“Do the right thing. It will gratify some people and astonish the rest. ”
Voting your shares
You probably receive periodic requests to vote your shares in the companies in which you own stock. And if you’re like most individual shareholders, you won’t exercise this right.
Retail investors hold one-third of publicly traded shares in U.S. companies. They vote those shares only about 30 percent of the time, says Chuck Callan, a senior vice president at Broadridge, which oversees proxy votes for companies. And when they do vote, they typically follow management’s suggestions, endorsing its handpicked slate of directors and backing the company’s view regarding any corporate-governance proposals on the ballot.
That may be partly because individual shareholders who don’t agree with management’s initiatives will almost always sell the stock rather than hang around to vote, Callan says. It may also be because many stockholders don’t know much about the candidates and issues and don’t take the time to find out more.
High-net-worth clients tend to hold shares within exchange-traded funds, mutual funds, or advisor-managed accounts. They rely on the managers of those funds and accounts to vote on their behalf and rarely vote their shares on their own, says Adam Katz, a private wealth advisor with Merrill Lynch’s Bodner Sax Group in New York. One exception: when clients own stock through a family foundation, they may want to vote their proxies if the issues on the ballot relate to the philanthropic purpose of the foundation or a cause about which they care deeply, Katz notes.
You may think you hold too small a stake in a company for your votes to matter. But corporate-governance experts say minority shareholders can have an impact. Companies do care what consumers who buy their goods think of their reputation, says Elise Walton, a governance consultant in New York City. That’s why retail shareholders’ votes matter, to some extent: because those shareholders could also be the company’s customers.
“I do think the watchdog aspect keeps management attentive to what’s being said about them in the marketplace,” Walton comments.
Also, boards look at the aggregate voting tally to see what issues matter to the stockholders, says Eleanor Bloxham, CEO of the Value Alliance and Corporate Governance Alliance, a consulting firm in Columbus, Ohio. Institutional shareholders voting the way you do will be able to aggregate your vote when they advocate for their point of view with management. “If you don’t vote, the company will tend to say, ‘We didn’t get that kind of message from the shareholders,’” Bloxham remarks.
Your proxy vote offers a way to take a stand on issues important to the company or to society, she adds. If you follow news about companies whose shares you hold, you’ll know what problems they’re facing. Questions that appear on the proxy tend to represent matters on which institutional shareholders weren’t able to get the board to act, Bloxham notes.
As an individual shareholder, you have the opportunity to vote on some of the major issues roiling corporate life. Recent proxy questions have involved pay equity for women, natural-gas fracking, and the ability of ordinary shareholders to nominate corporate directors. This question of proxy access is expected to make it easier and less expensive to hold contested board elections.
“What that does is enable shareholders to nominate directors if those shareholders meet certain criteria, like owning shares continuously for three years, for instance,” Callan says. If those conditions are met, director candidates must be put on the main ballot, and the shareholder doesn’t have to hire lawyers to wage a pricey proxy contest. The New York City comptroller’s office, which oversees the city’s powerful pension funds, is behind the proxy-access idea, as are other pension funds, Callan adds.
Because corporations play a large role in society, affecting everything from politics to lobbying, the environment, and the labor market, shareholders should take their vote seriously, Bloxham says. “It’s as vital, if not more vital, to exercise the shareholder vote as it is to vote in the presidential elections.”
Bloxham suggests starting with the SEC’s webpage, sec.gov, where each public company is required to file its financial statements and proxies. Search by corporate ticker to see a company’s filings.
As for voting for board members, you can’t simply study their positions on issues. Directors don’t necessarily take stands, the way political candidates would. So you need to look at their profiles, experience, other board memberships and executive roles, and any view they’ve expressed on the company or the industry. You can find all this in the proxy itself and online, Bloxham says.
Pay particular attention to director candidates’ relationships to the company, its managers, and other board members, through past affiliations like jobs or universities or charity boards. If directors vote as a bloc, they will have a larger influence on the company’s direction. You can also look up directors at cepr.net/blogs/director-watch and proxydemocracy.org, Bloxham says.
If Individual Investors Don’t Vote, Who Does?
Institutions like pension funds, mutual funds, and hedge funds cast the vast majority of votes in shareholder elections. Fund bylaws often require them to vote in corporate elections, because of the fiduciary duty that they have to their shareholders. When funds track benchmarks or have a particular investment focus, also, they often are obligated to hold specific shares and can’t vote with their feet by selling stock instead. That’s why more than 90 percent of shares belonging to funds get voted, says Chuck Callan, of Broadridge, which manages proxy votes for companies.
Institutions usually vote following the guidance of proxy advisory firms like Glass Lewis or Institutional Shareholder Services. Those firms, which don’t serve individual investors, also provide a “vote agency” service in which they handle voting for institutional clients.
“This enables subscribers to the research [reports] to automatically cast votes consistent with [their] recommendations if that’s what the subscribers wish to do,” Callan says. Companies buy this service because they don’t want to devote their own resources to researching and analyzing the proposals for all the shares they own, he notes.
The advisory firms typically insist that companies garner a large percentage of the vote, not just a simple majority, as a measure of shareholder support. In some cases, Callan says, proxy advisors may require that companies get 70 or 75 percent of voted shares in favor of proposals before they adopt them.
“If they fall below that threshold, that may trigger an against-vote recommendation by that proxy advisor in the subsequent year” for that specific director or issue, Callan says. That’s why you may get a call from a company whose shares you own, asking whether you would like to vote over the phone. —C.R.S.
Chana R. Schoenberger has been an editor at Forbes, a reporter for Dow Jones and the Wall Street Journal, and a news editor at Bloomberg News.