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How to vote company proxies

One of the services that Cornerstone offers to its Investment Management clients is the voting of company proxies. If you own any number of stocks, your mailbox is probably flooded with these documents each spring. Sometimes, it's useful to receive a company's annual report to review, but most of the rest of the packet is often confusing. Companies are required to send annual reports to their shareholders as well as any information associated with a shareholder vote. This usually includes a proxy statement and document that explains (in excruciating detail) the facts and figures behind the agenda items shareholders will be voting. The election options usually fall into one of a few categories:

Election of board members
Selection of auditors
Compensation, both executive and managerial
Board composition and election
Social concerns

When we vote proxies, we vote in the best interest of its client owners of the shares. More often than not, Cornerstone will vote as recommended by the board or directors, but there are always exceptions. Below are some examples:

Voting against board members who sit on four or more major (publicly traded) corporate boards.

Some board members over-commit themselves, and there are plenty of candidates who do not sit on this number of boards. A board of directors is supposed to guide the strategy of the firm, not be a set of figureheads. Board members should have an ownership stake in the firm, and their individual profiles will indicate their interest in the company. Also, electing family members to a board of directors does nothing to increase board independence.

Executive compensation

This is a hot-button issue and has been for some time. The board will generally be in favor or increasing executive compensation packages, but you do not have to vote in favor of them. A good management team guides a company steadily through good times and bad, and the stock price should reflect this. One way to evaluate your company is by viewing a chart in the proxy statement that compares the previous five years performance of the firm versus both the market and its industry. Comparison to industry is most important.

Voting for cumulative voting by shareholders and against staggered boards.

This allows for quicker action and higher probability to wrest control from an inactive and entrenched board, especially in the instance of a possible takeover.

Voting against "shareholders' rights" plans.

These are typically masked attempts at establishing poison pill provisions. This gives the board power to veto take-over offers. Sometimes, this can be a good thing (if the offer price is not adequate), but other times it is a way for boards to remain entrenched and retain the status quo.

Social concerns

Frequently, social concerns are brought before the shareholders of the firm. Often, the company's response is that it addresses that concern in some way or another through its policies. We cannot provide guidance for the voting of any individual issue. Our high-level answer to that question is "will the policy adversely affect share price, and does that over-ride my concern over this particular issue?"

These thoughts on voting proxy statements are based on our experience within the industry and our many hours voting them. They are a starting point to help you understand more completely how the process works and how you can expedite your participation within it.

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