SIFMA Chief Operating Officer, Joe Seidel, recently sat down with Sherry Moreland, President and Chief Operating Officer of Mediant, for a one-on-one conversation on the changing paradigm of investor communications. This is an excerpt from their conversation, one in a series of Executive Viewpoints at SIFMA’s 2021 Annual Meeting.

About Executive Viewpoints

Filmed for SIFMA’s 2021 Annual Meeting, Executive Viewpoints is a series of insightful conversations about trends and innovations shaping the future of our capital markets. The capital markets are in the midst of major transformation, arguably one of their most fundamental shifts yet. In this special series, SIFMA president and CEO Kenneth E. Bentsen, Jr. and chief operating officer Joseph Seidel interview a cross-section of experts to understand just some of the dynamics at play in the market’s next evolution.

To view more from the 2021 SIFMA Annual Meeting, please visit www.sifma.org/annual.

A Conversation with Sherry Moreland

Joe Seidel: We’re thrilled to have you. Starting from a pretty big picture, the main topic we are here to talk about today is changing the paradigm for investor communications. What exactly do you mean by that? Fundamentally how do you change that, and what are you thinking about?

Sherry Moreland: Investor Communications is the process of distributing all types of regulatory documents to investors. Issuers have a regulatory obligation to distribute things. The most notable type of investor communications is proxy material. Then they coordinate that with brokers and their agents to get this material to beneficial shareholders. I think it’s safe to say not much has changed about that process in years and years.

A paradigm shift is actually an important change that happens when the usual way of thinking about things or doing things is replaced by something new and different. I think what’s happening in our world today, first, is that the pandemic has created a paradigm shift across our society. Consumers and users are very accustomed today to digital experiences, and that’s different from two years ago. Two years ago, I think consumers used digital interactions to do some online shopping or to check their bank balances. The pandemic forced us to really become digital in almost every single aspect of our life. Today, nothing is done that isn’t touched by digital transactions or methods of communication.

The second thing that’s going on in our universe is we have a whole new set of investors coming into the market. I believe all of this is driving quite a few shifts or paradigm shifts. Let me just talk about a few. I think in investor communications, we are seeing a shift from being a passive audience to wanting to have more of a consumer or a user experience.

We’re moving from mono-media, mailing a package of information to omni-media. There are numerous ways to connect and distribute or deliver material.

Another change is when we mail that material or even if we email it, it’s still periodic at a point in time. I think all of these shifts are something that’s happening across society, and so of course it applies to the consumers or investors. What we’re seeing now is we all expect continuous, real-time information.

Another very important shift that we’re observing is mediated versus non-mediated. What I mean by that is when a corporate secretary or company sends out their proxy statement, they’re controlling the narrative. They control the message in that delivery of material. Today, with new investors, they’re pretty active and engaged. They’re on social media. They’re making their own assumptions about things. They’re discussing with each other what’s working and what’s not working. So suddenly, that script is not so controlled.

That leads me to the last shift that we’re seeing, which is that we’re moving from an impersonal type, just mailing a package or sending an email, to something very interactive in the marketplace. I think all of those shifts are finally creating some changes in investor communications.

Traditionally, our gains have been pretty marginal. About 25 years ago, we introduced Internet telephone voting as an option to paper balance. Ten or twelve years ago, the ability or the requirement to put documents online occurred. Recently because of the pandemic, we moved from in-person or physical annual meetings to virtual annual meetings.

It’s not that we haven’t changed; we’ve just been very slow. I think also we’ve looked at investor communications as just a compliance function. Everybody involved, whether it was the issuer, the regulatory filing, or the broker, we could all just check a box and say, “Yes, we did what we were supposed to do.”

I think today, we have an influx of investors that have very different opinions about how things should be done. The old ways just don’t work. They’re tech-savvy. They want to have a voice. They want to have choices. They want to be able to exert some control. They also discuss these items with their friends. They’re very engaged on social media platforms. I think most importantly, they want to hear from their investments, from issuers, but also from their brokers—what is the company about? What do they stand for?

This goes back to the shift I was talking about, mediated versus non-mediated. They’re very engaged, and they want to be involved. Over the past year, we’ve seen some examples of just how powerful this can be.

This past year, through the social media site, Reddit, investors had a lot to say and actually did impact the trading volume and prices of stocks like AMC and GameStop. Exxon had to change their board of directors because of investor activism.

I think all of these paradigm shifts are impacting investor communication. So it’s not, can we change it or will it change? I think the real question is, as an industry, how quickly can we adapt and make the changes? When I say industry, I’m really talking about all the players: brokers, advisors, issuers, regulatory bodies.

Joe Seidel: Building on that, how do you advise companies, how can companies’ issuers optimize their Investor Communication programs given these new digital communication channels?

Sherry Moreland: I think it’s very important that we meet investors where they are. Today, we have a very large and diverse pool of investors. We just simply can’t take a one-size-fits-all approach. Plenty of investors are going to be happy to get their proxy package in the mail or to go online and vote their proxy. Many are not going to open a mail package, and they’re certainly not even going to read an email. So how can we communicate with them? The good news is we have lots of options.

Today, we can utilize APIs to push notifications out through the brokers’ app. And we all know that we respond to those little red dots on apps calling our attention to take action. Maybe we vote through Alexa or we begin to send material out in text format. It’s really about meeting the investors where they are and letting them choose the communications channel that they prefer.

I think it’s also thinking about the content and the education that we provide our new investors out there. That enables issuers and brokers to think about education tools they use on their sites, utilize infographics, videos, chat features, and put things in place that allow communication. That really would bring me to my second point.

