By Thomas Kostigen
You don’t have to sell the shares you own in a company if you don’t like how the company is operating: you can exercise your shareholder rights to have a say in management. More and more investors are realizing they can do this, spawning a record amount of shareholder resolutions this year around the globe.
A shareholder resolution is defined as a non-binding recommendation to the board of directors of a public corporation. These resolutions are presented and voted on at a corporation’s annual meeting. In many cases proxy votes are cast. This happens when a shareholder cannot attend an annual meeting in person yet wants their voice heard. It’s like mail-in votes for a political election. Investors receive proxy ballots prior to an annual shareholder meeting along with an information booklet—a proxy statement. The statement lays out what issues will be voted on during the shareholder meeting.
These issues range from electing members of the board of directors to compensation agreements to what the company should be reporting on but isn’t. Environmental, social, and governance issues often fall into this category. Additionally, mutual funds can cast votes on behalf of their shareholders, as can other pooled investment funds.
Investors sometimes forget that they become owners—no matter by how small a percent—by purchasing equity in a company, even if it’s through a third party such as a mutual fund. And many do not believe their opinion is heard or matters, as large shareholders often hog the investment spotlight and get more attention paid to them by company management. But even a single share gets an investor a seat at the shareholder meeting table. It’s like voting with your money: you do and can have a say in change.
The Financial Times found that shareholders are increasingly speaking up about issues ranging from the environment to diversity measures. Indeed, a record number of resolutions passed at corporate annual meeting globally in 2020, the FT reports. These issues ranged from climate change to diversity, it said. Proxy Insight, a database company that is a source of information for global shareholder voting, reported that a total of 233 social or environmental shareholder resolutions went to a vote this year.
Often what is transpiring is investors like how a company is operating in general but want specific changes to how the company manages its operation or reports on its activities. In some cases, activist shareholders buy stock in a company they don’t like at all, or whose mission they take umbrage with in order to effect change.
Financial advisors can help investors in filling out their proxy ballots or helping investors better understand the issues with which a company might contend at its annual shareholder meeting. It’s well worth the understanding because these issues can affect share prices and, in turn, investor performance. Proxy issues may not be something that an advisor readily offers, so it might take some querying by investors themselves.
Discovering what issues are and may be likely to have an effect on a company, both internally (such as compensation measures) and externally (such as environmental measures) is a smart investing tactic for both the near and long term. It can help decide the difference between a buy, sell, or hold.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.