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10 reasons why retail investors are important to every public company

The markets have been dominated by institutional investors for years. More influence. More investments. Fewer "investors" to deal with. What's not to like?

Generally, it's smaller companies that have embraced retail investors so far, but that's changing. A mix of new regulation, reputational management and broader topics like ESG and diversity are driving more interactions, and crucially, more opportunities for companies who engage well with retail investors.

Driven largely by Covid and it's lockdowns, communications that were starting to go online are now nearly all online video content instead of conference line numbers or in-person meetings. And with that change, a wealth of options and opportunities have appeared, all promising to help companies get their communications out effectively.

So aside from the fact that communications are now generally more available than just a few years ago, why should IR teams and business leaders concern themselves with the large number of smaller retail investors in the market?

Retail investors bring diversity, stability, capital, and transparency to the shareholder base. Companies that engage effectively will improve corporate governance, brand reputation, and overall resilience in the market. What's not to like about that?

Here's the list:

1. Diversification of Shareholder Base

Retail investors can help diversify a company's shareholder base. Unlike institutional investors who often have similar investment strategies and may be more likely to buy and sell shares in large quantities, retail investors tend to have a broader range of investment objectives. This diversity can help stabilize the company's share price and reduce volatility.

2. Long-Term Investors

Many retail investors are long-term oriented. They may hold onto their shares for years or even decades, which can provide stability to a company's ownership structure. Institutional investors, in contrast, might have shorter investment horizons and can contribute to short-term volatility, especially when they are required to change large shareholding positions.

3. Increased Liquidity

Retail investors can increase the liquidity of a company's stock. A broader base of retail shareholders means there are more potential buyers and sellers in the market, making it easier for investors to trade, which can enhance the stock's liquidity and reduce the spread.

4. Brand Advocacy

Retail investors can become strong brand advocates. They are more likely to spread positive word-of-mouth and engage with the company on social media, contributing to positive public relations and marketing efforts.

5. Reduced Reliance on Institutional Investors

Reducing dependence on institutional investors can make a company less vulnerable to the demands and pressures that institutional investors may exert. This can help the company maintain its strategic vision and long-term goals without undue short-term pressures.

6. Access to Capital

Retail investors can provide a source of capital through secondary offerings, like rights issues or share placements, and regulations are shifting to ensure they are included in such offers. If a company needs to raise additional funds, having a large and engaged retail investor base can make it easier to secure capital.

7. Democratic Governance

Encouraging retail investor participation aligns with the principles of corporate governance and democratic decision-making. It demonstrates that the company values input from all of its shareholders, not just the largest institutional ones, which can improve the company's overall corporate governance reputation.

8. Transparency and Accountability

Retail investors can act as watchdogs, holding the company's management accountable for their actions. Their presence can encourage transparency in financial reporting and corporate governance.

9. Market Stability

A broad retail investor base can help stabilize the stock market during times of turbulence. Retail investors often have a buy-and-hold approach, which can counterbalance the trading-oriented behavior of institutional investors during market downturns.

10. Regulatory Considerations

Regulations are shifting towards retail inclusion. Companies that can show they are communicating effectively with retail investors will be a step ahead. Whether it's including retail investors in fundraising or ensuring documentation is suitable for a retail investor audience, companies are finding more and more requirements are being developed by the regulatory bodies.


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