Proxy voting is used by many companies or corporations as a means to allow all shareholders to be able to vote. Using a proxy vote means they have the opportunity to vote, whether present at the meeting or not.
This article gives you an in-depth explanation of what proxy voting entails, how the process works and why it’s important.
Proxy Vote Definition
A proxy vote is defined as follows:
Proxy Vote = A vote cast by one person as a representative of another.
Proxy Voting Explained
As we can see from the definition, a proxy vote means appointing someone else to cast the vote on your behalf. When this happens, the person you appoint becomes the proxy.
The proxy is the person who acts on behalf of a person as their agent. The person to whom the vote belongs is known as the principal.
A person or firm who owns shares in a company that is publicly listed would receive proxy material prior to any vote taking place. They may receive it through the mail or electronically into their inbox.
The proxy material they receive will include a proxy statement. This is a description of the issues which are being voted on.
Issues included in the proxy statement might include:
- Electing new directors to the board.
- Approving acquisitions or mergers.
- Approving a plan for stock compensation.
- Changing the board structure.
- Approving salaries and benefits of company executives.
In addition to the statement, the material also usually includes an annual report and a voting card. The card will contain instructions on how to place the vote. This material may only be available online, with instructions given to the shareholder on how to access it.
Being a shareholder in a company means that you have a say about the direction the business takes. Even if you hold very few shares, your vote still counts and you have the right for your voice to be heard.
Annual meetings are often held in the spring as this is usually the year-end for accounting.
Many shareholders choose not to attend these meetings. Often they lack time or funds to attend meetings to cast votes. The companies they own shares in are not always in their own city.
Registered brokers who deal with investment management may receive invitations to be proxy voters. They could be acting on behalf of high net investors they manage. Or it could be for separate accounts or shareholders of mutual funds.
This is where the process of proxy voting comes in. Think of it like an absentee ballot for those who cannot attend, to be involved in the corporate decision making.
Making A Proxy Vote
Shareholders may have more than one vote. If they own a number of shares, each share could equal one vote. This would mean those with a greater number of shares have greater influence. Some companies only offer one vote, regardless of the number of shares.
Instead of physically attending a shareholders’ meeting, most will choose to vote by proxy. They may also opt to designate a member of the management team.
Proxy voters cast their ballots according to the directions recorded on the proxy card. In some cases, proxy votes can also be cast by phone, email or postal mail.
All votes must be received before the cutoff time, which is usually 24 hours before the meeting.
Responses to votes often include: for, against, abstain or not voted.
You have the opportunity to change your vote once made, so long as it happens before the cut off time. This is often referred to as a duplicate proxy. If you choose to do this, only your most recent vote would be counted.
Shareholders and Proxy Voting
Shareholders often fail to use their proxy votes. However, it is a good way to make your voice heard. Some feel that as they hold very few shares their vote lacks significance.
At the end of the day, proxy voting is important, regardless of how many shares you hold.
If you invest in a company, you want it to continue doing well so that you profit more from your shares. The outcome of votes can significantly affect how companies operate and perform. This is why casting your vote is important.
It is not compulsory for investors to vote. However, if they wish to try and affect change then it is the best way of doing so. A proxy vote will get your voice heard by directors and management.
Proxy voting holds great importance in terms of the running of the company. Yet, many shareholders opt not to vote.
Many companies report a low rate of voter participation. In fact, a 2014 report showed that less than 30 percent of shareholders voted their shares.
This relates to around two-thirds of voters giving up their right to vote and having their voices heard.
This includes those whose shares are managed through broker accounts, and means that the broker did not cast the votes.
Shareholders can tell the broker that they wish to cast their own votes. This will enable them to have their say, regardless of how small their share amount is.
For example, shareholders may feel the company should pay more attention to topics such as:
- Climate change and the impact on the environment.
- Disclosure of political spending and lobbying activity.
- Anti-discrimination policies.
These are issues that a company is likely to vote against. Lack of participation allows decisions to move forward which do not reflect what the shareholders believe in.
These are just a few examples. There are many issues voted on through proxy voting. Most of these could result in changes to the company that will affect share prices.
Shareholders want to see their investments thrive, not dwindle. Yet they often fail to vote on issues that could affect the company’s performance and its perception in the business world.
Occasionally a group of company shareholders will band together. They will do this to gain enough proxies to hold the majority and win one of the corporate votes.
Often referred to as a proxy fight or battle, it is something typically used in corporate takeovers. The acquirer will try to persuade shareholders to use their votes to get rid of current management. Doing this would make the takeover of the company easier.
It is also used when shareholders are not happy about a specific aspect. In this case, they group together to try and effect change in the company.
Some shareholders try to persuade others to let them use their proxy votes. They would then use them to influence changes in board membership. This way they can use the votes to appoint their own candidates to the board.
Using Proxy Votes for a Hostile Takeover
In the case of a hostile takeover, the target company and the acquirers may use propositioning methods. These are approaches to impact shareholders votes.
Shareholders would be sent a Schedule 14a. They would also be given information on the target company and its finances. If the battle was about selling the company, it would also contain details of the prospective acquisition.
The firm who is trying to acquire the company may employ a proxy-solicitation firm. They would contact all the shareholders and state the case on behalf of the acquirer.
Shareholders or brokers would forward their votes to the body, aggregating this information. This would generally be a brokerage or stock transfer agent.
The results would be sent to the target company and given to the corporate secretary. As with all proxy votes, these need to be received before the meeting.
The votes are subject to scrutiny by the proxy solicitors. They will check them for signatures and will challenge any votes which are unclear. Directors would then be appointed in relation to the number of actual valid votes received.
Shareholders in a Proxy Fight
As many shareholders choose not to participate in proxy voting, gaining their attention can be difficult. Often, they will just agree with the recommendations they receive. They do this without thoroughly examining the underlying issues.
With a proxy battle, participation is more likely if the company has financial difficulties. This may spark shareholders to act, as their investments will be affected.
If the acquirer can produce a robust proposal, making the company more profitable, this will help them obtain more votes. They may even propose to shift more cash towards the shareholders.
The acquirer might plan to increase stock dividends or sell the business and its assets to do this. Such proposals will catch the attention of shareholders, as they could potentially make more money from their shares.
You can see that there are many reasons that shareholders should use their proxy votes. If you’ve made an investment you want to make money from it, so it’s important that you have your say.
Regardless of how many shares you have, you should make use of your proxy vote. All shareholders have a right for their voice to be heard and proxy voting is the best way of doing this.