Harnessing the power of proxy to expand the voice of shareholders
Individual investors normally feel powerless at shareholder meetings, but one man is trying to rally them together through a "Global Proxy Exchange."
Say you’re a small investor fuming over falling stock prices or irate over grandiose executive pay. Amid this spring’s proxy season, when many companies hold their annual shareholders’ meeting, you may wonder whether your beefs will get much airing.Skip to next paragraph
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The typical answer is “no.” Many don’t bother to vote via the proxy card that companies send out. Even if individual investors attend shareholders’ meetings and bone up on issues such as executive pay and the election of directors, they’re still dwarfed by big institutional investors with much greater voting power.
Dwarfed, that is, unless they band together.
“Owners of corporations lose control over the companies they own,” he says. And “that gives management free rein to run the company in their own interests.”
His solution: A system in which individual investors could assign their proxy to an entity – a like-minded person or organization – that would vote for them. Mr. Holton hopes to make this massive plan work through what he calls a “global proxy exchange” (GPE).
With shareholders angry about everything from falling stock prices to executive compensation, this is arguably the best time in decades for activists to challenge the way corporations handle proxy votes.
In April, shareholders of Royal Bank of Scotland Group PLC voted against the bank’s 2008 compensation plan by a margin of 9 to 1. Minneapolis-based Target Corp. is having to defend its board against a shareholder’s rival slate of directors. Federal bailout recipient Citigroup also faced a stockholder revolt against several of its directors in April.
Other companies are trying to head off any backlash before it takes shape. Amgen in Thousand Oaks, Calif., is surveying its shareholders online to get their input on its compensation package. A March survey of 145 companies by Watson Wyatt found that roughly half plan to decrease their pool of bonuses this year by an average of 40 percent.
Lots of experiments are under way. The Toronto Stock Exchange proposed in April that its listed companies would have to seek approval from their shareholders whenever they issued major blocks of shares to purchase another company. A year-old effort called Proxy Democracy (proxydemocracy.org) provides information free of charge on how many institutional investors voted on corporate issues in the past and how some of them plan to vote this year.
“Anything that brings in small investors is a good thing,” says Wayne Shaw, professor of corporate governance at Southern Methodist University’s Cox School of Business. The difficulty comes with “creating a system that embraces every shareholder’s interests.”
One simple way is informational. Letting small investors know how large institutional shareholders are voting can help individual investors decide how they should cast their own vote, says Andy Eggers, Proxy Democracy’s president.
But to Holton, that’s not enough.
“The current proxy system is failing and rendering investors disenfranchised. That problem creates an opportunity for us,” Holton holds. The GPE “is the best way I know of to improve the functioning of corporate America – and repair the obvious breakdown in corporate democracy.”