Voting Rights and Proxy Season
With proxy season at our doorstep, we thought it would be a good idea to explain a bit about shareholder voting rights. Proxy season is when many publicly traded companies hold their annual shareholder meetings and typically runs late April through early June. Many companies end their fiscal year on December 31, with their annual meetings following five to six months after.
One right inherent in owning stock is the right to vote at the company’s annual shareholder meeting. This is true even if you only own one share of the company’s stock. Most shareholders do not attend these meetings in person, but will vote remotely “by proxy,” either by mail, phone or online. Voting by proxy refers to the legal authority that allows a shareholder to cast a vote without being physically present at the meeting.
Prior to the meeting, the company will send shareholders a proxy statement providing details about the annual meeting, share ownership, board structure, executive compensation, and identifying the issues shareholders need to approve at the annual meeting.
Some of the items shareholders may be asked to ratify at these meetings include:
- The election of directors and executive compensation
- Potential acquisitions
- Stock option plans
Shareholders who trust the board’s judgment can vote the board’s recommendation. However, any shareholder with qualms about the way the board is managing the company should vote their conscience, even if that means voting against the proposed board and its recommendations.
Shareholders who want a seat at the table have the right to submit resolutions for consideration at the annual meeting. A shareholder’s ability to submit a proposal is based upon the amount of stock they own and the amount of time they have owned the stock. The more stock a shareholder owns, the less amount of time they are required to wait to submit a proposal. Shareholders who own $25,000 worth of stock can submit their proposal after just one year of ownership; shareholders who own at least $15,000 worth of stock can submit their proposal after two years of ownership; and a shareholder who owns $2,000 worth of company stock can submit a proposal if they have held their stock for at least three years prior to the annual filing deadline. If a proposal makes it onto the proxy and fails, it may be resubmitted in the following years under certain circumstances.
Mutual funds, index funds, pensions and hedge funds own around 70% of the outstanding shares of publicly traded companies and have high voting participation rates, which give them a large influence over voting outcomes. They use this influence to bring about change relating to a variety of environmental and social issues, including diversity and inclusion, racial-justice, and disclosure of political contributions, to name a few. They are also able to take other courses of action, such as speaking directly with company management to discuss a proposal, getting a proposal withdrawn, or working towards resolution of a shareholder proposal without the need for a vote.
This year in particular is turning into an unusually active proxy season. Neuberger Berman, an investment management firm, has already published its voting intentions at more than 60 companies where its clients have significant economic exposure. Neuberger Berman is not alone. By previewing their voting decisions online prior to the meeting date, institutional investors are giving individual shareholders valuable insight and guidance on where they stand on the issues.
Does Your Vote Make A Difference?
Shareholder voting is the primary way in which shareholders can influence a company’s operations, corporate governance, and environmental and social accountability that fall outside financial considerations. Binding resolutions can shape the course of a company. In the case of board composition, shareholder votes can make the difference between a board packed with self-interested insiders versus one focused on long-term shareholder returns. Shareholders need not attend the shareholder meeting in person, but they should vote to ensure the company is being managed honestly, effectively and successfully.