Don’t Miss Out: The Other Vote You Could Be Casting

October 28, 2024 by Jonathan Harrison, CFP®

The upcoming presidential election is understandably on a lot of people’s minds right now. However, you may be missing another type of vote that has a significant impact on the world around you: proxy voting.

Usually ignored gibberish

If you’ve invested for even a little while, you may be familiar with proxy packets received in the mail. Or maybe you’ve received emails saying, “Important proxy voting material is ready for your review.” These proxy voting packets can include hundreds of pages. They’re fine print. Text seems to fill every inch on each page. Most people don’t know what to do with these proxy packets. So they get discarded.

What is proxy voting?

When you own a stock, you own a business. You may own an incredibly small percentage of the company. But you’re technically still an owner! As an owner, you get the benefits of profit (such as dividends). Owners also have responsibilities – specifically making sure the company is run well. It’s the owners who determine who’s on a company’s board and key initiatives the leadership should follow. Since most normal investors cannot attend a company’s board meeting, they use a proxy vote to tell the company how they want to vote instead.

Why this is important

Reading the proxy packet, however, is quickly overwhelming. You probably don’t recognize any of the board members being voted on. The issues are unfamiliar and obscured in corporate-speak. It’s easy to quickly give up and move on to more important matters.

But proxy votes are important because public companies are such a big part of our daily lives. We rely on them for our smartphones and the food on our tables. They play critical roles in our healthcare, safety, and even entertainment. These companies drive innovation, create jobs, and contribute significantly to the economy.

Companies can get off track. They’re run by fallible people. Leadership may develop a short-term focus on boosting stock prices, harming long-term sustainability and innovation. They may fail to adapt to market changes.

Most people can think of a company that’s gotten something wrong. Maybe you disagree with a company’s public stance on a social issue. Perhaps you think some pay executives way too much. Or are angry about controversial testing or contaminated waste. Whatever the issue is… if you’re an owner, you have a voice!

Corporations can do great harm. However, they have immense power for positive change as well. It’s the job of the owners to keep companies on the right path.

Practical considerations

If you care about changing something in corporate America, how do you get started? It’s easy to be discouraged about the small size of your voice. Your shares probably don’t amount to much. If you own companies within another fund, such as an index fund, your influence may feel even smaller. Index funds are a convenient way to own a diversified set of companies, since they buy hundreds – sometimes thousands – of companies. But this means the amount you own of each company is often incredibly small. That’s great for diversification, but dilutes your voice.

Fortunately, there’s been a movement in the last few years to give the average shareholder a greater voice in companies. You have more options than ever before.

Here’s how to use your voice for corporate influence:

Remember that “small” adds up. Your share percentage may be infinitesimal. But by banding together with others, your influence can build. Agencies such as the Interfaith Center on Corporate Responsibility advocate for large collections of like-minded shareholders.

Activate “proxy-voting choice” on index funds when available. A new trend gives individual investors the ability to select a preset voting program. Instead of giving their voice to big index fund managers, investors can activate “proxy-voting choice” programs. These give authority to the proxy-voting service to vote on their behalf based on a specific set of values. Larger index funds began rolling out such programs in 2024 and are expected to expand availability.

Or, intentionally choose funds whose values match your own. Another way to amplify your voice is by using investment funds with a specific values-based filter. Unlike broad-market index funds, these funds invest with a specific mandate. Some are focused on sustainable energy; others exclude “vice stocks.” Beyond screening out bad actors, these funds can also advocate on your behalf. By pooling votes, introducing shareholder proposals, and engaging with company management, an investment fund can have more influence than individual investors.

Don’t forget your purchasing power. Companies exist for revenue. Every time you spend money, you’re effectively influencing the marketplace by rewarding businesses that align with your values and withholding support from those that don’t. In theory, this collective consumer behavior can push companies to adopt better practices, change policies, or even shape the types of products and services they offer. “Voting with your dollar” is not always enough to influence change; you may not be a company’s target audience. However, your dollars do have an impact, even if small.

Proxy voting is a powerful tool that allows you to influence the direction of the companies you invest in. There is possibly more opportunity for social change from Wall Street than Washington, DC. By using your voice as a shareholder, you help drive responsible business practices and confidently invest in a way that matters to you.

If you need help crafting an investment strategy that reflects your values as well as your personal goals, Sound Stewardship is here to help. Reach out to our Wealth Advisors today to schedule an introductory consultation.

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