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.

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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