Protect Your Long-Term Investments
Most people buy stock in a company for the sole purpose of being able to reap hefty financial returns when the stock moves higher.
However, that’s not the only benefit to owning shares. The other perk relates to voting rights, which afford shareholders the ability to have a say in the company’s operations and direction.
We’ve seen how those in the C-Suite and those on the board of directors can make detrimental decisions about a company’s direction, leading to profit declines and stock drops. Hindsight has shown that if new leaders had been put in place, or if a board shakeup had been implemented, things may not have gone sour for the company’s financial health.
Unfortunately, this realization comes too late, especially for individual, or retail investors.
Here, we’ll discuss why this powerful voting right should not be taken for granted by individual, or retail, investors. We’ll note the growing role of activist investors whose wealth puts them in the driver’s seat in determining a company’s future.
We’ll also discuss findings that show how their visions, as well as those of institutional investors, differ from those of individuals. Because of this, individual investors should be even more attentive to what’s going on in the board room, and make sure they are exercising their voting rights powers.
It’s not lost on most investors that their share ownership entitles them to vote at annual shareholder meetings. One of the key rights you have as a shareholder is being able to vote.
Voting allows you to make your voice heard by a company’s top brass without you having to take extreme measures such as selling your stock. While shareholders are not required to vote, it is definitely in their best interests to do so. The U.S. Securities and Exchange Commission points out that voting outcomes can even affect the value of your shares.
There are a myriad issues that your place as a shareholder allows you to vote on. The SEC notes shareholders can vote:
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Against a proposed stock option plan if they don’t believe that the plan is in the best interests of the company
[/fusion_li_item][fusion_li_item icon=””]For or against the re-election of directors[/fusion_li_item][fusion_li_item icon=””]Base on any grievance, including officers’ pay[/fusion_li_item][/fusion_checklist]
One important thing to point out relates to those who use brokers. Except for mutual funds, and other similar types of investment companies, brokers must seek out your opinion in cases where you’ve allowed them to vote for you.
The SEC notes that in these cases, shareholders must send a Voting Instruction Form to their brokers, or their shares will not be counted in director elections.
Don’t get loss in the shuffle
One of the phenomenons that is affecting voting shareholders involves activist investors. These are mainly billionaire hedge fund managers who are dead set on jockeying for board positions so they can direct a company’s operations.
The issue here is that many of their solutions can run afoul of the long-term goals of individual investors. The way it works is that an activist investor purchases a minority stock position a company by buying common voting shares. This can inevitably lead to them gaining at least one board seat.
As noted by Global Risk Insights, the problem occurs when management rejects or refuses to work with activist investors. Chief reason relate to when management deems these investors as not having sufficient knowledge or experience in their industry, or about their company.
There was an incident when an activist investor bought enough shares in a retailer so that he could have more control of the company’s operations. Retail was not his area of expertise, and the practices he put in play only aggravated the company’s failing position. The stock plummeted, putting long-term investors’ dollars at risk.
This is a prime example of retail investors needing to watch the moves of these activist investors like hawks. When you see moves by these players, who offer their so-called bright ideas, be vigilant in making sure you vote. You may not prevail over them, but nothing beats a failure but a try.
The survey says
A recent examination on shareholders and their voting habits highlighted key differences between institutional and individual views on investing.
Called ProxyPulse, the report stems from a joint initiative by Broadridge Financial Solutions and PricewaterhouseCoopers. They reviewed the voting patterns of institutional players like endowments, mutual funds and pension funds, as well as those of retail investors.
It spanned almost 3,400 annual meetings that happened between Jan. 1 and June 30 of 2017.
It was found that during the 2017 proxy season, governance activism continued to rise. Referred to as ESG for environmental, social and governance issues, larger investors saw these as areas corporations needed to address more.
Individual investors saw these issues as less important. For example, institutions have voted 32% of their shares in favor of environmental proposals so far in 2017, while only 10% of retail shares supported such proposals.
Activist investors along with institutional investors continue to increase their influence in the operations of publicly-traded companies in every sector. The decisions and policies they are able to effect have consequences that directly affect the value of the shares of all stock holders.
While the average retail investor may not have the money to buy enough stake in a company to get a board seat, it’s important that the vote is not taken for granted.
Learn when the companies you have stock in have their shareholder meetings. Search out making sure you receive your proxy ballot so you can vote without attending. Also, learn about the motivations of the activist investors and others who are making a stir about change needed at a company.
Whatever you do, exercise your voting right.