What To Do With Proxy Votes

You know those confusing communications from your investment portfolio alerting you to a shareholder meeting? You probably spend 10 seconds scanning them to ensure it's not a statement and then it's straight to the recycle bin. Those communications are proxy voting opportunities, and this post will help you understand what to do with them.

THE BASICS

As a shareholder of a stock or mutual fund, the SEC grants you a legal right to participate in the voting process on new corporation resolutions.

If you own an individual stock, like Apple for example, your shares grant you a voting privilege on issues such as corporate sustainability considerations, a merger, or a proposed change in operations. These are pretty cool corporate decisions investors can and should take part in.

You probably also receive proxy voting notifications from your mutual fund companies. Same concept, but here, the mutual fund will usually be voting on issues such as amending the investment objective or adjusting the industry concentration of the fund. Pretty boring stuff.

In either shareholder scenario, you're not going to hop on a plane to corporate headquarters, which is the whole point of the proxy vote. It allows you to take part in this process without actually showing up in person. Most often, the proxy vote notification directs you to a website to cast your vote. If the company goes old school, you receive a paper ballot.

WHY BOTHER?

Proxy voting is important the same way voting in a democracy is important. Don't like an outcome? Better not complain if you didn't cast your ballot!

Unlike the political process, corporate voting is based on the number of shares you own. Within large publicly traded companies (Apple again), shareholders can influence corporate policy by owning a large number of shares. More shares equals more votes.

However, if you own shares of a fund that doesn't have a massive amount of asset under management, your vote carries a greater weight relative to the amount of other outstanding shares. Or, you could be Mark Zuckerberg and own special shares of your own stock granting you a vice like grip on ownership. If you're currently pissed off at Facebook, read THIS POST from my friends across town for additional fuel to throw on that hot mess.

THE ACTIVIST

Energy, climate change, water conservation, human rights, worker & product safety, and labor equality are just some of the factors that a corporation has varying degrees of control over. When an investor wants to influence corporate change regarding these types of issues, they initiate a shareholder resolution. A shareholder resolution is a public recommendation to the board of directors that specific action should be taken to achieve a desired result. This is referred to as shareholder advocacy.

Most shareholder resolutions end up with less than 25% of the vote. But surprisingly, even a small number of unhappy shareholders combined with social media pressure can damage a company's reputation. According to Green America (of which Aspen Leaf Partners is a gold member), negative publicity, consumer boycotts, and the loss of investor confidence can all lead to revenue losses, something all publicly traded corporations care about.

AN EXAMPLE

One type of good corporate governance is the separation of CEO from board director. It's a check and balance thing, same as in the government. Unlike most developed nations, the United States has shown a historical stubbornness towards this division of power. In 2005, only 29% of S&P 500 companies had separated the CEO from the board director*.

That's changing as a result of shareholder advocacy. Today, 48% of the companies in the S&P 500 have separated the CEO from the board director. There's still a ways to go, but it's improvement.

The benefits of separation are 1. it keeps executive compensation in check, including the CEO, 2. it helps the keep corporate mandates on track, and 3. it allows for independent auditing of the board without interference from the CEO.

WHAT I DO WITH PROXIES

If I owned individual stocks, I would probably vote on most of them. Consider the Facebook example my colleagues blogged about. That kind of thing irritates me into action. And there is plenty out there in the corporate world that's irritating.

The reason I say I would vote most individual stock proxies is I can understand the issues better. It triggers an emotional response that would compel me to participate. And it's that feeling of participating, the process, and the satisfaction of voting that make me feel like a productive member of society. It's a sense of fulfillment for me that's hard to put into words.

But I don't own any individual stocks, so I'm stuck with the boring fund proxies instead.

I always read the introduction to understand what's up for a vote at my fund. If it's something I can't possibly understand like should the fund approve John Q Smith or Joe A Jones for the vacant position on the board of directors, I don't even bother. I can't possibly know John from Joe since individuals at this level aren't well known commodities.

However, if the fund proposes something like changing the investment philosophy or advocating for more advanced stock selection protocols, I read on. If I feel like I can make an informed decision based on the information presented, I vote.

I recognize that often it's too hard to conduct the research to make an informed decision. Since you already have no time left in the day by the time to get to the mail, a proxy vote is probably not going to win over crashing in front of the tv. I don't blame you.

However, I encourage you to at least read the intros when proxy votes come in the mail. Every once in a while, a big issue like the current one with Facebook will arrive. If it's something you care about, take 2 minutes to cast your vote. You just might become part of the movement for positive change benefitting society and the planet.

That's worth voting for.

* Shareholder Resolutions, USSIF, The Forum for Sustainable and Responsible Investment.