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How to vote in Shareholder Meeting proxy votes

by thecommexokid1 min read1st May 20204 comments

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I have a substantial sum of money invested in stocks and mutual funds through a financial advisor, which I expect to eventually donate a significant portion of. As a result, I periodically receive notifications of Shareholder Meetings for various companies informing me of upcoming voting items. They typically include a list of what the Board of Directors recommends I vote for and against.

Does anyone know of any good sources where I can determine how I might best vote in these proxy votes as an EA-minded and generally socially conscious investor? I do not expect the marginal impact of my vote alone to be worth much personal research time, but if someone is already doing the work, it does not cost me much to read their recommendations.

My financial advisor has unfortunately been little help and I have not had much luck on my own (just with naïve googling) in finding any sources who seem to recommend voting any particular way on these things.

Tangentially relevant are previous posts both optimistic and skeptical about the larger topic of Impact Investing. Debates about whether it is more impactful to vote for the profit-maximizing choice and donate the counterfactual excess or to vote for the socially conscious choice directly are welcome, but I feel like I’m stuck even before that phase, since as an unknowledgeable investor I can’t find any sources that would bring me to a level of knowledge to guess which was which.

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I'm sorry to say this, but unless your "substantial sum" is many billions of dollars, or hundreds of millions invested in a small number of firms (i.e. not in mutual funds), voting is likely largely be a waste of your time. It might be worthwhile for you to estimate what % of the vote you have in a typical company - my guess is it is very small. Worse, unlike in a political election where both sides tend to be roughly equally balanced, and hence the marginal voter can make a difference, as a first approximation pretty much all shareholder votes come in two flavours:

  • Management recommended things, which are usually very sensible - sometimes necessary for the continuation of the business!) All the professional investors will support these so they will pass with >90% of the vote.
  • Motions proposed by cranks with little understanding of the business. These are regarded as an annoyance, and all the professionals will vote against, so they will fail with <10% of the vote.

Obviously there are exceptions (notably, activist hedge funds!) but I would expect these two cases to cover the vast majority of the proxy solicitations you receive.

For reference, I worked for a fund that invested billions of dollars, was one of the top shareholders in many companies we owned, and I regularly met with CEOs... but I think our ability to influence their strategy was very minimal. I can only think of one time where I think there is a >1% chance I had an impact.

While it’s certainly true that in most instances, a retail shareholder’s participation will have no impact whatsoever on the outcome of a proxy vote, I think this breakdown of proxy proposals may obscure more than it clarifies. After all, the biggest reason why an individual shareholder’s votes typically make no difference is because the vast majority of ballot items each proxy season are uncontested. Presumably, thecommexokid is not wondering how they should vote on those. And with respect to meaningfully contested ballot items, I thi... (read more)

5Larks1yThanks, good comment!

I know a bit about the proxy advisory ecosystem, so I can provide something of a generic summary, though nothing specific to EA.

In the U.S., there are five different companies that advise institutional investors about how they should vote their shares: Institutional Shareholder Services, Glass Lewis, Egan-Jones, Segal Marco Advisors, and ProxyVote Plus. However, Institutional Shareholder Services (ISS) has around 61% market share, and Glass Lewis has another 36%, so the industry is quite concentrated. While ISS guarantees its clients 100% portfolio coverage (and as a result, produces research reports addressing pretty much every proxy ballot item on the planet each year), many of its smaller competitors offer narrower, more specialized services. For instance, Segal Marco advises primarily labor union pension funds, and there are a few other proxy advisors outside of the U.S. that specialize in companies listed in the country in which they are located.

ISS (like most of its competitors) offers its clients voting recommendations determined through the application of a defined voting policy selected by the client in question. While the plurality of its clients use its benchmark policy, which is focused on long-term shareholder value creation, ISS also offers a number of specialized policies targeted at investors concerned about corporate social responsibility, sustainability, labor interests, etc. For clients who feel that none of ISS’s preexisting policies fit their particular goals, ISS offers custom policies that clients can develop collaboratively with its advisors.

Assuming you are not an institutional investor, you will probably have a hard time accessing ISS’s proxy research (or that of any of its competitors) at a cost-effective price. In light of that, I’d refer you to two other organizations that work in the corporate governance space. The first is As You Sow. It runs shareholder campaigns at companies to promote largely environmentalist goals (though it does work in a few other areas, as well). If you own shares in any of the companies that it is targeting, you might be interested in taking a look at its campaign materials and considering them in the context of EA, your own values, etc.

The second organization is CtW Investment Group. It runs governance advising and shareholder campaigns on behalf of a coalition of U.S. labor unions on a broadly similar model to As You Sow, though it is more focused on worker interests and general good governance norms than on environmental concerns (by virtue of the stakeholders it represents). Like As You Sow, its campaign materials are publicly available online and might be worth reviewing if you’re voting a proxy at a targeted company. Both of these organizations are considered to be highly credible in the governance space, and while there’s room for disagreement about certain elements of their respective agendas, their research is considered to be of a reasonably high quality.