Shareholder Proxy: Everything You Need to Know
A shareholder proxy is an individual with legal authorization to vote on behalf of a company's shareholder during an annual meeting.3 min read
A shareholder proxy is an individual with legal authorization to vote on behalf of a company's shareholder during an annual meeting. The shareholder can also opt to vote by mail. He or she must fill out and sign a shareholder proxy statement. This also designates the extent to which the proxy can speak on the shareholder's behalf. In some cases, a formal power of attorney document may be required.
All shareholders receive an information packet prior to the annual shareholder meeting that contains the proxy statement. These documents detail the information necessary to make a decision on agenda items for the meeting, as well as insight into management and financial operations, board member and manager qualifications, board of directors ballot information, a list of the largest shareholders, and detailed executive compensation information. Manager and shareholder proposals are also included.
Each corporation must file proxy statements with the Securities and Exchange Commission (SEC) and/or other regulatory agencies. In some cases, shareholders may be able to vote online, by mail, or by phone.
Purpose of Proxy Voting
Allowing proxy voting encourages all ownership interests to be represented even when shareholders cannot personally attend annual meetings. These meetings often determine the direction of the company and thus impact the value of each shareholder's investment.
Shareholder voting is critical, as it is the primary way that owners can influence the operation of the company, social responsibility endeavors, and corporate governance. In most cases, shareholders receive one vote per share, though some shares may carry additional voting rights .
Shareholders who do not authorize a proxy vote and do not attend the meeting have effectively abstained from voting. The ability to vote by proxy allows shareholders to own stakes in and truly influence the direction of companies all over the world.
Online proxies are increasingly available and allow shareholders to access the proxy statement and vote using a unique ID number.
Guidelines for Proxy Voting
Many institutions who invest in companies post their decisions online before the meeting. This provides individual shareholders a chance to see where major corporations stand on the important issues. Proxy voting guidelines are the explanations these institutions provide of their voting decisions. Their priorities may include sustainability, responsibility, accountability, long-term value, and other factors.
These institutions may also contact the corporate management to ask questions and seek additional information about issues for which resolution is unclear. In this way, they serve as champions in the process of shareholders holding directors accountable for the direction of the business.
Proxy Voting System Innovations
Shareholders may introduce resolutions by proposal if they own more than $2,000 in stock. In most cases, these resolutions involve nominating candidates to the board of directors. Although this has the benefit of bringing fresh experience to the board, it can also be counterproductive if shareholders nominate candidates who are not appropriate to serve.
Power of Shareholder Proxy
Shareholders have become increasingly active in changing the course of the businesses in which they have an ownership stake. Some recent high-profile examples include:
- Xerox, which opted to spin off its services business in 2016 after pressure from 8-percent shareholder Carl Icahn.
- In 2011, McDonald's was convinced to replace its polystyrene beverage cups with more eco-friendly paper by a group of individual investors partnered with As You Sow, an environmental advocacy non-profit.
- As You Sow was also involved in the proposal that convinced Abbott Laboratories to offer GMO-free baby formula in the United States.
- The Connecticut Office of the State Treasurer brought a proposal to Chesapeake Energy stockholders for the company to disclose its lobbying spending.
Most proposals of this kind focus on environmental and social activism. Research by the Interfaith Center on Corporate Responsibility shows that when 25 percent of shares vote for a resolution sponsored by a shareholder, management will begin to seriously consider the proposal. In fact, the Abbott Formula baby formula resolution was passed with only 6 percent of the shareholder vote, and the McDonald's paper cup resolution received just 20 percent of the shareholder vote. Thus, the proxy vote is one way to truly make a difference in the direction of a company.
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