FEATURE

Point72-Backed Start-Up to Rock the Proxy Vote

By Mary Childs   ●   April 10, 2018 8:35 a.m. ET

A new start-up has raised funds from Steve Cohen’s Point72 Ventures as it seeks to upend the proxy-voting process.

Technology platform SAY has raised $8 million in seed financing, from investors including Point72 Ventures, according to a statement today. SAY aims to “empower” shareholders by making proxy voting more accessible.

The problem is access and branding, according to SAY’s co-founder and CEO, Jeffrey Cruttenden. He had earlier co-founded Acorns, which funnels users’ spare change into exchange-traded funds.

“`Proxy’ is one of the most poorly branded words in history,” he told Barron’s last week. Sitting in SAY’s Soho office, he described the missed opportunity: based on what he sees through Acorns, which has squirreled away over $800 million for customers, “the new investor is stoked to learn.” But words like “proxy” and its cumbersome process keep them from getting involved, leaving them disenfranchised and mistrustful.

“It can’t be worse than it is now,” Cruttenden says, sweeping his hands across the black conference table as if to wipe away the ugly current process. Owners aren’t exercising their say in a company’s choices, he says, and “companies and activists are frustrated they can’t connect with beneficial owners.”

The current process does look antiquated. When corporate matters need a vote, stakeholders used to convene at shareholder meetings in person, with formal tickets and “a lot of ceremony and ritual around it,” but that has been displaced by proxy voting, remotely casting a ballot. That means stakeholders receive a big packet of information in the mail, which few actually read, and send in their response.

But fewer than 30% of retail shareholders actually vote, according to data collected by Broadridge Financial Solutions, which administers the bulk of proxy voting.

That leaves power in the hands of institutional investors. For example, mega-money manager BlackRock Inc. oversees $6.3 trillion, much of it in passive index funds whose holders are probably paying less close attention and may not even know they are holders. So BlackRock centralizes proxy voting in its Investment Stewardship Team, led by Michelle Edkins. She and a team of about 30 vote on over 130,000 proposals.

Both activists and company management see the platform as a tool to help gather support for their causes, which are often at odds. One of SAY’s investors is a prominent activist, who through a spokesman asked to remain anonymous.

SAY will help reach those paying less attention, or those deterred by the opaque language in the stack of papers they get in the mail.

Starting with those investors shepherded into the market by their spare change: SAY is partnering with Acorns to “empower” those investors, giving them access to the ownership rights they already have.

But Vanguard and BlackRock do not offer pass-through voting for ETF holders and vote the shares themselves, except for in some cases with institutional investors and separately managed accounts. So SAY’s utility through ETFs is limited: the platform will enable ETF shareholders to vote on their fund’s trust board, and to offer suggestions that will ostensibly then be taken to and considered by the ETF’s investment manager.

For holders of individual stocks, users with accounts at participating brokers will be able to link to their holdings, get verified as an owner, and submit their proxy votes on the platform. So far, two brokers are already connected, with five more to come by the fall. (If a user’s broker is not connected to the platform, they can still verify ownership and connect with fellow owners.)

Cruttenden “planted the idea” for SAY when he met Acorns CEO Noah Kerner.

“Through a partnership with SAY, customers of Acorns will gain a deeper understanding of and influence over what they own,” Kerner said in the press release.

SAY will allow users to submit suggestions for a vote, but they must reach a quorum for viability, just as upvoted posts rise to the top of Reddit. Cruttenden doesn’t foresee problems like those now manifesting in social platforms like Twitter and Facebook that were supposed to foster democratic participation and connection but that now seem to amplify and weaponize the worst of human nature -- or at least SAY isn’t ready to worry about unexpected externalities yet. Plus, its scope is narrower, and users’ verified ownership should confer more accountability, helping to prevent Boaty McBoatFace outcomes.

Like those social media platforms, SAY is still tinkering with what context and information to provide users, so that their vote is an educated one.

Similarly, SAY’s emphasis on ownership and empowerment has a populist strain.

SAY putting decisions in the hands of individual investors unleashes a “democratic” power currently stifled by the existing cumbersome process, Cruttenden says. SAY helps turn them into active owners, participants in this great capitalist experiment, giving them power that had been pooling at large investing companies.

“So many more people are owners than they realize,” he says. “People just want standing. People have been asking for a microphone, and never expect anyone to give it to them.”

As the app tells users: “You now have SAY.”