Mediant's Guide to the Beneficial Shareholder Voting Process

How well do your retail brokerage clients understand their rights as shareholders and the voting process for exercising them?

DOWNLOAD PDF

Retail investor account openings surged during the pandemic. Debate about the staying power of these new investors has given way to analysis of their combined force in defining stock prices. The need for shareholder education has grown as the need to close gaps in retail investor knowledge becomes more acute.

Alongside an understanding of the risks and rewards of investing, it's vital that shareholders are aware of their rights as part owners of a business. Chief among these is the right to vote in annual shareholder meetings.

Most new investors are beneficial owners, holding their shares indirectly through a bank or broker. Mediant has summarized their voting process, which banks and brokers can share with their clients.

What Beneficial Owners Need to Know about the Proxy Voting Process

1. Every year, publicly traded companies (issuers) announce the date of their annual shareholder meeting. Its purpose is to allow shareholders to vote on business proposals and the selection of board directors. Shareholders can vote if they own shares at least two business days before the record date, an eligibility cut-off time established by the issuer.
2. It is not necessary to attend the meeting to vote. Most banks and brokers outsource shareholder communications to a proxy service provider that will communicate with shareholders and manage the voting process.
3. If the beneficial owner is eligible to vote, the proxy service provider will contact them with: the company's annual report; a proxy statement (a legally required document that gives information about what will be covered at the meeting to enable informed decisions on matters such as new directors, directors' pay, and management declarations); and the voter instruction form (VIF), enabling them to exercise their voting rights.
4. Issuers have options for how they send this information. Full Set Delivery means materials are sent directly, either electronically or via post. Notice and Access means a notification is sent to shareholders at least 40 days before the meeting date, with the information made available on a website. Issuers can use a mix of these options for different shareholders, while shareholders retain the right to be sent information directly and set their preference for electronic or postal delivery.
5. Shareholders cast their votes using the VIF, phone or issuer's website. Some issuers also allow voting via email, in a brokerage app, or even using an Alexa smart speaker. Proxy voting takes place up until the annual meeting date.
6. Traditionally annual meetings were a physical meeting, but the COVID-19 pandemic has resulted in many issuers opting for virtual meetings. Some issuers have combined the two: hybrid meetings can be attended in person or remotely. The creation of a Digital Legal Proxy automates verification of voting eligibility, making it quick and easy for shareholders to join virtual meetings.
7. At the annual meeting all votes are counted. Shareholders are entitled to change their vote if a poll is called at the meeting and they are present. Most states require an Inspector of Election to ensure the propriety of the process. The Inspector tabulates the votes to ensure accuracy and makes a legally binding declaration of the result. The issuer then publishes the results.
8. Voting at the annual meeting is an opportunity for beneficial owners to make their voices heard and monitor how their voting has affected issuer decisions and the direction of the business.