Although Election Day gets all of the attention, there's another voting opportunity that can be almost as important: the day you exercise your rights as a shareholder in public companies and vote on various proposals.
What is shareholder voting?
Companies that sell shares of stock are known as public companies because the public owns them. Specifically, everyone who buys stock in a company is a partial owner. So your 100 shares may mean you only own 0.0001% of the company, but you're an owner nonetheless.
As an owner, you have the legal right to vote once a year on a variety of proposals, including:
- Who makes up the Board of Directors.
- What firm audits the company's financial statements.
- Changes in corporate governance proposed by the company itself.
- Changes in corporate governance proposed by other shareholders.
In some cases, companies may have an additional meeting besides the annual meeting to vote on a matter too urgent to wait for the annual meeting. All shareholders are eligible to vote at that meeting as well.
Even if you're a small shareholder, your voice still has power. Here's how to use that power wisely.
How shareholder voting works
In presidential, Congress, and state and local elections, every vote counts the same: one person, one vote.
Shareholder voting is a little different. Your vote is weighted based on how many shares you own. When votes are totaled, the company will count how many shares voted for or against a proposal. So if you own 1,000 shares, your vote counts ten times as much as someone who owns 100 shares.
How to vote
Similar to political elections, shareholders can vote in four different ways, either in person or by proxy (remote vote):
- At the annual shareholders' meeting (in person)
- By mail
- By phone
- On the Internet
Shareholders typically receive printed materials about what will be voted on and voting instructions a few weeks before the meeting. If a shareholder has asked to receive materials electronically, they may receive an email with the same information rather than in the mail.
Shareholders who choose to attend the annual meeting will have to pay their own travel expenses. Although the items voted on at the meeting will be the same, shareholders will also hear presentations from management about the state of the organization. In addition, they will generally have the opportunity to meet company executives and the board of directors. Shareholders may also have the chance to ask questions and express opinions beyond the matters on the agenda.
Some shareholder meetings, such as those hosted by Berkshire Hathaway, tend to be lavish affairs, but most are run-of-the-mill business meetings held during normal working hours.
Anything other than in-person voting is called "proxy voting," which involves a shareholder asking someone else to vote on their behalf or voting without physically attending the annual shareholder's meeting.
What shareholders may vote on
Although topics will vary, generally, shareholders are asked to vote on the following:
- Electing directors to the board
- Approving a merger or acquisition
- Approving a stock compensation plan (usually for executives)
- Executive salaries and benefits
- Major shifts in company goals
- Fundamental corporate structure changes
- Approving stock splits
- Dividend payments
The ballot often includes proposals by the company directors and some by shareholders. Company directors will advise shareholders whether the company is for or against specific proposals, but shareholders are free to vote in any way they wish. Shareholder proposals can sometimes be protests, such as a proposal to change company policies, environmental practices, or other contentious or controversial factors. Some of those same protests sometimes occur at the annual in-person meeting.
What if you own mutual funds?
All of the above applies to shareholders who own individual shares of stock. However, shares of stock that are part of a mutual fund are treated differently.
Mutual fund investors generally aren't invited to vote at the annual meeting. (Imagine owning a mutual fund that invests in 500 companies and being asked to vote at 500 shareholder meetings!) Instead, the fund manager will vote on behalf of all the shares they manage.
There are signs this may change, though. Investment giant BlackRock ($10 trillion under management) recently announced that it's exploring ways to return voting power to investors, and others may follow.
Remember, as a shareholder, you are part owner of a company. So take advantage of the opportunity to make your voice heard.
Final word
To recap, each equity shareholder is generally entitled to one vote per share of common stock. They can cast this vote at the annual shareholder meeting to elect directors and influence company policy.
In most cases, the more shares someone owns, the more influence they may have on key issues. Although management generally handles day-to-day issues, shareholders can impact significant corporate decisions, from changes to corporate structure to executive compensation.
Shareholder voting rights are just a small (but extremely important) piece of the financial planning puzzle.
Facet's CFP® professionals are here to walk you through every step of your journey. To find out more, get in touch today.
