Despite the high demand for values-driven investing, few individual shareholders participate in corporate decisions. But some companies and funds are making it easier for investors to voice concerns through a proxy voting process.
When someone buys a stock, they become part-owner of the company and may vote on decisions — such as executive compensation or picking the board of directors — at the corporation’s annual meeting.
They may also vote on shareholder resolutions, which are proposals that may include investor concerns, such as environmental, social or corporate governance, or ESG, and other issues.
Investors receive proxy statements by mail or electronically, with the issues under consideration, and they may cast votes before the meeting, known as proxy voting.
Individual investors as a group owned 29% of shares in 2020, compared to 71% with institutional investors, according to ProxyPulse, which tracks shareholder engagement. Interestingly, institutional investors’ voting increased to 92% of the shares they held (vs. 90% for the 2019 proxy season), while retail investor voting held steady at 28% of the shares they own.
“The information gap is one of the biggest challenges to retail participation in proxy voting,” said Gabe Rissman, co-founder of YourStake, an ESG and socially responsible investing portfolio analysis and reporting tool for asset managers.
“People don’t really have a sense of what their vote will do,” he said.
Moreover, many investors aren’t familiar with a company’s board of directors or understand shareholder resolutions, Rissman said.
However, there’s a growing push to boost shareholder engagement, including changes from funds that typically cast proxy votes on behalf of investors.
Global investment manager BlackRock recently announced institutional customers invested in index strategies may participate in proxy voting starting in 2022.
The change may affect roughly 40% of the company’s $4.8 trillion managed index assets, according to a statement, and BlackRock may expand access to more investors in the future.
“BlackRock is committed to exploring all options to expand proxy voting choice to even more investors, including those invested in exchange-traded funds, index mutual funds and other products,” the company wrote.
And in August, Robinhood acquired Say Technologies, a shareholder engagement platform offering easy access to proxy votes and direct communication between investors.
“I think the world is moving in this direction because a lot of people are genuinely looking to have an impact with their investments,” Rissman said, explaining how shareholder engagement and proxy voting can achieve these goals.
Financial advisors have also noticed the uptick in proxy voting emphasis from fund managers.
“It’s a competitive marketplace and fund companies want something to point to,” said certified financial planner John McGlothlin III with Southwest Retirement Consultants in Austin, Texas.
While some clients are less interested in the proxy voting process, they may want fund managers whose voting records align with their values, he said.
“They’re not going to read through all the proxy votes or the resolutions,” McGlothlin said. “But if they find a fund manager they like, then it becomes a collective effort.”