IROs say retail investors too troublesome

Dec 13, 2007

Yet they are potential allies at proxy voting time

NEW YORK -- Most companies aren't terribly interested in attracting retail investors, according to new research from Thomson Financial. Some IROs acknowledge that individual investors can add stability and diversity to the shareholder base, but they're not sure if they're worth the effort.

Only 18 percent of the 102 companies surveyed said they were actively targeting new retail investors, says the report entitled 'Targeting retail investors.' Twenty-five percent said they had no plans to target the retail base at any time.

Anecdotal comments from IROs point up the frustrations of dealing with mom-and-pop investors: they panic with price movements, bombard IR departments with questions and increase the risk of securities class actions.

But Thomson's director of strategic research Arzu Cevik says companies shouldn't overlook retail shareholders since they often invest for the long term and can be key allies on proxy issues.

She notes their potential as a counter to hedge funds, which are increasingly using 'empty voting' to borrow and vote the shares of retail investors held by brokerage firms or pension funds. 'It might be prudent to reach out to one's retail base -- doing so may help provide some protection against such activists and against mutual funds such as Fidelity that are increasingly opposing management proposals.'

Cevik finds that the main strategy IROs use to target retail investors is improving their IR websites. Companies are also opening conference calls to all investors, doing presentations to the retail brokerage teams at sell-side firms, offering dividends and allowing investors to purchase stock directly through the company website.

By Anna Snider