Voting by Brand: Next Stage in Shareowner Empowerment

James McRitchieSince 1995, James McRitchie has published CorpGov.Net, a popular corporate governance portal. According to the Council of Institutional Investors, a 2002 petition to the SEC co-filed by McRitchie and Les Greenberg, of the Committee of Concerned Shareholders, “re-energized” the debate over proxy access to nominate directors. McRitchie is frequently quoted in the press and has addressed audiences around the world, funded by associations, the Asian Development Bank and the U.S. State Department. Now he is working on systems to further empower retail shareowners. Contact: jm@corpgov.net

By James McRitchie

As more companies and shareowners opt to send and receive proxies electronically, voting in corporate elections plummets. Our electronic inboxes just don’t get the same attention as a physical pile of ballots. Only 6% of retail shareowners vote under “e-proxy rules,” down from 19% when delivered by mail.

When we fail to vote within 10 days of a company’s annual meeting, our broker essentially votes our shares on issues that are deemed “routine” matters, such as for “noncontested” directors. Unfortunately, brokers almost always vote with management and what is defined “routine” will often make your eyes glaze over, like the proxy materials themselves. When we fail to vote, we are throwing away our only chance to be heard on important corporate issues.

Under the Obama administration, the Securities and Exchange Commission (SEC) may finally eliminate “broker-voting” but several initiatives pushed by management interests could erode elimination of this ballot stuffing mechanism. I’ll highlight those initiatives and tell you about two amazing projects that could make it much easier to vote intelligently, with very little effort, by relying on trusted “brands.”

Initiatives to erode the voting power of investors if broker votes are eliminated:

  • “Proportional” voting, in which brokers would vote uninstructed shares in the proportion that other shares have been voted.
  • Client-directed voting. When investors sign their brokerage agreements they could instruct the broker how to vote if a proxy is not returned. Under floated proposals, our choices will be severely restricted.
  • The management initiated Shareholder Communications Coalition aims to allow companies direct communications with retail investors. Of course, investors that get most of their election information from companies are more likely to vote with management on candidates and resolutions. Yet, it is hard to argue against companies having a right to directly communicate with investors.

Two ingenious grassroots initiatives could dramatically increase voting by making it easy for retail shareowners to vote or assign proxy rights based on the “brand” reputation of trusted fund activists and proxy aggregators.

ProxyDemocracy (http://proxydemocracy.org)

ProxyDemocracy compiles, displays and automatically e-mails messages to subscribers about proxy votes announced in advance by respected activist funds, such as the American Federation of State County and Municipal Employees Pension Plan, California Public Employees Retirement Fund, Calvert, Christian Brothers Investment Services, Domini, Florida State Board of Administration, and soon others. Each of these funds spends a lot of time and money analyzing proxy issues. By using ProxyDemocracy, we benefit by copying the voting behavior of these trusted “brands” and we strengthen shareowner democracy.

  • ProxyDemocracy also rates a much broader groups of funds based on their voting behavior and allows users to create their own ratings, which can be held private or shared with other site users.
  • ProxyDemocracy is working to allow shareowners to vote directly though its site and/or have ProxyDemocracy vote on their behalf, based on shareowner values and how they align with the votes of respected funds. Users will be able to override any vote made on their behalf.

The more people use ProxyDemocracy, the more funds will realize they can increase their voting clout and customer base by announcing votes in advance, and the more brands will be available for us to copy.

Investor Suffrage Movement (http://isuffrage.org)

The Investor Suffrage Movement is working to create a self-regulated organization that will oversee a “Global Proxy Exchange.” Instead of directing management how to vote their proxies, shareowners will instruct the Exchange or will assign proxies to an intermediate aggregator, such as their pension fund, union, church, or an environmental group. While the funding necessary for a proxy exchange is still a few years away, activist investors/funds are invited to participate in interim initiatives:

  • Last year the Investor Suffrage Movement successfully conducted proxy “transfer trials” to test the right of aggregators to vote at shareowner meetings.
  • The Investor Suffrage Movement is currently setting up a network of volunteer “field agents” who contribute to the movement through activities such as:
  • Making proxy rights available to compatible shareowner activists, allowing proponents to file, even if they don’t own shares themselves.
  • Drafting, filing and defending resolutions in consultation with and on behalf of shareowners, allowing shareowners to be proponents with very little effort.
  • Present proxy resolutions at annual meetings, saving proponents substantial time and travel expense.

Plundering of corporate assets through fraud, diversion, cronyism and just plain incompetence often results where self-perpetuating managers control governance mechanisms. The more field agents the Investor Suffrage Movement attracts, the more resolutions can be filed and the sooner the Investor Suffrage Movement can build an automated Global Proxy Exchange, fully integrated into the financial services industry. A Global Proxy Exchange will use the market to democratize capitalism, putting owners in charge. The result will be more efficient companies that reflect the sustainable values of investors and society.

About Carl Icahn 29 Articles

Carl Icahn is an American billionaire financier, corporate raider, and private equity investor.

Mr. Icahn is the Chairman of Icahn Enterprises, a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate, and consumer goods. He has been the Chairman of American Railcar Industries since 1994 and a Director of Blockbuster since May 2005. He became Chairman of ImClone Systems in 2006. In January 2008, he became the Chairman of Federal-Mogul.

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