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Despite the strong demand for value-driven investments, few individual shareholders participate in company decisions. But some companies and funds make it easier for investors to voice their concerns through a proxy voting process.
When a person buys a share, they become part owner of the company and can vote on decisions, such as executive compensation or the choice of the board of directors, at the company’s annual meeting.
They can also vote on shareholder resolutions, which are proposals that may include investor concerns, such as environmental, social or corporate governance, or ESG, and other matters.
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Investors receive proxies by mail or electronically, with matters under consideration, and they can vote before the meeting, known as proxy voting.
Individual investors as a group held 29% of the shares in 2020, compared to 71% with institutional investors, according to ProxyPulse, which tracks shareholder engagement. Interestingly, the institutional investor vote increased to 92% of the shares they owned (up from 90% for the 2019 proxy season), while the retail investor vote remained stable at 28% of the shares they own. .
“Lack of information is one of the biggest challenges of private participation in proxy voting,” said Gabe Rissman, co-founder of YourStake, an ESG investment portfolio analysis and reporting tool. and socially responsible for asset managers.
“People don’t really have a clue what their vote will do,” he said.
Plus, many investors don’t know a company’s board of directors or understand shareholders’ resolutions, Rissman said.
However, there is a growing push to boost shareholder engagement, including changes to funds that typically vote by proxy on behalf of investors.
Global investment manager BlackRock recently announced that institutional clients invested in index strategies could participate in proxy voting starting in 2022.
The change could affect about 40% of the company’s managed index assets, worth $ 4.8 trillion, according to a statement, and BlackRock could expand access to more investors in the future.
“BlackRock is committed to exploring all options to extend the choice of proxy voting to even more investors, including those invested in exchange-traded funds, index mutual funds and other products,” said writes the company.
And in August, Robinhood acquired Say Technologies, a shareholder engagement platform offering easy access to proxy voting and direct communication between investors.
“I think the world is moving in that direction because a lot of people are really looking to make an impact with their investments,” said Rissman, explaining how shareholder engagement and proxy voting can achieve these goals.
Financial advisers have also noticed the increased focus by fund managers on proxy voting.
“It’s a competitive market and fund companies want something to point to,” said chartered financial planner John McGlothlin III of Southwest Retirement Consultants in Austin, Texas.
While some clients are less interested in the proxy voting process, they may want fund managers whose voting records match their values, he said.
“They’re not going to read all the proxy votes or resolutions,” McGlothlin said. “But if they find a fund manager they like, then it becomes a collective effort.”