Getting Out the Retail Vote: Targeting Reddit and New Social Tools in Proxy Solicitations

Steve Lipin is founder and CEO and Keilley Banks is an analyst at Gladstone Place Partners. This post is based on their Gladstone Place memorandum.

The success of the get-out-the-vote campaigns for Nikola Corporation and Lucid Group shows that shareholder solicitation is not the same in the age of Robinhood and Reddit. Companies are using new communications strategies and channels to find retail shareholders and obtain their critical votes.

When faced with opposition from its founder and largest shareholder for an important proposal on the 2022 proxy, EV truck maker Nikola added an intense social media strategy in the proxy solicitation toolkit to rally enough shareholders to cast their “FOR” vote—66% of votes cast, 50.3% of shares outstanding and a quorum of 75% of the shares outstanding at the company’s twice delayed August 2nd meeting.

Trends: The use of new channels and tools reflects the changing nature of the investor community, many of whom are investing through Robinhood and other new platforms and swapping commentary on Reddit, StockTwits, YouTube, Twitter and others. Admittedly, both Nikola and Lucid are EV stocks that have captured the imagination of retail investors, and both were digital natives.

In the past five years, retail stock ownership, particularly among millennials and Gen Z, has skyrocketed, with a generation of investors who didn’t grow up reading The Wall Street Journal. A 2021 survey by Charles Schwab found that 15% of all U.S. stock market investors said they first began investing in 2020. Instead of the Journal, new investors look to @mrsdowjones, a self-described “financial pop star” and FinTok, which is Financial TikTok, a subcommunity of TikTok.

Companies are realizing they need to meet their owners where they congregate in addition to the traditional channels of mailings and call centers. Gone are the days of full-page (and very expensive) ads in The Journal and The New York Times. Now, CEOs are doing stand-up videos posted on YouTube, Reddit and LinkedIn compelling shareholders to vote.

We saw this last year in the Churchill IV-Lucid vote to approve Churchill’s investment in Lucid, when Churchill and Lucid tapped into the Reddit dialogue, created fresh content, hosted an IR call for retail shareholders and engaged with third party influencers on outlets such as YouTube. Many shareholders didn’t know they had to vote to approve the merger, and didn’t know how. Lucid CEO Peter Rawlinson gave out the proxy solicitor’s phone number on a YouTube video.

Key Takeaways:

The world has changed, and issuers need to adapt to the changing face of capital markets. There are more novice investors in the marketplace; shareholders who would rather crowd-source answers on social media than return the call of a proxy solicitor.

While these campaigns may actually be few and far between, eBay’s use of Twitter in 2015 to counter Carl Icahn was considered novel at the time and is now a tried-and-true part of any defense campaign. Be thinking ahead by

  • Analyze the shareholder base to best assess where the retail shares are held geographically—through Robinhood, online brokers or other ways—then do a deeper dive into the retail breakdown
  • IR and Communications scenario-plan what original content, whether CEO videos or shareholder letters, is required, and understand time required to launch ads and other social channels
  • With proxy solicitor, get ahead of the foreign ownership challenge of voting S. shares
  • Get counsel comfortable that nothing is inconsistent with the SEC’s proxy rules, and use creative tools that you’ve never used before

Background: Phoenix, AZ-based Nikola Corp. (NKLA) is an EV truck maker that went public via a Special Purpose Acquisition Company (SPAC) sponsored by VectoIQ. Nikola has a significant number of retail shareholders who are passionate about the sector and shares are widely held.

Nikola’s annual meeting was originally set for June 1, 2022. Nikola founder and ex-chairman Trevor Milton opposed the proposal on the company’s proxy that allowed for the company to increase the number of authorized shares from 600 million to 800 million (by amending the certificates of incorporation). Mr. Milton, who faces federal fraud charges, controls about 20% of the company’s outstanding common shares.

The Campaign: To counter the founder’s no vote on proposal #2, Nikola adjourned the meeting and engaged in a multifaceted, multichannel get-out-the-vote campaign. It used all the traditional channels, including call centers, email reminders and seven letters mailed to the homes of shareholders. While most institutions had voted, the game was all about increasing the vote count from retail.

That meant targeting the major online brokers including Robinhood, which has improved its communications to holders and its voting mechanism since the Churchill IV Lucid vote. Ad campaigns targeted shareholders through traditional financial websites and news outlets, but additional tools and tactics were required.

Some of the novel components of the campaign:

  • Nikola produced five videos posted on LinkedIn, YouTube and Twitter, featuring both CEO Mark Russell and Chairman Steven Girsky
  • The Chairman’s video was a pre-recorded investor update that was then amplified on social media
  • Nikola ran proxy solicitation ads on Reddit, which may be the first-time proxy solicitation ads ran on Reddit, and engaged directly with shareholders on the social channel
  • Ads on Twitter ran for about two weeks and generated significant uptake

Engaging With Shareholders Directly on Social Channels

Reddit is a social news aggregator that exploded alongside the growth of meme stocks whose owners populate “subreddits” based on one topic. Retail investors gather in online subreddit communities where they discuss company news, make stock predictions and share relevant industry insights.

As an example, on Reddit, there was a subreddit with approximately 40,000 Nikola followers. Proactively setting up an account allows issuers to both share content as an official issuer spokesperson, as well as create advertisements. In many cases, Reddit users will begin to repost language that the company has previously posted on social, along with sharing press releases, media coverage and other company materials.

By engaging with shareholders on social channels such as Twitter and Reddit, Nikola was able to counter misinformation and provide instruction to shareholders to facilitate the voting. International voters, as an example, had a much more difficult time voting and required more real time handholding.

From a solicitation perspective, the company was reiterating information that was already public and providing information about how holders can find their control numbers. All materials, ads and other content were filed simultaneously with the SEC as proxy solicitation materials.

Proxy Ads on Reddit

Nikola focused the advertising within the Nikola-dedicated subreddit, with significant and immediate positive response rates. Reddit advertising has shown to be an easy and effective tactic to reach a targeted audience based on individual subreddit communities. Because Reddit is an international platform, companies can target ads internationally and collect data by country, which Nikola did in Germany and South Korea after international voters voiced concerns via the platform.

Enlisting Third Parties:

In the Churchill IV Lucid Air example, the issue was not about shareholder opposition, it was shareholder apathy and indifference. As part of the get-out-the-vote campaign, Churchill and Lucid targeted influential EV and stock market commentators on social channels such as YouTube. One “influencer,” Alex Cutler, had initially come out opposed to the provision of the vote that allowed for additional capital to be issued. When Lucid and other followers on YouTube and Reddit called him out as spreading misinformation, he then changed his tune, apologized to his followers, and backed the proposals.

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