Want to Channel Your Inner Investor Activist? Cast Your Proxy Vote

Are you an investor who’s always wished you could have more say in the way a company is run? Do you have specific governance ideals—such as environmental standards—that you’d like companies to embrace? Vote your proxy.

What is proxy voting, you ask? If you own a share of stock in a company, that makes you a part owner. As a shareholder, you’re entitled to vote on certain company matters, such as approving the members of the board of directors, deciding who gets to audit the books, defining how management is compensated, and other matters that come before the board at its annual meeting.

Because most shareholders don’t actually attend the annual meeting, each shareholder is sent a form (called a proxy card) to fill out. The form instructs your proxy to vote your shares in accordance with your wishes.

If you own even just one share, you have the right to participate in proxy voting.

With Proxy Voting, Every Year Is Election Year

An unfortunate fact about proxy voting is that—among retail investors, anyway—most aren’t voting. Just like voting in national elections, many believe that their individual efforts might be frivolous or in vain, as their votes are too small to make a difference.

Research from the Harvard Law School Forum on Corporate Governance suggests that retail domestic shareholder proxy voting is very small compared to aggregate share ownership. On average, 26% of shares outstanding belong to retail owners, but only 32% of retail shareholders cast their votes. Compare that to the 80% participation rate from the entire shareholder base. In total, 12% of the average firm’s retail accounts choose to vote.

The issue of proxy voting has gained greater prominence as interest in environmental, social, and governance (ESG) investing has been rising and shareholders are focusing on corporate governance. Topics such as CEO pay and board independence are two hot-button issues for ESG voters.

Look at it this way. If your investing objectives include owning good stocks run by good management, it’s not enough to just own the stock. You can also lend a voice via proxy. Without that, poor management can keep getting paid, and commitments to certain ESG targets can shift or even pivot without warning. Proxy voting is an important way to hold company management accountable.

Just ask BlackRock chair and CEO Larry Fink. Fink has issued letters every January for the past few years detailing how the world’s largest asset manager plans to use its might to vote on certain issues, including environmental concerns and corporate leadership. In BlackRock’s 2020 letter, Fink highlighted the company’s commitment to pressing corporate leaders to be better stewards of the environment and outlined an intention to use its proxy muscle to steer companies toward better governance.

“Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” the letter said.

Who Votes and How to Read a Ballot

In ETFs and mutual funds, the fund managers are the proxy-voting shareholders. As an individual shareholder, you can have your financial manager vote for you; you can vote on your own; or if you own a large number of shares, you can hire a company to vote, such as Proxy Impact, ISS, or Egan-Jones Ratings.

Proxy voting occurs during the company’s annual general meeting, and proxies are usually issued a month before. Individual shareholders may receive physical proxy ballots by mail or email. Information about proxies can be found on the Edgar System, which has all the Securities and Exchange Commission filings for a particular company.

Ready to submit your first proxy vote? Take a little time to learn the ins and outs of exactly what a proxy vote is, proxy voting guidelines, and the basics of shareholder advocacy. Websites such as CorpGov.net, AsYouSow.org, and FundVotes.com have proxy voting guidelines, information about ESG shareholder resolutions, how some mutual funds and ETFs have voted in the past, vote outcomes, and other information to help you get educated.

Additionally, some ratings agencies like ISS and GMI Ratings give specific corporate governance ratings for thousands of companies, rating the firms on criteria such as corporate board demographics, charters, compensation, earnings management, and dozens of other factors. To get really deep in the weeds on ratings, you may have to subscribe, but some financial information websites offer basic ratings under stocks’ corporate governance profiles.

Ballots should have instructions on how to fill out the paperwork—whether the proxy card needs to go via snail mail, whether you should call in your vote, or whether you can vote online. Take time to read any shareholder resolutions and watch how they’re worded. Companies are allowed to include opposition statements that may try to dissuade you from voting for a particular resolution. Read the full resolution, and if you want to learn more, contact the shareholders who put it on the ballot.

Topics of Interest

Advocates for transparent corporate governance suggest that proxy voters review the board of directors, including members who are up for election. See how long they've been on the board and how often they attend meetings. Some board members are executives at other companies who join each other’s boards and vote quid pro quo. Directors are supposed to be independent, but people who have been on a board for many years may or may not be objective.

The same goes for the auditor. An auditor who has been with the company for decades could be less objective.

Shareholders who are concerned about CEO and executive compensation can vote against raises and bonuses, especially if the salaries seem out of line with their peers or if the company performance is underwhelming.

Proxy voting may seem like dubious use of precious time, especially if you only have a few shares. But if more retail shareholders were to vote, their collective voices would speak louder.