Why I've Become a Shareholder Who Doesn't Vote

If you own individual stocks, chances are you’ve started to get reminders to vote at annual meetings. On a typical day at this time of year, about 60 different companies file proxy statements inviting investors to participate. The invites that I receive from E-Trade, the firm that I use for the handful of individual stocks that I own, remind me in big letters that “Your Vote Counts!”

That’s a nice sentiment, but it’s not exactly the truth. Unlike in other elections — from the local school board to the President of the United States — your vote in a company’s election might not matter at all. That’s true whether the proposal is coming from the company — voting for directors, for example — or from outside shareholders pushing for changes in compensation or environmental policies.

In most elections, the person or position with the most votes wins. In the last contest for Iowa’s second congressional district, for example, Republican Mariannette Miller-Meeks took office with a margin of just six votes. At most public companies, by contrast, a director can lose by thousands of votes and still remain on the board, assuming the company doesn’t have a stated policy that requires a defeated director to resign. The same applies to executive compensation plans, on which the Securities and Exchange Commission began requiring shareholder approval back in 2011. Ten years later, investors still vote on the issue, but the outcome — especially when the compensation proposal is defeated — is usually no different than if investors never voted at all.

At the recent Starbucks annual meeting, shareholders voted down an “advisory resolution” on executive compensation, by 421.7 million to 381.4 million. In a similar vote at aerospace company Transdigm Group, shareholders were opposed 28 million to 21.1 million. The key word here is advisory: Shareholders can express their opposition, but the companies are under no obligation to comply. A Starbucks spokesperson did not respond to a request for comment on whether the company planned any changes. A spokesperson for Transdigm said “we value input from our investors and we acknowledge the results.”

There are exceptions, when companies actually follow through on shareholders’ wishes. Proctor & Gamble recently released a “Forestry Practices Report,” prompted by proposal from its last annual meeting that shareholders approved by a vote of 1.1 billion to 562.7 million.

When it comes to electing directors, things get even murkier. At a growing number of companies, directors are required to submit their resignation if they don’t get a majority of the votes. But the company isn’t obligated to accept that resignation, and it’s rare to see a director lose the vote and actually leave a board. At real estate investment trust AvalonBay Communities, for example, Ronald Havner Jr. remains on the board despite being voted off four years ago. In an SEC filing at the time, the company acknowledged the defeat and said that the board would “consider Mr. Havner’s offer to resign.”

Unfortunately, the SEC doesn’t have a lot of tools available to address this, under current law. And as nice as it would be to just suggest that they require shareholder votes to be binding, companies and the corporate bar would likely consider that an act of war.

Despite moving cross-country three times over the past eight years, I’ve never missed an election for public office and I’ve often spent several hours digesting California’s notorious ballot initiatives, even when living out of state. I can’t say the same for shareholder elections. Even though I read SEC filings voraciously, I don’t always vote when the time comes. If I thought that my vote really counted, I might change my mind.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

©2021 Bloomberg L.P.

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