Influence of the growing ETF industry on active investor relations work58 Influence of the ETF industry on IR work In 2019 between 15 and 40 of the shares of listed companies in the US were held passively Yin and Barientos 2019 and those percentages are expected to further increase If a higher por tion of the company is held passively this results in a higher portion of voting rights that are not exercised by the actual shareholder but rather by ETF providers or in most cases by a proxy advisor who is acting on behalf of the ETF pro vider Therefore the question arises whether the election result at the AGM reflects to 100 the opinion of the shareholders This concern arises because proxy advisors represent the majority and not the minority of opinions An increase in the passively held share of companies would thus further strengthen the power position of ETF pro viders and proxy advisors It is questionable how great the interest of ETF providers is in protect ing shareholder rights in the interest of investors vis à vis the companies since passive investors lack the goal of exerting positive influence on the company in order to actively beat the return of the underlying benchmark This is in contradiction to the increasingly important principle of active ownership engagement Meyer and Urbahn 2021 p 3 One possible approach to stop this aggregation of power would be the following ETF providers make it technically possible that the actual owners can exercise their voting rights However this raises the question of whether a private shareholder e g an 85 year old person wants to vote about the renumeration of the board members at the AGM The aspect that many private shareholders do not even want to exercise their voting rights but are happy if this is done for them by third par ties must be considered The solution could be that ETF providers give shareholders the possibil ity but not the obligation to exercise their voting rights In cases where those rights are not wished to be exercised proxy advisors still vote for them Overall this disintermediation that the interme diary slowly steps back and gives the control back to the small investors could reduce the absolute power of ETF providers and proxy advisors Expert interview 3 2021 see annex 3 4 4 2 Recommendations on how IR can prepare itself However regulations for more transparency and to curb the power of passive investments are measures that primarily affect the entire market and cannot be influenced by IR The question is what IR can do to prepare itself and the company for the impact of passive investments First of all it must be said that the best approach or one ulti mate solution method to be perfectly prepared does not exist There are too many different fac tors such as the size of a company that make it impossible to lump all IR departments together and give instructions for one right course of action Nonetheless depending on the individual situation of the company and the IR departments there are various ways in which IR can prepare itself for such an upcoming impact The following recommendations should be seen as an inspira tion rather than an ultimate guidebook on how to be best prepared Overview of the percentage held by passive investors A first approach is for the IR department to get an overview of the percentage of the part that is pas sively held Currently only half of the IR experts surveyed know how large this proportion is With registered shares a shareholder identification makes it possible to get the information about the percentage that is passively held on the com pany ARUG II helped making these shareholder IDs simpler and less expensive for companies Via such a shareholder identification an increase in the passive shares was noticed by most of the companies Expert interview 1 2021 see annex 3 This proportion will continue to increase due to the general development of the passive market already mentioned above Depending on the out come a decision can be made whether a change in certain actions is necessary IR should critically

Vorschau DIRK-Forschungsreihe Band 28: Influence of the growing ETF industry on active investor relations work Seite 58
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