Joan MacLeod Heminway

The rise and dominance of institutional investors in public company stockholder profiles has increasingly shifted significant scholarly and popular attention toward those institutions and away from individual investors. Market factors periodically refocus attention on retail investors, however. One of those factors in recent years has been the meme stock phenomenon, which attracted widespread public attention in early 2021 when the common stock of GameStop Corp. and AMC Entertainment Holdings Inc. achieved record high public market prices. The continued salience of activist retail investors recently has been reinforced by a meme stock resurgence that has again put GameStop and AMC in the news.

The ongoing work of Professors Sergio Alberto Gramitto Ricci and Christina Sautter is helping to educate many audiences about legally significant demographics that shed light on current retail investors and their behaviors. Specifically, their joint work addresses ways in which investors’ behaviors have responded to the nearly universal availability of wireless access through a variety of ubiquitous devices (including especially cell phones). This broad-based wireless access has created a new cadre of “wireless investors” who collect and share investment information through social media and Internet applications and buy and sell securities through online trading platforms.

In Wireless Investors & Apathy Obsolescence, Gramitto Ricci and Sautter focus on the potential for wireless investors to overcome investor apathy. They describe that apathy and explain its genesis. They then illustrate why the advent of wireless investors may more optimally empower retail shareholders.

Specifically, Gramitto Ricci and Sautter assert that retail investors have been apathetically ceding their voting power to institutional investors and other large shareholders. They explain that retail Investor voting power, viewed through the eyes of an individual investor, provides too little potential benefit. Moreover, although individual retail investors could aggregate their voting power, the cost of doing that has been perceived to be too great. This perceived lack of power has encouraged investor disengagement and indifference in the form of free riding on the voting of larger shareholders.

Analogizing this pattern of investor thinking to the individualistic decision making that operates in game theory’s prisoner’s dilemma, Gramitto Ricci and Sautter argue that efficient collaboration among retail investors—looking at shareholder power as a cooperative venture—may allow retail investors to overcome barriers to collective action and collaborate. That efficiency is possible, they hypothesize, if wireless investors harness the available tools and properly direct their efforts toward productive collaboration. They offer theoretical and practical support for their ideas.

The article’s insights (and embedded take-aways from Gramitto Ricci and Sautter’s earlier work) are relevant to several large-scale business law topics. Two are most salient for me: shareholder primacy and the reasonable investor standard. Each area of inquiry and debate connects with the composition or behaviors of corporate shareholders.

Whether addressing shareholder primacy as a matter of the locus of corporate governance power as among the corporation’s internal constituents (through, e.g., voting or derivative litigation) or in terms of the objective of board decision making, shareholder apathy and coordination may be important to analyses and judgments. In shareholder primacy debates, assumptions often are made about the nature and interests of corporate shareholders. Changes in the identity and engagement of shareholders may alter those assumptions.

Similarly, the reasonable investor standard (which is incorporated in materiality definitions used in, among other things, federal securities regulation) is rooted in an understanding of investor (including shareholder) identity and conduct. The standard is intended to be objective. But investment markets and investors evolve over time. Thus, objective assessments of them also must evolve. Wireless Investors & Apathy Obsolescence, taken alone or together with Gramitto Ricci and Sautter’s related work, provides evidence of changes in equity investment markets and shareholder behavior patterns that may be significant to applications of the reasonable investor standard.

There is much to value in Gramitto Ricci and Sautter’s Wireless Investors & Apathy Obsolescence. Their explorations at the intersection of wireless investing and shareholder voting apathy provide readers with new information that is immediately useful to corporate governance and corporate finance doctrine and practice. In their own words: “[t]he substantial change of context in which retail investors operate is set to determine a new norm in investing and corporate governance.” The continued and increasing presence of wireless retail investors in securities trading and shareholder voting underscores the importance of this work.