Prior to the general meeting of a company or mutual fund, shareholders will receive a package in the mail containing a variety of documents that report financial data and operations results and announce important issues - such as proposals for changes to the company's share structure or mergers and acquisitions. These are all matters that shareholders or unit holders, the true owners of the company or mutual fund, will vote on at the general meeting. If, however, a shareholder is not able to attend an annual (or special) meeting, he or she can vote on proposals by means of a proxy, one of the documents that is included in the pre-meeting mailing package. (To learn more, see Knowing Your Rights As A Shareholder.)

The Purpose of Proxy Voting
Shareholder voting is the primary means by which shareholders can influence the company's or mutual fund's operations, its corporate governance and even activities of social responsibility that may fall outside of financial considerations. It is therefore very important for shareholders to participate in the voting and make their decisions based on a full understanding of the information and legal documentation presented to them.

At shareholder meetings, investors with common shares (or mutual fund units) typically receive one vote per share (or unit), unless they own shares carrying additional voting provisions. The votes of shareholders who are absent from a meeting and have not used a proxy card bearing their signature are considered to be abstained--they count neither for nor against any proposal tabled at the meeting.

But proxy voting allows shareholders to vote when they can't attend a shareholder meeting, so investors are quite literally able to own and vote on equities in companies and mutual funds that might be located and registered clear across the globe.

Voting Proxies Electronically
In the age of the internet, investors can not only buy and sell stocks online, but also vote their proxy statements. The entire documentation delivery process can be electronically automated. Official documentation is delivered to shareholders in electronic form, and then they log onto the system with a control number or personal identification number and vote for or against the resolutions presented.

Proxy Voting Guidelines
The internet also greatly assists shareholders in researching their decisions. Numerous institutional investors now post their voting decisions online prior to the meeting date, giving individual investors a chance to see where the large institutional shareholders stand on issues. These same institutions may also provide extensive explanations of their decisions by posting their 'proxy voting guidelines'. For example, institutions may cast their votes on criteria of long-term value, corporate accountability, responsibility, sustainability, and so forth.

The most proactive of institutional investors play a sort of champion role in keeping directors accountable for the resolutions that are introduced at important meetings. Not only will the institution establish its model proxy voting guidelines, but if a decision is initially unclear, it will seek additional information from the company itself. For example, an institution might contact management directly to discuss a specific proposal, suggest modifications to the nature of the proposal, or in extreme cases, urge the withdrawal of the proposal in its entirety. Such influence is generally held only by powerful institutional investors, making the institution's role in the proxy voting process invaluable.

Innovations to the Proxy Voting System
In the wake of much-publicized corporate scandals perpetrated by the management and directors of various publicly-traded companies over the years, more consideration has been given to potential revisions of the proxy voting system--most significantly, the possibility of shareholders taking an active role in introducing resolutions to the proxy. These proposals are often termed "direct proxy access" and focus most prominently on the possibility of allowing shareholders to nominate director candidates. On the one hand, this could bring fresh perspectives to the board of directors; but on the other hand, lack of experience (among other factors) could cause shareholders to nominate directors who are truly inappropriate for directorship.

Proxy voting is often the sole means by which investors can have a say in the business operations and societal activities of their company or mutual fund. Shareholders need not attend an important meeting in person, but they certainly must make the effort to read and understand legal resolutions and use all available resources to make an educated vote based on their best knowledge and information.

To learn more on a shareholder's responsibility, see Socially Responsible Mutual Funds and Putting Management Under The Microscope.

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Commodities Mutual Funds

    Get information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
  2. Mutual Funds & ETFs

    Top 5 Health Mutual Funds

    Learn about the top five mutual funds that invest in stocks of companies that primarily operate in the health care sector of the United States.
  3. Investing News

    Top Tips for Diversifying with Mutual Funds

    Are mutual funds becoming obsolete? If they have something to offer, which funds should you consider for diversification?
  4. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  5. Professionals

    Hard and Soft Due Diligence: What's the Difference?

    Learn about the differences between "hard" and "soft" due diligence in a mergers and acquisitions deal (M&A) and why soft diligence is increasingly important.
  6. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  7. Mutual Funds & ETFs

    Top 4 Global Real Estate Mutual Funds

    Read about four of the best global real estate mutual funds, which invest in the securities of real estate companies or real estate investment trusts (REITs).
  8. Professionals

    Top 5 Highest Paid Hedge Fund Managers

    Understand what a hedge fund is and why hedge fund managers make so much money. Learn about the top 5 highest paid hedge fund managers.
  9. Stock Analysis

    How UPS Plans to Benefit from Its Coyote Acquisition

    Understand the business models of UPS and Coyote Logistics. Learn about the top four ways in which UPS will benefit from the acquisition of Coyote Logistics.
  10. Mutual Funds & ETFs

    Mutual Funds Are Not FDIC Insured: Here Is Why

    Find out why mutual funds are not insured by the FDIC, including why the FDIC was created and how to minimize your risk with educated mutual fund investments.
  1. How do a corporation's shareholders influence its Board of Directors?

    The 21st century has seen a rapid increase in shareholder activism, such as the general awareness, involvement and influence ... Read Full Answer >>
  2. Do mutual funds pay dividends?

    Depending on the specific assets in its portfolio, a mutual fund may generate income for shareholders in the form of capital ... Read Full Answer >>
  3. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  4. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  5. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  6. Why is fiduciary duty so important?

    Fiduciary duty is one the most important professional obligations. It basically provides a much-needed protection for individuals ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!