About proxy voting
Basics
Shareholders have the legal right to vote on key matters of corporate business: they get to elect the board of directors, ratify the choice of auditors, and vote on certain compensation issues. Shareholders also vote on proposals submitted by other shareholders, which address a range of corporate governance, environmental, and social issues.
The process is called "proxy voting" because most shareholders vote "by proxy": instead of attending the shareholder meeting, they submit voting instructions (i.e. a "proxy card") that technically empowers a representative to vote for them.
The votes are counted by shares, so if you own more stock you get more voting clout.
The impact of proxy voting
Experience has shown that proxy voting is a valuable way of communicating with a company's management team about how the firm should be run. There are other ways to do this, such as by selling (or buying) the stock, sending emails to the investor relations department, speaking directly with senior management, or filing lawsuits. But proxy voting is a particularly valuable means because it is open to all shareholders and produces a public signal of shareholder sentiment.
Even when the proposals are not legally binding, managers pay attention to voting results as measures of investor priorities. That's why concerned investors have found that proxy campaigns can produce positive change in corporate behavior.
Recent examples of success
- Winning disclosure of political contributions: Many public companies donate to political campaigns through trade associations or 527 groups. While political contributions can be part of a reasonable corporate strategy, this activity also involves substantial legal and reputational risks, and shareholders ordinarily lack the information to evaluate those risks. Since 2004, the Center for Political Accountability has filed shareholder resolutions demanding detailed disclosure of these expenditures; as a result of their campaigns, forty-five companies had agreed to enhanced disclosure standards as of May 2008.
- Changing the management team at Yahoo!: In January of 2007, Eric Jackson, a management consultant from Naples, FL, began a campaign to organize shareholders against the Yahoo! management team, which he believed was underperforming and overcompensated. Through YouTube videos and blog posts, he gained the support of 100 shareholders holding over 2 million Yahoo! shares and demanded changes to the top management team. At the Yahoo! shareholder meeting that June, then-CEO Terry Semel and other board nominees faced unprecedented opposition on proxy ballots. A week later, Semel was replaced.
For many more examples of the impact of proxy voting, see Chapter Two of Unlocking the Power of the Proxy, an outstanding guide to proxy voting produced by the As You Sow Foundation.
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