I think the world is changing. Technology is rapidly changing. We’ve got to be willing to innovate in new ways to engage participation.

Joe Seidel: What are some of the obstacles you see companies and issuers in the industry facing? We talk a lot about regulations here in Washington. Do regulations help or hinder this paradigm shift?

Sherry Moreland: That’s a great question. Of course, with anything new and different and shifting occurring, there are obstacles. For years, this industry has talked about, first, why are investors not engaged, and second, how do we get them engaged? These are questions asked by the regulators. They’re conversations we all have along themselves. We haven’t really had great answers for this. There’s still a large lack of participation in this space.

Things are happening that we can become more aligned with each other. Clearly, regulators have to pay the way. If we are looking at distribution methods or rules that have policies or requirements built into them that were applicable 30 years ago, that’s a problem. I think regulators can help pave the way to make sure the regs are keeping up with technology.

However, we have some really good end roads to that. For example, last year, SIFMA spearheaded a whitepaper that had very wide industry participation. And the whitepaper advocated to the SEC that electronic delivery become the default means of distribution. And I think the SEC is considering it.

The SEC revised Rule 33 to allow for electronic availability of these documents. We’re getting there. We just need to keep the pressure on to have regs keep up with the current times. I think the industry is doing a very good job of working together to explore these options.

There are numerous industry groups right now tackling things like end-to-end vote confirmation, best practices for virtual meetings. Keep in mind, two years ago, none of us were talking about virtual shareholder meetings.

Looking at proxy plumbing and fees, all of these task forces are tackling these tough issues. They’re looking for consensus. They are talking about new innovations. They’re making recommendations to the SEC. As long as we keep doing that and we’re engaging with each other, we’re going to come up with some great ideas and make sure we can overcome the obstacles.

I also think we have to be far more willing as an industry to test and explore new ideas. What is it that gets the attention? How can we engage shareholders? We have lots of tools to do that with, and mutuals are being delivered all the time. We have to be a little less timid about researching and exploring and pulling investors into the conversation about what they want.

Joe Seidel: Keeping the pressure on the regulators is certainly a priority here on e-delivery and other issues that we very much appreciate Mediant’s leadership on those topics.

What are your thoughts on how a paradigm shift would affect shareholder engagement and the relationship with shareholders?

Sherry Moreland: The way some of these shifts can impact us and probably are impacting us is that first, we need to understand that there’s a new generation of investors. Millennials and Gen-Zs are coming into the market. They want to be engaged. Watching some of these hot-topic events last year like the meme stocks and SPACs, it was amazing to see the chatter on Reddit and other social media platforms.

The good news is they were curious. The bad news is sometimes they were a little misinformed or they didn’t have the right tools to make good decisions. There was a very high-profile SPAC where nobody was voting. If you watched the chatter, what the investors believed is that if they didn’t vote, that still counted as a vote for management.

These are the types of things that I think we’ve got to think about in terms of how do we engage shareholders and educate them? The good news is, they are engaged and they’re curious. But there’s also a very loud message for us that we need to be doing more.

At Mediant, some of the ideas that we’ve been exploring are dashboards that help investors see at a glance all of the upcoming events and let them take action, whether that’s voting, making a corporate action election, or looking at a document. We’re looking at community forums where they can express their preferences for ESG or compensation voting or they can compare their voting to their peer group, which is something very important to them.

I think as an industry, we ought to be looking at things like discussing, proxy polling, client-directed vote instructions, and many more topics. This is going to become even more important in the very near future. We are all beginning to discuss, and there could be even regulatory decisions, about the practicality and the need for asset managers to push the voting responsibility down to the shareholders. This is for the underlying assets and things like mutual funds, 401K plans, and managed accounts.

If we’re going to make that significant of a shift in the industry, we have a lot of work to do to pull investors in the process and meet them where they are.

Joe Seidel: It sounds like we’re going to need to start having confetti or something when the votes get cast.

Sherry Moreland: Cartoons and infographics, you’re right. I think it’s kind of interesting that they’re all engaged in this. I think it’s a pretty exciting time to be involved in all of this. I said at the beginning that we had sort of stayed the same for a long time. All of these forces are conspiring to force us into change and we have a huge opportunity now to build platforms and channels that finally bring these investors into the fold.

Joe Seidel: Finally, how does this impact the broker? Why should our broker or our broker-dealers care about this?

Sherry Moreland: I think for all the reasons that we just talked about. First, we see that investors are curious and they want to engage. But often they don’t have the right information. What are we doing to educate them and help them make good decisions? I talked about the SPAC event where the shareholders believed that not doing anything was counted as a vote. Today there’s a tremendous amount of concern over securities lending practices. Investors are saying, “Well maybe we need to enroll in a direct purchase plan or become registered shareholders.” Those may be great decisions, but what we should be looking at is what is the underlying confusion about these practices? What are their rights as a shareholder? When they get a document, the Mutual Funds Semi-Annual Report, why are these things important to them?

I think the brokers themselves need to get engaged in all of these activities because they want to keep their clients and they need to meet the demands of their clients. It’s not just an issuer program. As I said earlier, we need to all be fully aligned in getting shareholders there.

Watch the Full Conversation

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Sherry Moreland is President and Chief Operating Officer of Mediant. Joining the company in 2007 as Director of Issuer Services, she brings more than 30 years of industry experience in broker/dealer operations, mutual fund processing, shareholder services operations, and retirement plan administration, among other functions to the role.

 

Joseph Seidel is Chief Operating Officer of SIFMA. He manages the day-to-day operations of the Association, including core legal, regulatory, business practices, public policy, and communications activities.