Proxy voting can be a powerful tool for investors to deepen their engagement and impact with the companies they invest in.
Proxy voting can be a powerful tool for investors to deepen their engagement and impact with the companies they invest in.
by Melissa Banigan, Liz Alexander and Alex Laipple
Key Points
- While divestment is a powerful tool to move the needle on company impact, shareholders who want to maximize their impact may also want to engage with the companies they’re invested in through proxy voting.
- Shareholders can vote through a proxy card or online platform, but this can be an arduous and time-consuming process — particularly for investors who have large portfolios.
- By electing a financial advisor who has a deep understanding of the investor’s criteria to vote on their behalf, investors can engage without having to devote the huge amount of time necessary to understand all the details and nuances of each proposal and resolution.
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As advis0rs examine their clients’ portfolios and evaluate pathways toward achieving impact there are a few major roadways to traverse. One path may be divesting from companies that make the greatest negative impacts in the areas their clients care about. But another path may be engaging with companies still held in their clients’ portfolios through proxy voting.
Prior to a company’s annual meeting, shareholders receive reports from that company on its activities and information about proposals to be voted on. Proposals can be brought by a company's management or its shareholders. Management proposals typically cover operational and governance items, including electing board members and corporate actions (such as mergers and acquisitions). A shareholder proposal, often related to environmental, social, or governance topics, is brought by a group of shareholders who’ve identified an issue at a company. Examples of shareholder proposals could include requests for a company to report on plans to reduce greenhouse gas emissions or publish a report on gender pay gaps.
The Role of Advisors in Proxy Voting
Shareholders can vote through a proxy card or online platform, but this can be an arduous and time-consuming process — particularly for investors who have multiple stock holdings portfolios.
Let’s look at some of the challenges. Investors have a lot to keep track of, and they may not be aware when an issue that is important to them is going to a vote at an upcoming shareholder meeting. It can be, understandably, all too simple to let these opportunities for impact slip through the cracks.
Then there are the time constraints related to proxy voting. In the United States, and many other countries, shareholders must own a company for a certain period of time before they can vote. Another constraint is the window within which voting takes place, which is typically in the spring when shareholders’ meetings are held.
By giving proxy authority to a financial advisor who has a deep understanding of the investor’s criteria to vote on their behalf, the investor can engage without having to devote the huge amount of time necessary to understand all the details and nuances of each proposal and resolution.
The Power of the Proxy Vote
Advisors have a vital role to play in educating their clients about the power of their proxy votes. The benefit is not only to the investor — who is able to influence a company’s behavior to better align with the investor’s values — we believe increased shareholder participation also has a positive effect on corporate governance. Proxy voting helps shareholders hold corporations and companies accountable.
Contact your relationship manager to learn more about how Ethic can help you and your clients with proxy voting.
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