Don’t Toss that Proxy

During the next several months, most corporations will be sending out their proxies (ballots) and holding their annual meetings. Individual shareholders own about 30% of the stock in US markets but few bother to participate, even though we often feel corporate managers have too much power and too little accountability.

When we fail to vote, we essentially turn our assets over to management.  Most of us feel we should vote but we also think voting is too complicated and time consuming. Since we only hold a few shares, we often think that failing to vote won’t have any consequences.

Recent changes allowing corporations to e-mail and post proxy materials on the internet have dramatically reduced the proportion of shareholders voting to as little as 5%. (Apparently, it is easier to ignore a stack of e-mails on your computer than a stack of paper on the dining room table.) However, the internet also makes it much easier to vote in corporate elections and to vote intelligently.

There are literally thousands of sites for investors (here’s a few), ranging from brokers to associations to scam artists. Mostly, they focus on

• stock picking,
• allocating your investments, and
• when to sell.

While these are important issues, what’s new are sites on how to be an owner. Voting is how we hold corporate directors and managers accountable.  Obviously, shareholders haven’t done a great job, especially at the banks. Voting is the cornerstone of good corporate governance. All the rules of Washington can’t save us from future Enrons and stock bubbles if shareholders don’t start acting like shareowners instead of gamblers.

Some say shareowners should leave everything to trusted financial advisors. What, like Bernie Madoff? Or we could just trust in the management of the companies we invest in… but their interests are often different from ours. We may not approve of the $6,000 shower curtain at Tyco or the unprotected derivative bets at AIG.

Institutional investors own about 2/3 of the market. Should we just leave voting up to them? After all, they have a fiduciary duty to vote and they have the resources to investigate the issues. Unfortunately, many also have potential conflicts of interests. For example, mutual funds don’t want to vote against corporate managers who may decide who will run the company’s 401(k) plan. That’s potential business a mutual fund doesn’t want to lose.

Additionally, the average turnover of stock, mostly by institutional investors, is huge. For NYSE listings it was 130% in 2008 and 250% in 2009, meaning the average stock was bought and sold 2 ½ times in 2009. Owning Intel 30 times in 10 years isn’t really being what I’d call a long-term owner. Most of us hold our stocks longer.

We’re usually in for the long term but since we generally only hold a small portion of the stock in any one company, we lack the economic incentive to buy expert advice or spend the time ourselves analyzing complicated proxy issues like shareowner proposals, board elections, executive compensation, mergers etc.

Until recently, being an actively involved shareowner was impractical for most of us but just like social media sites like Facebook are bringing people together, several new internet sites are making proxy advice obtainable for free. Here are five sites worth exploring:

1. Corpgov.net is my blog. For over 15 years I’ve discussed major trends and have provided links to dozens of activist or aggregator sites so that investors can join forces or research what other shareowners are doing.

2. ProxyDemocracy.org aggregates, displays and automatically e-mails to subscribers proxy votes announced in advance by respected activist funds like CalPERS, CalSTRS, Calvert, CBIS, Domini, Florida SBA, AFSCME, Trillium and others. Using ProxyDemocracy.org, you can copy the voting behavior of these trusted “brands.” The site also rates funds on how they vote on issues involving: director elections, executive compensation, corporate governance and corporate impact. So, if you know what issues concern you, you can use that information to help you decide whose votes to copy and which mutual funds to buy.

Another feature of ProxyDemocracy.org is that they will tell you when they have collected votes for upcoming proxies on the stocks in your portfolio (if you give them your e-mail address and name the stocks). Because of the breath and depth of the activists funds it follows, you’ll almost always be able to see how at least some funds are voting.  Unfortunately, you can’t vote your shares directly on ProxyDemocracy.

3. Moxyvote.com has dozens of “advisors,” mostly socially responsible mutual funds, unions, environmental groups and public interests groups who take a stand on various proxy issues. At Moxy Vote you can actually get voting advice and vote on the same site, using the pin number you get from your broker. Easier yet, you can also have your broker deliver your proxies directly to Moxy Vote.

If you choose that route, you can even set up voting defaults based on the recommendations of your chosen advocates. That way if you don’t vote your proxy or override your defaults, the system will automatically vote with your advocates. For example, mine are set up to look first to the Investor Environmental Health Network, if they haven’t taken a position on the proxy item, my vote will be cast per the Center for Political Accountability. If they don’t have a position it moves to my third choice and on down the line. Unfortunately, many of the advisors on Moxy Vote are focused narrowly and hold few stocks. They won’t give you advice on every stock you hold or on every issue at the companies where advocates have taken positions.

4. Shareowners.org is an advocacy site aimed at getting shareownrs to lobby Congress on various issues. Advice on voting at specific companies is limited but like Facebook, it is a great place to share announcements and commentaries with others.

5. The United States Proxy Exchange (proxyexchange.org or USPX), like Shareowners.org, is an advocacy site. However, USPX not only involves members in lobbying efforts, it also involves them in analyzing developing policies. Want to learn how to file resolutions? Present resolutions at local companies? Put your expert skills to good use? USPX provides training and multiple points of entry to baby-boomers and young people alike who would like to see their ideals put into action.