Investors who own shares of common stock have the right to vote in elections on certain corporate matters. Election outcomes can help determine the company's short- and long-term profitability, and ultimately the stock price.
The spring proxy season (generally April through June) is when many publicly traded corporations hold annual shareholder meetings. A smaller number of companies hold meetings during a "mini" proxy season in the second half of the calendar year. Special meetings may be held when there is an urgent matter for shareholders to consider.
Shareholders may attend meetings and cast their ballots in person, or they can vote by mail, phone, or in some cases over the Internet. In a fairly recent development, companies may hold a virtual meeting, allowing shareholders to ask questions and/or vote their shares online. These trends could make it more convenient for investors to participate in corporate elections and influence the outcomes of their investments.
The Securities and Exchange Commission (SEC) requires publicly traded companies to file proxy statements (which list and describe proposals that will be put to a vote) in advance of shareholder meetings. In the past, proxy statements were mailed with the annual report and the proxy card or voting instruction form to investors who owned shares on the record date. Today, these documents are often delivered electronically, unless paper copies are requested. Investors may be contacted through email and provided with a link to a website where they can find meeting information, proxy statements, and voting instructions.
The specific issues on which shareholders are entitled to vote vary by company. Typically, shareholders elect the board of directors and vote on proposed changes to corporate structure and goals. Many companies ask shareholders to approve executive compensation (say-on-pay) and the selected auditor. Some proposals could affect the price of an investor's existing shares more directly, such as the terms of a possible merger, acquisition, or stock split.
When a friendly acquisition offer is rejected, the company may take a stake in the target and submit proposals directly to shareholders. The acquirer may nominate new board members or try to replace management in order to facilitate a "hostile takeover."
Management may adopt a shareholder rights plan, known as a "poison pill," which is a tactic designed to make the company a less attractive target. If an investor buys a block of shares big enough to trigger a response, existing shareholders are offered additional shares at a discount, diluting the acquiring company's potential equity.
Institutional investors, such as fund managers and pension plans, often use their large ownership positions to shape corporate policies. However, SEC rules allow any individual investor who has continuously held at least $2,000 worth of company stock for at least one year to submit proposals for a vote.
Special shareholder proposals are commonly used to advance specific environmental, social, and governance policies. In 2018, institutional investors pushed companies to report on the impact of climate change and the diversity of their boards of directors.1 Activist investors may try to shake up company leadership and force decisions they believe will boost the value of their holdings.
A proxy fight occurs when groups of shareholders with opposing goals persuade other shareholders to allow them to vote their shares. Before taking a side, investors may want to carefully evaluate the specific proposals presented for a vote.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.
1 Broadridge/PwC 2018 Proxy Season Review