What is Proxy Voting?

One of the items that is getting increasing play right now is proxy voting. Indeed, spring is considered a proxy voting "season" of sorts, since this is when shareholder meetings are held and decisions regarding corporate governance and social responsibility are made.

But what is proxy voting and why does it matter?

Proxy voting is essentially an investor’s ability to vote on something when s/he is not present, like an absentee ballot in an election. Companies and funds have annual shareholder meetings where everyone is supposed to vote, but shareholders that can’t show up can send in a proxy vote. This means sending a signed card (usually included with the materials on the shareholder meeting), or casting a vote electronically, without being physically present. Often, shareholders get one vote for each share or fund unit that they hold. The bigger their holdings, the more influence their vote has.

Such meetings, and usually proxy voting, is meant to set forth policies that may not have anything directly to do with financial decisions made by the company. Instead, this voting is done so that the shareholder can influence decisions made with regard to corporate governance and social responsibility.

Corporate governance: This is an expression of how a corporation or fund is run. It includes election of officers and directors and rules pertaining to the fund or company’s internal decisions. This can include company stock plans and compensation.

Social responsibility: This is becoming increasingly important as awareness arises among investors of world issues. Social responsibility can affect which causes a fund or company invests in or supports, and it also determines which to withdraw support from.

Many proxies, instead of sending in their votes, give their votes to investment managers who vote however they see fit. This means that their proxy votes may not actually reflect their personal wishes and guiding principles. Shareholders that are concerned with how the companies and funds they invest in conduct themselves should strongly consider using their proxy votes to influence the decisions that they make.

The 2008 Proxy Voting Preview