Jeffrey Morgan has been president and CEO of the National Investor Relations Institute (NIRI), the professional association for financial communicators or investor relations professionals, since 2008.
If you're a regular Foolish reader, I'm guessing you own stocks. Yet when your broker sends you the annual shareholder meeting materials for your companies, I'll bet you throw those mailings in the trash. Some estimates indicate that only one-third of retail shareholders actually vote their shares. I know the argument: "Why should I vote? My vote doesn't count anyway."
As of Jan. 1, 2010, though, your vote really counts.
Meet NYSE Rule 452
Before this year, if you held your stocks through a brokerage account -- as opposed to being a "registered holder" who owned stocks in your own name -- and you didn't vote your shares before the annual shareholder meeting, your broker could vote on your behalf in director elections and other "routine matters."
But in 2009, the SEC approved a change to this little-known rule. Now, your broker may no longer vote on your behalf for director elections, even if those elections are uncontested. For your vote to count, you'll now need to tell your broker how you want to vote before the shareholders' meeting.
Why your vote really matters
Some estimates indicate that 70% to 80% of investors own their shares through brokers. If only one-third of retail holders actually cast ballots, and brokers can no longer vote for non-voting shareholders, how will companies address routine matters at their shareholder meetings? The Rule 452 change means that companies can no longer depend on the retail vote for matters such as electing directors.
That move particularly affects companies with a significant retail shareholder base. How will companies staff their boards of directors without enough votes? More fundamentally, how will companies even achieve the necessary quorum to hold the meeting? And why do you care?
With corporate governance on the tips of everyone's tongues following the recent economic downturn, we should all care. As a shareholder -- and therefore owner -- you have the legal right to vote your shares on important governance matters that affect your company. The company's board of directors is one of the most crucial questions you'll face. Directors oversee the company's management and direction. It's important to vote for the directors that you believe will best help the company perform well (and thus enhance your investment).
Your vote also helps ensure that the company meets the minimum quorum requirements to hold a shareholder meeting. Thus, the company can avoid the cost and hassle of rescheduling the meeting -- sparing it from spending money it could otherwise return to shareholders.
What active investors should know
To help investors understand the importance of their participation, the SEC has created a new resource on its website, Spotlight on Proxy Matters. There, you will find a wealth of information explaining the rule change and its meaning to you, general information about shareholder meetings, the proxy voting process, and more.
If you have questions about this new rule or the proxy voting process, reach out directly to the Investor Relations department of the companies in which you own stock. They're your resource -- use them!
Do you vote your proxies on the shares you own? Do you think you make a difference? Tell us all about it in the comments below.
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