- A new generations of retail investors are set to change how shares are held and voted on, as well as pushing for more environmental responsibility
- According to new research, retail investors — dubbed wireless investors — are driving social movement with disruptive effects on corporate governance
- The research says in the past, 30 per cent of retail investors exercised their voting rights, but that wireless investors are more inclined to vote
- Researchers say wireless investors might take authority away from Wall Street and places it in the hands of regular people
- Dr Gramitto Ricci and Professor Sautter believe environmental, social and corporate governance voting will likely become a new social norm
New generations of retail investors are igniting a social movement that will alter how shares are held and voted on, as well as how they push corporate environmental responsibility.
According to new research from Monash University's Dr Sergio Alberto Gramitto Ricci and Louisiana State University's Professor Christina Sautter, groups of Millennial and Generation Z (GenZ) retail investors, dubbed wireless investors, are driving a social movement with disruptive effects on corporate governance.
By introducing gaming-like dynamics to their trading, wireless investors have been taking aim at Wall Street, hedge funds, and the global financial hierarchy.
They utilise social media, applications, and online forums to coordinate their activities in a gaming-like way and achieve unparalleled outcomes, such as the Reddit subreddits r/WallStreetBets, r/amcstock and r/ASX_Bets.
Such efforts may have contributed to the 3000 per cent increase in US GameStop stock in January 2021.
Hedge funds and other short-sellers lost about $20 billion in GameStop during that month, marking a turning point for wireless investors.
AMC Entertainment Holdings, a US movie theatre company, has seen its stock rise more than 2500 per cent this year.
It recently increased by more than 15 per cent in a single day as a result of a social media campaign known as #AMCDay, which became the third most popular Twitter trend globally on Monday, June 14.
Although GameStop and AMC retail investors have been portrayed as short-term investors in the media, Professor Sautter of Louisiana State University Law Center said that while monitoring their communications, she has seen "strong indications that these retail investors intend to hold their shares for longer terms and that they are taking an interest in the future business of these companies."
The essay ‘Corporate Governance Gaming,' which will be published in the Nevada Law Journal, discusses how social media has reduced coordination costs for retail investors, allowing them to organise, plot, and vote on governance issues in ways never seen before.
Wireless investors, according to Dr Gramitto Ricci, Lecturer in the Monash Business School's Department of Business Law and Taxation, may now push the button to alter company behaviour, perhaps lowering short-term thinking and raising corporate focus on ESG goals.
The research looks at how wireless investors prefer to invest directly rather than through brokers, and how they use applications like Robinhood and Webull to keep and trade their stocks.
"Unlike in the past when only approximately 30 per cent of retail investors on average have exercised their voting rights, these retail investors appear more inclined to vote," Professor Sautter said.
"For example, with AMC, retail shareholders are discussing on social media and in online forums how they intend to vote their shares at AMC’s upcoming July shareholders’ meeting, and they are encouraging other retail shareholders to vote their shares as well."
Dr. Gramitto Ricci went on to say that by being involved in corporate governance, wireless investors are more likely to attract other investors who will be impressed by their accomplishments.
He said wireless investors may be at the forefront of a movement that takes investment and corporate governance authority away from Wall Street and places it in the hands of regular people.
"More and more people will likely withdraw their money from institutional investors and buy corporate shares directly," Dr Gramitto Ricci said. "This significantly increases the probability that the voice of the ordinary person, expressed via voting, plays a relevant role in corporate governance.
"If the movement gains traction, investors who initially perceived themselves as powerless with respect to ESG goals would finally realise that their votes count and join the effort."
Dr Gramitto Ricci further said this would snowball into a collective power to steer corporations toward ESG goals.
"Wireless investors and other early adopters will be followed by other retail investors and possibly by institutional investors as well," he said.
Dr Gramitto Ricci and Professor Sautter believe ESG voting will likely become a new social norm.
"With a plot twist, the paradigm shift that makes corporations serve the interests of a broader range of stakeholders would come at the hands of shareholders," Dr Gramitto Ricci concluded.