When I was in my 20s, my mom gave me some Jefferson Pilot stock with the understanding that I was holding the stock for her in case she ever needed it. The stock was invested in a dividend reinvestment account, and every quarter I’d accumulate a few more shares. While I didn’t love the fact that I was having to pay income tax on income I couldn’t touch, I did like the way the account grew steadily over time with very little effort from me. A fair percentage of my investment accounts have been in individual stocks ever since.
That means at this time of year I start receiving proxy statements asking me to vote my shares according to the recommendations of the board of directors. While I haven’t always been committed to voting my shares, prodding from Jon and some second thoughts prompted me to pay more attention to my corporate voting rights.
Proxy Statements: An Introduction
A proxy statement is a solicitation for stockholder votes on matters of corporate governance before the annual meetings of publicly held companies. Regular matters include the makeup of the board of directors, compensation for board members and executives, and other matters. Sometimes, stockholders might be asked to vote at other times too. If you own stock in a company that is facing a merger, you’ll be sent a proxy to vote to accept or decline the merger.
As a company stockholder, attending the proxy is your opportunity to weigh in on how the company is run, who is running it, and how much they are getting paid to run it.
As a shareholder, you can attend the annual meetings to vote your shares instead of filling out the proxy, but attending the meetings doesn’t seem like a good use of my time and energy. If I owned Berkshire Hathaway, I probably would want to head to the big annual party in Omaha to listen to Warren Buffett’s pearls of financial wisdom. (Check out the guide to the BH annual meeting. it looks awesome, just not $200K+ a share awesome.)
For most shareholders, attending the annual meeting is just not practical. The proxy is the vote they’ll make.
As a new investor with only one stock holding, I dutifully checked off, signed and sent back the proxy cards. Then I stopped. Why should I bother to vote my shares? Voting power is based on your percentage of ownership, and I was a minor shareholder. Even now, if you look at my largest holding I own 811 shares out of 243,835,893 shares outstanding. My vote just didn’t seem very meaningful.
So for a long time, I shredded most proxy statements instead of opening them unless something special was happening with the company. I had a definite opinion about whether Progress Energy should or should not have agreed to the merger with Duke Energy, and I stood with the company when some activist investors tried to take over DuPont last year, but I didn’t bother with regular votes.
Other than the vote on the makeup of the board of directors, the votes aren’t even binding. Why vote?
I wasn’t alone. A lot of shareholders don’t vote their shares, because they feel that their votes just don’t matter. Over 60% of stock shares in US public companies are owned by pensions, hedge funds, mutual funds, and other institutions. According to Broadridge Financial Solutions, which handles proxy voting for a lot of US companies, only 28% of retail (non-institutional) shares were voted, leaving 24 billion votes on the table.
Why I’m Sending in My Proxy Statements Again
Last year, Jon started noticing that I was letting my proxy statements sit in the junk mail pile.
“Give me your phone and I’ll vote your shares, ” he offered.
Well, that’s easy. And frankly, so is voting shares. You can print out a proxy statement and mail it in, but you can also vote with your phone or online. From a time management perspective, there really is no reason not to vote and some good reasons to go ahead and exercise your shareholder rights.
Voting your shares helps you stay informed about your investments.
It can be hard to track multiple individual stocks. Even if you try, the breadth and multiple sources of knowledge available can bedazzle even a savvy investor. Do you focus on projected prices? Industry news? Impending legislation?
And just how often are you looking for information? Are you actively seeking information about a particular stock or just waiting until it comes up on Mad Money?
Getting a proxy statement is a great incentive to take a look at the company’s leadership annually and gives you an idea of what other issues are important to shareholders. These aren’t necessarily items you are going to look at if you mainly rely on headlines and stock prices to stay informed.
The proxy statements are also a great reminder that it’s time to take a look at the company’s annual report, which comes out around the same time. Yes, annual reports are shiny pretty company propaganda, but there is a ton of useful information in them including the company’s financial statements and disclosures. If you want to know what’s important to the company, a half hour with the annual report will give you a good summary.
So use the proxies as a reminder to stay informed, and you’ll have a much better idea of the health of your investments.
You don’t have to be a big player to propose a measure, and you don’t have to win the vote to be heard.
You may think that you have to have a lot of money invested to make a shareholder proposal, but you don’t. You have to own $2000 worth of stock for at least one year to make a stockholder resolution, even if the market cap of the company is in the billions. That’s a pretty low threshold that is well within the reach of individual investors.
This means some shareholder resolutions are redundant and unnecessary, but others can make corporate boards sit up and take notice on issues like environmental responsibility and social action. Even proposals that garner vote totals of a couple of percentage points can make executive boards pay attention or take action in an area they weren’t considering.
Even voting against a measure that passes can have consequences. One big area for “losers” to win is with the pay proposals for company leadership. The boards might reconsider the compensation if the vote isn’t overwhelming. A 70% vote on compensation means there are a lot of shareholders who are unhappy with the company’s leadership, strategy and performance.
Shareholders matter, and smart boards try to keep their retail shareholders engaged. There’s always a chance that they may need a bunch of the little guys to keep a couple of the big dogs at bay.
Sometimes there are important matters at stake and the votes are close.
Remember that story I mentioned about the hedge fund (Trian Fund Management) that tried to take control at DuPont last year? They lost, in large part because a bunch of individual shareholders took a look and decided that the moves that Trian was proposing weren’t in the long-term interests of the company. Trian was focused on stock prices and had the support of a lot of institutional votes, but DuPont captured the vast majority of the little guys in a close vote.
Activist investors aren’t going away, and a lot of institutions are focused on stock price instead of the firm’s future. The retail investor can be a lot more likely to think about the future value in addition to the next year or next quarter, and management can use that to their advantage against short-term thinking.
A Final Word on Proxy Statements.
If you are a minor investor like me, chances are you won’t be making nominations to the executive board of a publicly run company, If you really disagree with the direction of the company, you will be more likely to vote with your dollars than with your proxy statements, You may end up voting with the board most of the time and think to yourself “Why is this different than not voting? How does this make a difference?”
Let the act of voting your shares make a difference to you, even if it doesn’t make a difference to the company. Use the voting process as a way to stay informed about your investments in individual companies and to stay current on the issues they face. Most of all, vote as an active member of the corporate community, just as you vote in elections to be an active member in your country, state and community.
Do you really want your corporate voting rights to waste away in the junk mail pile?
*Part of Financially Savvy Saturdays on brokeGIRLrich and, *