If you own stocks, one of your rights as a shareholder is to vote on certain company decisions and appointments. Although all publicly traded U.S. companies in the stock market grant shareholders the right to vote, the nature of what stock owners vote on and how the process works differs from company to company.
It’s important to know that you can exercise your stock voting rights and make your opinions known through the voting process. Here’s a high-level overview of how the process generally works.
What happens at a shareholder meeting?
If you choose to attend the annual general meeting of a company in which you own stock, this is typically the only time that the company and shareholders will directly interact. In certain states, both public and private companies hold annual meetings, but the rules about holding these meetings are stricter for public companies.
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The agenda will probably be similar to the following:
Notice of meeting
Prior to the meeting, the company is generally required to notify shareholders of the meeting through physical mailers. Each company has specific rules about how far in advance they must notify shareholders of the meeting.
The company must also file a statement with the SEC outlining the date, time and location of the next meeting. This statement will also include the topics to be discussed and voted on at the meeting.
Minutes of the previous meeting
Notes from what happened at the previous general meeting are presented and approved.
Presentation of financial statements
The company will present current financial statements to the shareholders.
Ratification of director actions
Decisions made by the board of directors over the previous year are presented and approved or denied by the shareholders. This can include the payment of dividends.
Certain companies will present an overall vision of the company’s goals for the upcoming year or other information relevant to shareholders.
Open floor for shareholder questions
Typically there will be a time when shareholders are allowed to ask questions.
Election of the Board of Directors and other votes
Shareholders vote on who will be members of the company’s board of directors for the upcoming year. Voting on other issues will also take place.
If a special meeting is called during the year, which is different from the annual general meeting, other topics will be discussed and voted on. These could include the removal of an executive, an urgent legal matter, or another issue that requires immediate attention.
What do shareholders vote on?
The management team of a company makes many decisions throughout the year, including hiring and firing, the allocation of budget, product development and more. Certain issues are decided on through the shareholder voting process each year. These can include topics like:
• Electing directors to the board
• Approving a merger or acquisition
• Approving a stock compensation plan
• Executive salaries and benefits
• Major shifts in company goals
• Fundamental corporate structure changes
• Approving stock splits
• Dividend payments
Shareholders might find it important to take advantage of the opportunity to vote, since these decisions can greatly affect their investments. Certain decisions that may benefit a company’s management may not be in the best interest of investors.
For example, a company may choose to use a defense tactic called a “poison pill” to prevent a takeover by an acquirer.
They might do this because company management may be against the acquisition, even if it could result in a significant increase in stock value for investors.
As you’re considering which stocks to invest in, you may want to look into the specifics of how shareholder voting works with each company.
There are some companies that don’t allow shareholders to call special meetings, and a supermajority vote is required to change some of the company’s bylaws.
How does the voting process work?
There are a few different ways you can vote as a shareholder. These differ depending on the company and what type of owner you are. For example, certain companies give shareholders one vote per share of stock they own, while others give each shareholder one vote total.
If you get one vote per share, this means you have a larger say in decision-making at the corporate level if you are more heavily invested in the company.
Registered owners hold shares directly with the company, while beneficial owners hold shares indirectly through a bank or broker. Most U.S. investors are beneficial owners. As either type of owner you should receive instructions on how to vote in each of the following ways:
Companies typically hold annual meetings that shareholders are allowed to attend. They can also hold special meetings throughout the year.
Shareholders receive materials in the mail or via e-mail containing details of upcoming meetings. Most companies hold their annual meetings between March and June, within six months after the close of the previous fiscal year.
According to some statutes, if a group of shareholders representing more than 10% of a company’s capital — or a percentage specified in the company’s bylaws, as long as it doesn’t exceed 25% — requests a meeting, members of the board are required to call a special meeting.
If you are a registered owner, you will receive instructions on how to fill out a proxy card so that a delegate can vote on your behalf. If you are a beneficial owner, you will receive a voting instruction form.
The materials you receive in the mail might include a phone number and a control number that you can use to vote over the phone.
Over the internet
Some companies are now providing instructions for shareholders to vote online.
What are proxy requirements?
Many shareholders live too far away and are too busy to attend company meetings and vote in person.
For this reason, shareholders may vote by proxy, meaning they authorize someone to vote on their behalf.
As a shareholder, you will receive a proxy ballot in the mail, containing information about the issues on which you can vote.
The proxy statement also may include information about the company’s management and the qualifications of any potential board members, the agenda for the meeting and the company’s largest shareholders. These statements are filed with the SEC on an annual basis before the general meeting.
If you own stocks through a mutual fund, the investment managers can also cast proxy votes on your behalf.
The proxy voter is often someone on the company’s management team. Even if you choose to vote by proxy, there are some issues you can still directly vote for or against, such as the election of directors and the chief executive officer’s salary.
Recently there has been talk of reforming the proxy voting process. In 2018, the SEC Division of Corporate Finance and Investment Management met to discuss possible ways to improve the process. The goal is to make proxy voting more efficient, transparent and fair.
One way the SEC proposes to do this is by requiring the issuance of universal proxy cards. These cards allow shareholders to vote directly for their choice of board members in contested elections.
This gives them the chance to vote in a similar way to how they would in person. Many other suggestions for improvements were made, but nothing has been decided on yet.
How do you know when to vote?
If a company is preparing to hold a vote, they set what is known as a “record date.” If you own shares of that company on the record date, then you have a right to vote. The company will send all eligible voters one of the following three notices:
• A physical notice stating that proxy materials are available for viewing online.
• A package containing a voting instruction form or proxy card, as well as an annual report.
• A package containing an information statement and annual report, but no proxy card.
Tools for investors
When you’re deciding whether to invest in a stock, one thing you may want to look for is any news regarding previous shareholder meetings. You can find out more about what shareholders have voted on in the past, and the specifics about how shareholder voting works with that company.
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