Make Your Voice Heard: Understanding the Corporate Proxy Voting Process
If you own shares of stock in a publicly listed company, you’ve likely received a proxy material in your mailbox or electronically in your inbox, typically, in the spring. Perhaps you open the package, scan the contents and set it aside for later, only to forget about it. Or maybe, like too many investors, you simply toss it in the trash.
You shouldn’t. As a shareholder, you’re a part owner in the company—and you have a right to have your voice heard when it comes to the company’s direction, and your vote matters.
With proxy season ramping up for 2015 (most company mailings go out between March and the end of June, now’s the time to learn more about proxy voting, and why it’s an important tool for corporate governance and accountability.
Publicly traded companies that conduct their business based on end-of-year calendar accounting typically will hold their annual meetings during the spring proxy season. Any shareholder is eligible to attend a company’s annual meeting, even if you own only a single share of stock.
But realistically, most shareholders don’t have the time or money to travel to annual meetings in far-off cities just to cast votes. That’s where the proxy process comes in—think of it as an absentee ballot for corporate decision-making.
And corporate leaders do want to hear from their shareholders. They know that engaged shareholders strengthen accountability, and on top of that, they need a quorum of shareholders to participate to advance proposals.
If you’ve never taken the time to participate in the proxy process, it can be a great way to learn more about the companies you invest in. Let’s take a closer look at how proxy voting works.
What is a proxy vote?
Voting by “proxy” simply refers to the legal authority that allows your vote to be cast without your being physically present at the annual meeting. Instead of attending the annual meeting, you can fill out a proxy card detailing how you would vote on company’s policy proposals. Each shareholder has an opportunity to vote and typically each share has the same voting rights.
How do I know what’s on the ballot?
The proxy statement you receive in the mail (or electronically from your broker-dealer), typically arrives several weeks prior to the annual meeting and is generally accompanied by the company’s annual report, Proxy Statement and a proxy ballot listing descriptions of each item that is being presented to the shareholders to vote on. If you own a mutual fund, pension fund or 401K, which includes stocks in its portfolio, the fund advisor will handle the proxy voting on behalf of all the shareholders in the fund.
Who decides what’s on the ballot?
Ballot proposals can be initiated either by the company’s management, or by any shareholder who has held at least a certain amount of company stock for a specified period of time.
What types of issues are up for proxy votes?
Shareholders may be asked to vote on issues related to executive compensation, stock options, corporate social responsibility, additional stock issuance and more. One of the most important opportunities of a shareholder is to vote on the board of directors, who are tasked with representing the shareholders in providing the direction of the organization.
But I’m not an expert on these issues. How will I know how to vote?
The proxy statement and ballot will include supporting materials detailing the various proposals, along with the recommendations of the board of directors. If you trust the board’s judgment, you may decide to vote along with their recommendations. Many companies also host online forums where shareholders can discuss pending proposals, or you can contact the investor relations department for more information.
Institutional shareholders that own a significant percentage of a company’s stock, like mutual funds, pension funds, hedge funds and investment banks, may have their own teams of analysts to study key issues and make recommendations on how institutional investors should cast their ballot.
How do I cast my proxy vote?
Shareholders have a variety of options to cast their ballot, which makes voting easier than ever. All issuers allow you to mail in your ballot in advance of the annual meeting, and most companies also allow voting online and by phone. Regardless of your voting method, your proxy vote will remain confidential.
But does my vote even matter?
Absolutely! According to the Federal Reserve, individual investors hold an estimated 30 percent of the stock of large American companies. If enough of those shareholders vote in proxy elections, they can have a significant influence on the direction of the company.
For example, recent years have seen an increase in shareholder activism, as some investors in a company will use the proxy vote process to advocate for management changes or to push for social priorities. While this form of activism can be controversial, it does illustrate how investors can work to have an impact on a company’s management policies and performance—and why shareholders should pay closer attention to the proxy process.
The fact is that your voice matters, but you have to take the step to make it heard. Recognize your rights as a shareholder, and plan on exercising those rights during this year’s proxy season by casting your ballot.
To learn more, visit SIFMA’s Proxy Resource Center.