Rob Swystun, Pristine Advisers
First off, Happy New Year to you all! You’re looking great and I bet you’re ready to tackle 2015 and make it your best year ever!
And now …
With the amount of stuff most people have going on in their lives, worrying about shareholder voting can easily be put at the bottom of a priority list, or, probably more likely, be left off altogether.
But, corporate governance expert Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance, in an opinion piece on Fortune.com, has urged investors to exercise their right to vote and not just leave it in the hands of brokers and fund managers.
And this is a good year to start exercising those voting rights if you haven’t before, because according to law firm Schulte Roth & Zabel, more proposals will be up for a vote than in previous years. However, much like general election turnout, voter turnout for shareholders tends to be low. Voting administrator Broadridge says less than 30% of shareholders voted their shares in 2014.
The fact is, as Bloxham says, if you’re a shareholder and you have a broker-managed account, you’ve probably given up your voting rights to your broker. The problem with doing that, though, is brokers almost always vote strictly along party lines for management, meaning your votes could be used to support things that you would actually oppose if you knew about them.
As an example, Bloxham says, imagine that you have an interest in LGBT issues and you want the companies you’re invested in to have clearly defined anti-discrimination policies that include sexual orientation. However, if you just let your broker vote your shares, it’s almost guaranteed that they’ll vote with the status quo, which often means not voting for progressive policies.
Brokers are also apt to vote against things like policies that call for companies to disclose more information about the environmental impact of their activities and be more transparent about their political lobbying and political spending, according to Bloxham.
If any of these things matter to you (and, frankly, they really should), you can contact your broker and let them know that you will be voting your shares.
If you own shares in mutual funds or directly through a 401(k) plan, things are obviously a bit different, but you still have options to have your voice heard. Votes are cast by the investment manager in those cases and mutual funds usually publish voting guidelines on their websites. Plus, the Securities and Exchange Commission has filings that show mutual funds’ voting records.
While it takes a bit of homework, if you want to be an informed investor, it pays to have a peek at these reports. If you see something that you don’t like, you can always ask for alternatives.
Bloxham also notes that conflicts of interest (or at least the appearance of them) can crop up between corporations and mutual funds when they also handle other aspects of a company, like employee benefit plans, for example.
Although, in theory, mutual fund companies should have clear separation between proxy voting and client relationship functions, Bloxham says these separation measures can sometimes be weak.
If you don’t like the way a mutual fund company votes, you could always walk away and find another firm that votes more in line with your beliefs. But, as Bloxham says, you can also try your hand at influencing the way a firm votes by telling them why you believe it’s important to vote a certain way on an issue. But, seeing as how it is a mutual fund company and its interests have to involve getting its shareholders the most value for their shares, it’s the way you tell them that’s important. You have to make them understand why it’s important to vote a certain way on issues for the sake of the long-term health of the company.
There is no guarantee that that will work, of course, especially considering that some mutual fund companies don’t believe that issues like anti-discrimination policies for sexual orientation matter to the long-term valuation of a company and are technically outside their fiduciary responsibility. But, that thinking runs counter to recent research on the subject, Bloxham says.
“Votes on issues like CEO pay, for example, matter because those pay programs can hurt a company’s long-term prospects, foment bubbles and recessions, demotivate employees, and harm the economy by increasing inequality,” she writes.
Every time a general political election comes up, whether it’s national, state or municipal, a lot is made about voter turnout and exercising democratic freedom to vote. But, when it comes to corporate governance, that is often ignored or forgotten about, apart from the big-name activist investors.
If you’re interested in exercising said rights, Bloxham lists Jackie Cook’s Fund Votes, which provides regular reports on political spending and other mutual fund votes by mutual funds and AFL-CIO, which tracks fund votes on CEO pay and provides useful comparisons of fund managers.
Just as every vote counts in a political election, so does every vote count in corporate governance. Your voice matters and voting is your way of making that voice heard. You wouldn’t give up your votes in an election, right? So, why would you do it in this case? It may be yet more homework to do, but if you care about making the world a better place, this is one way (no matter how painstakingly slow) to do it.