things to keep in mind when managing a crisis event and sharing negative events.
Developing a Comprehensive Crisis Communication Plan
Having a comprehensive crisis communication plan in place is essential for managing unexpected events. This plan should outline how to communicate with shareholders during a crisis, ensuring information is accurate and timely. While a crucial step, less than half of U.S. companies have a formal crisis management plan.
Research on communication theories and response management indicates that during the COVID-19 pandemic, companies with robust plans in place maintained shareholder trust more effectively than those without. Additionally, other research has shown that when executed well, most business leaders are pleased with the effectiveness of crisis planning, including communication with clients, investors and other stakeholders.
Handling Negative Events
Handling negative events transparently and efficiently can mitigate potential damage to a company’s reputation. Best practices include acknowledging the issue, providing regular updates, and outlining steps being taken to address the situation.
Johnson & Johnson’s response to the Tylenol crisis in the 1980s remains a benchmark for effective crisis management. A more recent case was when Starbucks faced backlash for alleged racial bias within the company in 2018. They were able to turn things around through swift action and communication. They spared no time to publicly acknowledge their mistakes to customers and shareholders, and implemented new training and companywide policies to ensure it doesn’t happen going forward.
These instances, along with many other cases, highlight how proactive communication, early action & engagement with shareholders, leveraging digital platforms, and using consistent messaging can help control the narrative and rebuild trust.
Proactive communication strategies also involve listening to public concerns and addressing them directly, reinforcing the company’s commitment to resolution and improvement. Additionally, when it comes to negative events or a crisis, messaging coming from the CEO can be effective in managing the reputation of the company. Research implies that a visual of the CEO delivering the messages during a crisis can have a positive effect on reputation during the event.
Effectiveness of Common Shareholder Communication Methods
Companies can utilise various communication methods, each with its own advantages and disadvantages. Below are some best practices for both legacy and digital methods of shareholder communication.
Legacy Methods
Utilising a range of shareholder communication methods can significantly enhance engagement and satisfaction by catering to diverse preferences and ensuring information is accessible and relevant. Each method offers unique advantages and challenges, making it essential to choose the right mix to effectively communicate with all investor segments.
Annual Letters and Reports
Pros:
• Provides a comprehensive overview of the company’s performance over the past year, including financial results, strategic initiatives, and future outlook.
• Serves as a formal communication tool that reinforces a company’s commitment to transparency and accountability.
• Can be used to articulate the company’s vision and values, helping to strengthen the brand.
Cons:
• Typically produced once a year, meaning information may not be timely or responsive to current shareholder concerns.
• The format can be lengthy and dense, making it difficult for shareholders to digest key information quickly.
• May not engage younger investors who prefer more dynamic communication methods. Research by CFA institute highlights that Millennials and Gen Z prefer consuming company information through digital channels like social media.
Direct Phone Calls
Pros:
• Allows for personalised communication, which can help build stronger relationships with key shareholders.
• Provides an opportunity for real-time dialogue, enabling immediate feedback and clarification of shareholder concerns.
• Demonstrates a commitment to shareholder engagement, enhancing trust and loyalty.
Cons:
• Time-consuming and may not be scalable for companies with many shareholders.
• May lead to inconsistent messaging if multiple representatives communicate different information.
• Limited to those shareholders who are willing to engage via phone, potentially excluding others who prefer digital communication.
Digital Channels
Email Campaigns
Pros:
• Cost-effective and easy to implement, allowing companies to reach a large number of shareholders quickly.
• Enables targeted messaging, where specific segments of shareholders can receive tailored updates based on their interests or investment size.
• Allows for interactive elements, such as links to further information or calls to action (e.g., attending a virtual meeting).
Cons:
• Emails can easily be overlooked or marked as spam, leading to lower engagement rates.
• Requires careful planning to avoid overwhelming shareholders with too much information at once.
• May not be suitable for conveying complex information that would benefit from a more detailed format.
