Monday Morning: Shareholder proxies are a call to action

I’m making a New Year`s resolution a little late this year – right now, in fact.

The resolution? To start voting my shareholder proxies.

Lately, almost every day when I get home, I find another annual report, 10-K filing and/or proxy statement from one of the companies my wife and I have invested in. It’s proxy season.

Usually, I look through the material, but as most investors do, I generally toss aside the proxy until I have more time. Weeks later I remember it, but by then it’s too late to vote, so I throw it out. Most other individual shareholders do likewise.

The result: Company management wins virtually all the proxy votes, and the interests of shareholders such as my wife and me are often ignored.

In the past I have been able to console myself with the thought that my votes would have made no difference to the governance of the corporations, so great have been the margins by which managements’ proposals have won.

But last week, a proposal by dissident demanding shareholder approval for large severance packages at General Electric Co., such as the one that was granted to retired chairman Jack Welch, came within a whisker of gaining approval. It was defeated51.7% to 48.3%.

While similar proposals have been approved at Tyco International Ltd. and Union Pacific Corp. this proxy season, neither company has been the outstanding performer that GE has been over the past 15 years, so perhaps it’s understandable their shareholders have gotten more involved with proxy voting.

Increasing activism

That a stellar company such as GE saw 48% of its shareholders concerned enough to vote their proxies against management suggests a watershed moment in corporate governance. Shareholders are as mad as hell and they aren’t going to take it anymore.

Yes, most of those voting against management were no doubt institutional investors. But it appears more individual investors than usual joined the institutions.

And with the vote so close, if thousands more individual investors joined the institutions voting against management, or encouraged other institutions to do so, more shareholder proposals for improved corporate governance would win.

And victories would encourage more shareholders to vote, producing even more victories. My votes now might count for something.

Nothing would improve corporate governance, and probably the long-term investment performance of companies, more than a greater number of attentive and engaged shareholders. The threat of shareholder proposals, or shareholder slates of directors, winning proxy votes would certainly get the attention of management and boards of directors.

Perhaps if the economy and the stock market recover quickly, shareholders will become complacent and stop voting. But if the market continues to stumble along, this increased activism could become a habit.

It behooves all those who advise individual investors to encourage their clients to make voting proxies such a habit. It will be good for the shareholders, the companies, and the country as a whole.

I’m going to start my new resolution tonight by going through those corporate reports and proxies piled up on my desk at home and voting the ones whose deadlines haven’t passed.

Mike Clowes is the editorial director of InvestmentNews and sister publication Pensions & Investments.