Proxy Voting 101
The term proxy means “written authorization to act in place of another.” The proxy statement is the document used by companies to seek approval from shareholders on a range of issues relating to corporate governance. The proxy informs voters about the range of issues on which they will vote, recognizing that most shareholders now vote remotely “by proxy” rather than in person at each company’s annual meeting.
These rule changes are being challenged in court, on behalf of shareholders generally, by ICCR, As You Sow, and Jim McRitchie.
The rule changes currently in effect are as follows:
1: Dollar value of stock needed to file has been raised to $25,000 if shares have been held one year prior to filing; $15,000 if held two years; and $2,000 if held three or more years. There is a transition mechanism in effect for 2022 such that, if a shareholder has held $2,000 worth of stock since before January 4, 2020, they will be allowed to file a proposal to be heard at an Annual General Meeting in 2022.
2: Resubmission thresholds have been increased. Effective immediately, to proceed with the same proposal in a following year, a proposal will need to have earned a vote of 5% support in its first year; 15% in the second year; and at least 25% in year three. These requirements are an increase from the prior resubmission thresholds of 3%, 6%, and 10%.
3: Representative filings. Effective immediately, shareowners wishing to authorize an issue expert, financial advisor, attorney, or other person or organization to represent them in a 14a-8 filing must provide a statement that they (the shareholder) are willing to meet with the company and must provide dates when they are available to meet with the company during a specified time frame post-filing.
4: Effective immediately, any single person or entity is limited to filing only one shareholder resolution at a given AGM, even if they represent separate shareholders.
As You Sow's success in using shareholder advocacy is built on a larger body of work by a broad range of organizations that have, over time, created environmental, social, and governance (ESG) principles for investing in companies. These principles are built on a stakeholder-centric view of capitalism which recognizes that negative company impacts to people and planet will generally increase company risk and reduce its value over time. ESG and stakeholder capitalism have been endorsed by the World Economic Forum’s 2020 Manifesto and Blackrock’s 2020 CEO Letter.
Shareholder advocacy efforts have resulted in an unprecedented paradigm shift in the behavior of company management toward achieving an environmentally and socially sustainable economy. According to US SIF Trends report more than $18 trillion — nearly $1 of every $3 under professional management — now is invested using ESG criteria and community investing strategies.
Never voted your proxy before? Don’t worry, we have you covered: learn how to vote your shares.
Publicly-traded companies are required by law to report to shareholders. They do this through a variety of means, most notably by inviting shareholders to an annual meeting. Prior to the annual meeting, shareholders are sent documents known as proxy statements that include details about the annual meeting, share ownership, board structure, executive compensation, and details on other issues that will be voted on at the annual meeting. Learn more here.
The annual meeting and proxy statement provide a formal communication channel between corporate management and shareholders. At a minimum, the proxy statement asks investors to ratify issues placed on the proxy by management, such as the election of directors, the auditor report, and CEO pay. Management may also seek approval of more complex and controversial issues such as mergers and acquisitions, stock option plans, or resolutions brought by qualified shareholders on a variety of issues.
U.S. Securities and Exchange Commission (SEC) rules allow shareholders to file proposals with companies on corporate governance, social, and environmental issues. The requirements to file a proposal are relatively simple. Any shareholder who owns $2,000 worth of company stock and has held it for three years prior to the annual filing deadline may file a proposal. Proponents (the shareholder(s) that file the resolution) are allowed 500 words to present their case. Management often files an opposition statement in response.
SEC rules specify issues that may not be addressed through proposals. For instance, anything relating to personal grievances, ordinary business, or operations that constitute less than 5% of revenue may be excluded. A company may challenge the proposal at the SEC if it thinks the proposal may be legally omitted; proponents may respond to the company’s challenge and, if the SEC sides with the proponents’ argument, the proposal must be placed on the company proxy statement and voted on at the annual meeting.
Proposals must receive a minimum number of votes to be allowed on the proxy the following year. ESG proposals must obtain 5% of the total vote their first year to be resubmitted; 15% the second year and 25% its third year. If it fails to meet these minimum votes, it may not be resubmitted for 3 years.
If you hold mutual funds, you do not hold actual company shares and cannot vote proxies directly. However, you can contact the management of your mutual funds and ask them to vote in favor of issues about which you feel strongly.
There are four categories of votes: For, Against, Abstain, and Not Voted. If an investor is unsure about an issue it is best to abstain as these votes are not cast either for, or against, a vote and are not counted in the final tally.
Shareholders can vote their proxies via mail, internet, phone, or by attending the annual meeting in person. Voting instructions are provided on the proxy and votes can be changed as long as they meet the stated deadlines (usually 24 hours before the meeting for U.S. companies). Those attending the annual meeting in person can change or submit their votes up to the very last minute. Those who do not vote their proxies in advance may have their ballot automatically cast by brokers or management.