Understand the power of your vote in shaping your investments.
Each spring, investors in individual publicly traded companies get a chance to voice their opinions as the companies whose stock they own prepare for their annual shareholders’ meetings. This comes in the form of proxy statements, which detail all the topics to be discussed, including board member elections, executive compensation and proposals from both management and shareholders. Investors can submit their votes on these issues either online or via mail.
All these factors could impact the company’s future financial performance, so voting is an important opportunity. Adding your voice to those of other shareholders can get attention and influence the decisions of the board of directors and management, including choices that extend beyond improving the company’s bottom line. Your vote could also ultimately influence your investments and the future direction of the company.
Shareholders submit proposals in an effort to get something changed at the company they partially own. For example, they might ask for additional disclosures regarding a certain topic or for a new policy to be implemented. Shareholder initiatives span a broad range of issues including the company’s operational and financial practices.
In some cases, these proposals can gain significant traction and raise awareness through shareholder support. For example, in 2024, the shareholder advocacy group As You Sow proposed that Lululemon explore the impact of microfiber shedding on waterways. The company is now reporting on product shedding and solutions and researching a new microfiber shedding reduction goal.
To be eligible to submit a proposal, shareholders must meet specific criteria, such as holding at least $2,000 of the company’s voting stock for three years, $15,000 for two years or $25,000 for one. They must also commit to holding the required amount of stock until the company’s shareholder meeting and be available to discuss their proposal with the company.
The various issues up for vote every year are classified as binding or nonbinding. For instance, votes for board directors are binding, while the “say on pay” vote on executive compensation and shareholder resolutions are considered advisory.
Another type of shareholder contribution is client-driven proxy voting, which provides a way for fund investors to vote on proxies too. For example, Vanguard is piloting a program for investors to choose from a range of proxy voting policies. Selecting a proxy voting policy will direct how the fund votes your proportionate ownership of the fund on ballot items at certain company shareholder meetings. If this becomes more common, making your voice heard will no longer be limited to owning publicly traded individual stocks.
Companies are not legally required to make any changes on issues with non-binding, advisory votes. However, if shareholder voting shows strong support of a particular issue, it’s likely something company management will consider discussing.
Shareholder resolutions are a unique opportunity to propose change, gain consensus and make companies aware of general shareholder sentiment. If a resolution gets at least 5% of votes the first year, the shareholder can resubmit it the following year. In the second year, the resolution must garner 15% to be refiled the next year, and in the third year, it needs to achieve 25% support to be resubmitted thereafter. You can look at prior years’ proxy statements for ballot trends. See if there are resolutions that are gaining traction year over year. It could give additional insight on what issues shareholders have been raising over time, and management’s response to them.
While proxy votes on shareholder resolutions are advisory, they still have the possibility of attracting a company’s attention as they did with Lululemon. Usually, if shareholder resolutions receive 10% to 20% of votes in favor, that’s enough for management to address them.
As shareholders of common stock in publicly traded companies, investors have a right and a responsibility to pay attention to how the company operates and can be improved. By taking the time to read the proxy statement and consider whether resolutions are in the best interest of stakeholders, you can help influence better investment returns and company decisions that truly reflect the needs and wants of shareholders.
Sources: bankrate.com, finra.org, corporate.vanguard.com, static1.squarespace.com