Investor Portals and Online Platforms
Pros:
• Centralises all shareholder information in one accessible location, including financial reports, corporate announcements, and governance documents.
• Enhances the user experience by providing easy navigation and search capabilities, allowing shareholders to find information quickly.
• Encourages engagement through features like forums or chat options where shareholders can ask questions and interact with the company.
Cons:
• Initial setup can be resource-intensive, requiring investment in technology and ongoing maintenance.
• Shareholders who are less tech-savvy may find it difficult to navigate digital platforms.
• Security concerns must be addressed to protect sensitive shareholder information.
You can mitigate the negatives by investing in the right digital platform, rather than attempting to build infrastructure in-house.
Interactive Reports and Dashboards
Pros:
• Allows for data visualisation, making complex financial information easier to understand and analyse.
• Engages shareholders through interactive elements, enabling them to explore data relevant to their interests.
• Provides real-time updates, which can keep shareholders informed of the company’s current performance and initiatives.
Cons:
• Requires investment in technology and design expertise to create engaging and user-friendly interfaces.
• May be overwhelming for some users if too many interactive features are included.
• Still requires companies to provide traditional reports for stakeholders who prefer conventional formats.
The cons listed above can be largely avoided by partnering with the right external digital platform provider.
Digital Proxy Voting Solutions
Pros:
• Facilitates easier participation in corporate governance by allowing shareholders to vote electronically, increasing turnout and engagement.
• Provides real-time tracking of votes, making the process more efficient and transparent.
• Platforms like Proxymity offer a seamless experience for investors by integrating with various brokerage systems, enhancing accessibility.
Cons:
• Some shareholders may be resistant to using digital platforms for voting, preferring traditional paper ballots.
• Security and privacy concerns must be addressed to build trust in the digital voting process. This can be an issue with designing a platform in-house. Proxymity is SOC2 Type 2 certified and GDPR compliant rendering these issues irrelevant.
Hybrid Methods – Ideal for Maximum Reach & Engagement
Combining digital and traditional communication methods can maximise reach and engagement. For example, a company might use email campaigns to provide timely updates while also sending out detailed annual reports. This hybrid approach ensures all shareholder preferences are accommodated, enhancing overall satisfaction.
Adapting Communication Strategies to Different Shareholder Types
With retail investors getting more involved in corporate decision-making, it is important to personalise the approach to shareholder communication to ensure that each type of investor can stay engaged and informed about company matters. Here are a few tips for adapting your communication strategy.
Tailoring Messages to Institutional vs. Individual Shareholders
Institutional shareholders often require detailed and data-driven information, while individual shareholders may prefer more straightforward and concise updates. Tailoring communication styles to these different preferences can improve engagement and satisfaction. Many large firms find success by providing in-depth analysis and reports to their institutional investors while offering more accessible summaries to individual shareholders.
Balancing Formality with Personalisation
Balancing formality with personalisation is key to effective shareholder communication. Formal communications convey professionalism, while personalised messages can build stronger, more relatable connections. A study by Harvard Business Review found that personalised communications can significantly enhance investor engagement and loyalty.
Challenges and Solutions in Shareholder Communication
Apart from building a strong strategy tailored to different types of shareholders, it is crucial to know the various hurdles one might face when delivery information. Here are few common challenges and how you can solve them.
Addressing Information Overload
In an age of information overload, it’s crucial to ensure communications are clear and concise. Companies should prioritise the most important information and use bullet points and summaries to enhance readability.
Ensuring Accessibility and Inclusivity
Ensuring all shareholders can access and understand communications is vital for inclusivity and shareholder satisfaction. This includes providing materials in multiple languages and formats and using plain language to avoid confusion.
Mitigating Miscommunication & Misinterpretation Risks
Clear and precise communication is particularly crucial in proxy voting to mitigate the risks of miscommunication and misinterpretation, which can significantly impact investor decision-making. Proxy voting materials, such as meeting agendas and voting instructions, must be accurate and unambiguous to ensure shareholders can make informed decisions.
