Citigroup spins off proxy-voting startup Proxymity
Citigroup has officially spun off the shareholder services startup Proxymity into a stand-alone company.
Eight companies — Bank of New York Mellon, JPMorgan Chase, State Street, Deutsche Bank, HSBC, Citi, Clearstream and Computershare — have invested $20.5 million in London-based Proxymity and formed a consortium of future users.
Proxymity’s founders developed a shareholder disclosure platform that automates stockholder identification requests and lets investors vote virtually on company plans from afar, a service that has grown more important during the coronavirus pandemic.
The company sprung from a proposal from two employees in the bank’s equities and securities services group.
Co-founders Dean Little (now CEO) and Jonathan Smalley (now chief operating officer) "walked into my office in 2017 and said, 'We have an idea,' ” recalled Chris Cox, the head of prime, futures and securities services in Europe, the Middle East and Africa at Citi.
That idea was to create a digital proxy-voting capability.
“They described the current process as inefficient, anachronistic and fragmented,” Cox said. “I'm an engineer by background and like a simplification of processes and the application of technology to things that are rule-based.”
Cox took the idea to a couple of partners who did not have the opportunity to pursue it. He then took it to the bank’s D10X initiative, Citi's internal Shark Tank. They went through three rounds a venture-capital-style work of pitching their idea, validating it and building a basic product.
Citi funded the build of the original product, which launched in the United Kingdom in early 2018. The product is now live in several countries.
Proxymity is also building the capability to identify shareholders and map them to the companies in which they own shares and to specific votes.
The consortium backing represents a little more than half of the global custodial market, Cox estimated.
Citi is actively using the technology today.
A company enters its motions through a stock transfer company partner like Computershares. Investors who log in to Computershares’ portal can see those motions immediately. This is an alternative to an electronic message that is often translated into a fax or hard copy sent to an investor.
“That process takes an awful lot longer,” Cox said. “Through Proxymity, the investors get it almost immediately. And that obviously gives investors and companies more time to see what's going on. If they want to, they can speak to their investors, speak to their vote advisers, and contact companies to discuss motions in more detail. So in terms of corporate governance, it has significant benefit.”
The number of virtual meetings has doubled this year because of the pandemic, Cox estimates.
“My guess is that that number will increase as the market gets more familiar with the technology,” he said. “It's not just holding the meeting virtually — it's also about being able to vote electronically with more transparency and more auditability that's important. So we would expect the pandemic to lead to more companies exploring technologies like this.”
According to Smalley, Proxymity’s technology collects information from custodians about their investors' accounts and shareholder interests. Then its algorithms comb that information for links and the matches between the same data coming from other custodians. Doing that quickly and at scale lets the platform build up a map and understand the ownership chain of any one investor.
“The advantage of doing that upfront and in advance of receiving any information is that as soon as we get the information about the meeting from the issuer, we know immediately who needs to be notified of it,” Smalley said. Proxymity knows the number of shares each custodian is eligible to vote on and can track that in real time.
“We can track any problems so we can see if there's a break and there might be a problem with that vote,” he said.
Proxymity can collect and tabulate the votes on each motion and tell the investor with certainty that that vote has been delivered directly to the issuer.
“That means that after the meeting we can deliver post-meeting vote confirmation, which is something investors have craved for many, many years,” Smalley said.