Don’t Toss That Proxy! Learn From CalPERS

Resolution MB 8/09, approved at CSEA’s last General Council, sought to expand on the leadership CalPERS has shown in the area of corporate governance by exploring how CalPERS could better influence the proxy voting of its own members and in helping us to evaluate which mutual funds vote in alignment with our own values and those of CalPERS.

In response to our request, CalPERS will be dramatically increasing the number of proxy votes they announce in advance in order to influence how we vote in corporate elections. This increased communication will be a two-way street. As members become more aware of how CalPERS votes, we may also have recommendations as to how they should vote. I would be happy to hear from CSEA members and other organizations that represent CalPERS members in that regard.

During the next several months, most corporations will be sending out their proxies (corporate ballots) and holding their annual meetings. Individual shareholders hold about 30% of the stock 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. Many think that since we only hold a few shares maybe 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. Only 4% of those receiving notice by e-mail voted in 2009, vs. 20% who got a full set of materials in the mail. (Apparently, it is easier to ignore e-mail than a stack of paper.) 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, ranging from brokers to associations to scam artists. Mostly, they focused on stock picking, allocating your investments, and market timing.

What’s new are sites that offer help on how to be an good owner. Voting is how we hold corporate directors and managers accountable.  Obviously, we haven’t done a great job, especially at the banks that brought us the Great Recession. Voting is the cornerstone of good corporate governance. All the rules of Washington can’t save us from future Enrons and stock other 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 70% 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 six sites worth exploring:

1. Corpgov.net is my blog. For over 15 years I’ve discussed major trends and started a few, such as the move to allow shareowners access to the proxy to place their board nominees on corporate ballots.
2. CalPERS-governance.org outlines the corporate governance program of CalPERS. You can “vote your proxies with CalPERS” by seeing how CalPERS voted and copying their vote.
3. 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.” You can use that information to help you decide whose votes to copy and which mutual funds to buy.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. The site also rates funds on how they vote on issues involving: director elections, executive compensation, corporate governance and, corporate impact.
4. Moxyvote.com has dozens of “advisors,” mostly socially responsible mutual funds, unions, environmental 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. 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.
5. Shareowners.org is an advocacy site aimed at lobbying 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.
6. 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 and 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.