Fennel Wants to Give Retail Investors a Voice in Shareholder Meetings
Sure the latest initiatives from the Teslas, Apples and Googles of the industry tend to dominate the tech news space — and with good reason. Still, the tech titans aren’t the only ones bringing innovation to the sector.
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Retail investors are often dismissed by Wall Street analysts, but they showed their collective power last winter when they sent GameStop’s stock soaring, bringing down major hedge funds that had bet against the video game retailer.
While the GameStop saga showed the power of retail investors, it also highlighted the forces working against them.
Daniel Naim, a retail investor himself, decided to launch Fennel, an investing app that makes it easier for retail investors to cast votes in corporate elections and make their voices heard. The app is a product of Fennel Markets and securities are offered through Fennel Financial, a subsidiary of Fennel Markets.
Naim, a first-time founder raised in Beirut, Lebanon, started Fennel while he was in a physics Ph.D. program at the University of California, Davis. He always had an interest in economics but had a lightbulb moment while taking an econophysics class that taught him how to apply physics models to the stock market.
At the same time, Naim was encouraged by the impact that shareholder-driven Tesla had in leading electric vehicle adoption. He was also inspired by investment firm Engine No. 1, which despite only owning a 0.02 percent stake in ExxonMobil, won over major investors like BlackRock and Vanguard in a campaign to elect new board members and reduce the company’s carbon footprint.
For capitalism to work, Naim said, it needs to be truly democratic by allowing shareholders to have a voice.
“We all own the stock market. If we, as a society, choose to put our money [toward a specific cause], it’s a signal that’s saying we want to advance this [cause] in society,” Naim said.
Fennel aims to further this stance by educating retail investors about a company’s environmental, social and governance initiatives and giving them the power to vote in shareholder meetings that often guide a business’ ESG plans.
Environmental, Social and Governance Empowerment
Fennel’s app lets retail investors know each company’s ESG data score, which is broken down by more than 200 metrics such as renewable energy, labor issues, workforce diversity and executive compensation.
Armed with this ESG data, an investor who is concerned about carbon emissions can either use their investing dollar to support companies with low carbon emissions. Alternatively, they can invest in companies with high carbon emissions and use their shareholder votes to push the company to adopt more eco-friendly practices.
Corporate elections tackle more than just board appointments. Shareholders have weighed in on whether Jack in the Box should stop using plastic packaging, whether CVS employees should get paid sick leave and whether Chevron should set targets to reduce its greenhouse gas emissions.
Many retail investors, however, are not able to leverage their vote as a shareholder because most brokerage firms lend out their users’ securities, and their shareholder voting privileges follow that share, Naim said.
“Let’s say you get the 50-page document in the mail with all of the ballot items, and you fill it out,” he said. “Your vote could not count at the end of the day.”
Fennel strives to be more transparent than other brokerage firms by not lending out customers’ securities. It also does not accept payment-for-order flow, a practice in which brokerage firms hand off stock trade orders to third-party market makers which in turn pay brokers for the volume of business they bring in.
Knowledge Is Power
Fennel also facilitates shareholder education. Through its natural language processing algorithm, the app aggregates news articles about companies, including ones that pertain to specific ESG topics.
Fennel is trying to encourage retail investors to vote by providing them with information about what votes are being held and whether they pass. The app provides information about upcoming votes at all companies — not just stocks held by the user — so that users have a chance to invest in companies for the sake of voting in a specific election.
“My vision is that the process of voting with your dollar and communicating with your dollar can become much, much cleaner,” Naim said.
Companies have an interest in hearing from retail investors, Naim said, whether it’s through shareholder votes or other communication channels. Many institutional investors are focused solely on quarterly returns, which can cause publicly-traded companies to make short-term decisions that do not align with long-term goals. On the other hand, a company may be willing to stay the course if it knows it has a solid base of retail investors who believe in a company’s strategy and may be willing to overlook a poor quarter.
“The company can feel comfortable that these retail investors are not going to sell their stock and leave, and they’re going to gain the loyalty and support of them,” Naim said.
In the future, Fennel plans to make it easier for retail investors to vote in shareholder elections by adding features like automated voting, a tool used by institutional investors that automatically casts votes aligning with a shareholder’s stated preferences on sustainability, labor and other corporate governance issues.
Fennel has raised $5 million to date. The company has a remote workforce, but most of its 17 employees live in New York. The app, which is expected to be released on both app stores this week, has 1,000 people on the waitlist without the exposure of any marketing campaigns.
Fennel is a public benefit corporation, and it is in the process of applying for a B Corporation certification, Naim said.