Imagine if every four years the Federal Elections Commission rounded up all the ballots, counted all the votes, and then just assumed that everyone who didn't vote wanted the incumbent to win -- and counted those non-votes as though they were votes for the party currently in power.
Unbeknownst to the vast majority of investors, this is exactly the way it basically works in corporate America. Since 1937, brokers have been able to vote their clients shares on their behalf when they don't cast their own proxy ballots. Wall Street being a chummy place, this has usually meant that shareholders who didn't vote had their votes cast in favor of the current management team.
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Voter turnout falls during proxy season -- shareholders, unite!
With pretty much everyone -- including most CEOs -- agreeing that executive compensation is out of control and corporate governance in America is pretty much a joke, you'd hope that shareholders would take one opportunity they have each year -- proxy season -- to let their voices be heard.
Sadly, the New York Times DealBook reports that individual investor participation in proxy voting has plunged: "Of 92 firms that have held their annual meetings this season, the average participation among "retail" shareholders - individuals, as opposed to institutions - dropped more than 75 percent from the previous year, according to statistics from Broadridge Financial cited on RiskMetrics' Risk & Governance Blog."
The drop is probably largely attributable to a recent SEC rule change that allows companies to use "e-proxies," forcing shareholders online to cast their vote.
There's no question that, in time, proxy voting will be conducted online exclusively. But obviously that time has not yet come.
In the meantime, there's still no excuse for not voting your shares each year -- if only so you have the right to complain about what a mess the shareholder democracy is.
Sadly, the New York Times DealBook reports that individual investor participation in proxy voting has plunged: "Of 92 firms that have held their annual meetings this season, the average participation among "retail" shareholders - individuals, as opposed to institutions - dropped more than 75 percent from the previous year, according to statistics from Broadridge Financial cited on RiskMetrics' Risk & Governance Blog."
The drop is probably largely attributable to a recent SEC rule change that allows companies to use "e-proxies," forcing shareholders online to cast their vote.
There's no question that, in time, proxy voting will be conducted online exclusively. But obviously that time has not yet come.
In the meantime, there's still no excuse for not voting your shares each year -- if only so you have the right to complain about what a mess the shareholder democracy is.
How to make the most of proxy season
It's coming up on that time of year again! Proxy season: the one time where corporate management teams can actually be held accountable to their shareholders. According to the Wall Street Journal (registration required), only about one third of individual shareholders actually vote their proxies, which allow them a say in electing directors, certain corporate policy proposals and, more often now, executive compensation.
How well is a stock you own doing on the corporate governance front? Institutional Shareholder Services prepares Corporate Governance Quotients on many publicly traded companies. You can view the company score on Yahoo!finance. For example, on the profile page for McDonald's, we see that: "McDonald's Corp.'s Corporate Governance Quotient (CGQ®) as of 1-Mar-07 is better than 59.5% of S&P 500 companies, and 94.3% of Consumer Services companies." For a more detailed look at a company CGQ score, you can go to the ISS's Issue Atlas page for the company.
Factors influencing the CGQ, according to the ISS website include: (1) board structure and composition, (2) audit issues, (3) charter and by-law provisions, (4) laws of the state of incorporation, (5) executive and director compensation, (6) qualitative factors, (7) D&O stock ownership, and (8) director education. The score for each core topic reflects a set of key governance variables.
Use the CGQ to examine the corporate governance of every stock you own. Browse around on the ISS page for additional information about corporate governance and proxy voting.
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