Proxy season is a term for the period of time when most companies hold their annual shareholder meetings. Most companies set the end of the calendar year as the ending date of their fiscal year. It’s common to hold the annual general meeting the following spring. Proxy season tends to begin late in March and ends around mid-June, with a peak in May.
Prior to the annual general meeting, companies send out a proxy statement and proxy voting forms to their shareholders. The proxy statement generally outlines the general matters that the company will address at the meeting. In addition, the proxy statement lists factual information, including information on executive salaries and bonuses, for the shareholders so they can make informed votes.
Shareholders have the option of voting their own shares or letting the board vote on their behalf. When a shareholder gives the board permission to vote on their behalf, it’s called a proxy vote.
What Is a Proxy Vote?
A proxy vote is a ballot cast by one person or firm on behalf of a shareholder of a corporation. Investors who own shares in a company as of the company’s record date may vote on certain issues at the company’s annual general meeting.
At times, voters may not be able to attend the annual general meeting, or they may not want to; yet they still want to place their votes. Companies allow them to vote by proxy, which means that they can place their vote using some other means. Companies send out information prior to the annual general meeting about topics that the shareholders will be voting on along with proxy voting forms.
How Does Proxy Voting Work?
Many companies make a practice of sending proxy ballots out to their shareholders in the mail. In addition to the actual ballot, they send out an information sheet and the annual corporate report. Companies also have the option of making proxy materials available online. In this case, shareholders receive the annual report, proxy statement and a proxy card along with voting instructions.
Registered investment management companies also have the opportunity to cast proxy votes for the securities listed within their portfolios, including funds that were issued on behalf of mutual fund shareholders or high-net-worth investors who have funds in separately managed accounts.
The information booklet that companies send out is called the proxy statement. The proxy statement describes all the issues that the shareholders have an opportunity to vote on, including electing directors to the board; approving mergers or acquisitions, a stock plan, the auditor’s report, CEO pay, company benefits, a restructuring of the board; or anything else the board and management deem appropriate.
The vast majority of shareholders prefer to vote by proxy. Some of them elect a professional to vote in their place. Others prefer to designate a member of the company’s management team to vote their shares according to the instructions they provide on their proxy voting form.
The cutoff for votes is usually 24 hours before the annual general meeting is held, and shareholders have an opportunity to change their votes before the deadline. Shareholders can vote for or against each question. They can also list their votes as abstained or not voted.
Plurality Vote and Majority Vote
In calculating votes, corporations have the latitude to determine whether to use a plurality vote system or a majority vote system.
In a plurality vote system, to win a seat on a board of directors, the winning candidate only needs to get more votes than a competitor. In this system, a director who doesn’t have any opponents only needs one vote to get elected. Shareholders who are opposed to the candidate can choose to withhold their voting rights rather than vote for or against a candidate. Candidates who have enough votes withheld could influence the board of director’s choices for nominating future board directors.
In the case of a majority vote system, directors who receive a majority of the votes win their board seats. Proxy statements must detail how they factor withheld votes and abstentions because the voting structure can have a serious impact on whether a director gets elected.
Proxy statements also explain how they count votes for withheld votes and abstentions for issues other than board director elections, such as resolutions and voting on shareholder proposals. It’s common for a majority of votes to approve these issues. Corporations explain how they factor abstentions and withheld votes on these issues in their proxy statements.
How Board Management Software System Streamlines Proxy Voting
While proxy season occurs once a year, shareholders can bring issues to the board and managers at any time of the year. With the prevalence of data breaches, boards need a secure way of communicating with each other electronically about shareholder concerns. A top-quality board management software system by an industry leader like Diligent Corporation is quickly becoming a necessity in today’s corporate world.
Boards need a communications platform that has extra built-in security features that go well beyond any personal or business email account platform, such as Diligent Messenger. The benefits of a governance management software system like Diligent Boards and the suite of software solutions that comprise Governance Cloud provide countless benefits for boards that have a desire to uphold good governance principles and take their shareholders’ concerns and opinions into consideration.
A board governance management system holds templates for proxy information booklets, proxy voting forms, records who is voting and by what method, stores disclosure documents, stores meeting agendas and meeting minutes, and much more.
Boards that invest in Governance Cloud send a clear message to their shareholders, competitors and others that their company is vested in an approach to the market that is transparent and holds the board accountable. Diligent’s software solutions provide exceptional tools for board governance that make board work highly efficient and effective at all times, and especially during the all-important proxy season.