Archive for June 4, 2008

My post at the Harvard Law School Corporate Governance Blog

Lucian Bebchuk asked me to write a guest post about ProxyDemocracy on the Harvard Law School Corporate Governance Blog. Here‘s the post; I will repost here for convenience. Thanks to Lucian and blog editor Andrew Tuch for the opportunity.

Posted by Andrew Eggers, Harvard Department of Government and ProxyDemocracy.org, on Monday June 2, 2008 at 10:20 am

It’s the height of proxy season, and with the high-profile shareholder meetings taking place at Exxon last week and Yahoo later this summer, a new website ProxyDemocracy.org offers tools to help individual investors take part in the process.

Although individuals own over 25% of US equity, institutional investors run the show when it comes to proxy voting. Driven by a mix of corporate governance zeal and fiduciary duty, mutual funds, pension funds, and other institutions invest in proxy voting research and vote their shares almost 100% of the time. By contrast, only about 20% of individual investors bother to vote; it’s safe to assume that even fewer read the proxy statement and know what they’re voting on.

Given the difficulty of researching the issues on the ballot and the ease of free riding, it’s not surprising that individual investors generally pass up their voting rights as owners. But it has a cost. Though many retail investors don’t realize it, their brokers vote on their behalf when they fail to send in a ballot. The standard approach brokers have taken is to cast all of these “uninstructed” shares for management, which tends to stack the deck against governance reform. Some brokers have recently enacted a “proportional voting” policy, which means that the votes for all of a broker’s clients are cast to reflect the votes of the minority who submitted a vote. But this only increases the importance of informed investor participation: if 20% of retail investors do the voting for the rest, it’s important that they know what they’re doing.

ProxyDemocracy.org, which I developed part-time over the past few years with help from a few other programmers, helps individual investors piggy-back on the research and judgment of respected institutional investors. We collect the intended votes of a handful of institutions (CalPERS, CBIS, Domini, and Calvert) that currently disclose their votes in advance of meetings. Users can sign up for free email alerts on our site to find out how those institutions plan to vote on stocks they own. Just as citizen voters take account of endorsements from respected groups like the Sierra Club or the NRA (depending on one’s political persuasion), individual investors can use these cues from known institutional investors to arrive at a principled vote more cheaply.

The site also provides tools for mutual fund owners. Around half of US households own mutual funds, and mutual funds own about a quarter of US equity. We have processed hundreds of SEC filings to help investors compare the voting records of leading mutual funds and determine whether their fund represents their interests at shareholder meetings. Not surprisingly, SRI funds tend to be much more activist than mainstream funds, but the differences among mainstream funds are significant as well: our fund profiles indicate that Schwab’s S&P 500 fund has a much more activist record than Vanguard’s, for example.

In the coming months, we plan to add more mutual fund profiles and collect intended votes from additional institutions. I encourage you to have a look at the site and pass along your thoughts and suggestions, either in the comments here or by email to andy [at] proxydemocracy.org.

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June 4, 2008 at 11:20 am Leave a comment


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