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Subject 11. Shareowner Proxy Voting
The ability to vote one's shares is a fundamental right of share ownership. A company's rules governing shareowner-sponsored board nominations, resolutions, and proposals are generally supportive of shareowner rights, but the rules and the procedures for exercising such rights should not be prohibitively cumbersome. If this is the case, shareowners cannot readily address their concerns in order to protect the value of their shares.
Sometimes a Company makes it difficult for Shareowners to vote their common shares by not allowing them the right to vote by proxy or by accepting only those votes cast at its annual general meeting. In examining whether a Company permits proxy voting, investors may ask questions like:
- Is proxy voting permitted?
- How easy it is for Shareowners to cast their votes by proxy?
- Does the Company offer electronic delivery of proxy materials? Can Shareowners view proxy materials online?
- Do Shareowners have to attend annual general meeting to vote or does the Company offer telephone or Internet voting (or some other remote mechanism)?
- Does the Company coordinate the timing of its annual general meeting with other Companies in its region to ensure they don't hold their meetings on the same day but in different locations? In some regions that require Shareowners to attend such meetings to vote, Shareowners may not be able to attend all the meetings if they are held at the same time in different locations.
- Is the Company permitted to use share blocking? Proxy voting in certain countries requires share blocking. Shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting (usually one week) with a designated depositary. During this blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares are returned to the clients' custodian banks.
- What are the state proxy regulations governing the Company?
Practice Question 1Which of the following are appropriate elements of an effective proxy voting policy?
A. No distinction between routine and important proxies
B. Assuring timely receipt of materials
C. No statement of objectives of shareholders or beneficiaries
D. Consistently avoiding voting on controversial issuesCorrect Answer: B
Practice Question 2Which of the following is least likely to concern an investor evaluating a corporation's shareowner rights provisions?
A. Shareowners may nominate board members.
B. Shares held by the founding family have supernormal voting rights.
C. To ensure accuracy, company executives tabulate and verify shareowner voting.Correct Answer: A
The ability to nominate one or more individuals to the board can prevent erosion of shareowner value. Shareowners may be able to force the board or management to take steps to address shareowner concerns.
Study notes from a previous year's CFA exam:
g. evaluate, from a shareowner's perspective, company policies related to voting rules, shareowner sponsored proposals, common stock classes, and takeover defenses.