by Joan Warner
Yes, it’s proxy season, when a shareholder’s fancy turns to activism.
Many of America’s publicly traded companies hold their annual meetings this time of year. (Warren Buffett live-streamed Berkshire Hathaway’s event, known as “The Woodstock of Capitalism,” on Saturday.) Theoretically, annual meetings give investors a chance to influence, by voting their proxies, how the businesses they co-own are managed. In practice, shareholders — especially small shareholders — have a tough time effecting meaningful change.
Nevertheless, I like to keep an eye on what investors are griping about, because in some cases their complaints get results. Perhaps the most dramatic example has been a shareholder vote called say on pay. Required by the SEC in 2011 as part of the Dodd-Frank Act, the vote allows a company’s investors to approve or reject the compensation packages that the board of directors designs for top executives. The vote is nonbinding, which means the board can ignore it. But a “no” say-on-pay vote sends a stern message. In fact, even a lukewarm “yes” can nudge the board’s compensation committee into action.
Since say-on-pay voting became mandatory, Fortune reports, CEO salaries have generally come into closer alignment with shareholder returns, and they appear to be rising less rapidly. And when a company loses its say-on-pay vote, CEO comp often gets more earthbound the following year. That’s shareholder democracy in action.
So, what’s on the proxy this season? As you’d imagine in an election year, corporate political spending is a hot issue among investors. The push for disclosure has been gaining traction since 2010, when the Supreme Court ruled that companies have a right under the First Amendment to spend as much as they want in support of political candidates, parties, and causes. “With a lack of transparency, shareholders are missing a key piece of information about their long-term investment,” says Rachel Curley, an associate at advocacy nonprofit Public Citizen in Washington. (Public Citizen, which created the cartoon you see here, wants SEC chairman Mary Jo White to require that all publicly traded companies disclose their political spending.)
Now, shareholder advocates want to add institutional firepower to their efforts. Public Citizen and others are urging mutual-fund giant Vanguard to vote “yes” on resolutions asking for transparency about lobbying and political contributions. Since Vanguard owns $3 trillion worth of shares, its support would give spending resolutions a lot more clout with corporate boards.
According to Curley, 55,000 Vanguard customers have signed a petition asking the fund manager to support disclosure at the companies where it invests. “Vanguard has cultivated a reputation as consumer-friendly,” she says, adding that the company claims to favor political-spending transparency. So do 88% of Americans in both parties, according to polls. But until the SEC acts, it’s up to shareholders to get action on disclosure. If you own individual shares, people, vote them. And if you don’t, call your mutual-fund company.