Misinterpretation or delays in these materials can lead to confusion and missed votes, undermining the integrity of the voting process.
One common challenge is that meeting agendas can be complex and subject to misinterpretation. If the agenda is not clearly outlined or if key items are buried in dense text, shareholders might not fully understand the issues at hand or how their votes will affect the company. This lack of clarity can result in delays and errors in the voting process, impacting shareholder confidence and the overall effectiveness of governance decisions.
Moreover, investors might not always have access to the right information or sufficient details to make well-informed decisions. For instance, if proxy materials do not provide comprehensive explanations of the resolutions or lack sufficient context about the company’s strategic plans, shareholders may struggle to grasp the full implications of their votes. This can lead to poorly informed decisions and diminished trust in the governance process.
To address these challenges, companies should focus on:
• Proofreading and Accuracy: Ensure all proxy voting materials are thoroughly proofread and reviewed to eliminate errors and ambiguities.
• Testing Messaging: Conduct focus groups or seek feedback from a diverse group of shareholders to test the clarity and effectiveness of communication before dissemination.
• Providing Context: Offer clear, concise explanations of meeting agendas and resolutions, including potential impacts and strategic context, to enhance shareholder understanding.
Future Trends in Shareholder Communication
Shareholder communication has evolved significantly, but with the continued rise of digital solutions and shifting trends in retail investing, even more change is on the horizon. Here are some key predictions for the future of shareholder communications.
Embracing Year-Round Communication
Maintaining year-round communication with shareholders, rather than only during annual meetings, can enhance engagement and trust. This approach ensures investors are continuously informed about the company’s progress and plans. Research suggests that year-round communication can lead to more informed and supportive shareholders.
The Role of Social Media and Emerging Technologies
Social media and emerging technologies are becoming increasingly important in shareholder communication. Platforms like X (formerly Twitter), LinkedIn, and dedicated investor apps can facilitate real-time updates and interactions. According to a 2022 digital investor survey by Brunswick Group, 80% of investors use social media to inform their investment decisions, highlighting its growing importance.
In the realm of proxy voting, technology plays a pivotal role in enhancing engagement and efficiency. Digital proxy voting solutions streamline the voting process, making it more accessible and transparent for shareholders.
These platforms allow investors to cast their votes electronically, providing real-time tracking and updates on the voting process. Integration with various brokerage systems improves accessibility and facilitates higher participation rates.
Additionally, advanced platforms offer comprehensive services that extend beyond just proxy voting. They include features such as digital meeting management, where companies can provide detailed agendas, relevant documents, and live updates.
These tools help ensure all participants have the necessary information to make informed decisions, mitigating the risks of misinterpretation and delays. For instance, if meeting agendas are communicated clearly and updated in real-time, shareholders are less likely to face issues related to incorrect or missing details.
Furthermore, these platforms often incorporate interactive elements that allow for immediate feedback and queries, further enhancing the clarity and effectiveness of communications. By leveraging such technology, companies can address potential challenges in proxy voting, such as ensuring all shareholders have access to accurate and timely information, thereby improving overall engagement and decision-making processes.
Predictive Analytics and Data-Driven Communication
Predictive analytics and data-driven communication can provide deeper insights into shareholder behaviour and preferences. These tools can help companies tailor their messages more effectively and anticipate shareholder needs. A study by Gartner found that companies using predictive analytics in their communications saw a 20% increase in investor engagement.
Address Your Shareholder Communication Challenges Today
Effective shareholder communication is vital for building and maintaining strong investor relations. By embracing best practices and leveraging digital tools, companies can enhance transparency, trust, and engagement with their shareholders.
For more insights on navigating the landscape of shareholder activism and addressing top governance issues, or to discuss ways to improve your shareholder communication strategies, contact us today.