Common stock shareholders in a publicly traded company have certain rights pertaining to their equity investment, and among the more important of these is the right to vote on certain corporate matters. Shareholders typically have the right to vote in elections for the board of directors and on proposed operational alterations, such as shifts of corporate aims and goals or fundamental structural changes.
Shareholders also have the right to vote on matters that directly affect their stock ownership, such as the company doing a stock split or a proposed merger or acquisition. They may also have the right to vote on executive compensation packages and other administrative issues.
Common stock ownership always carries voting rights, but the nature of the rights and the specific issues shareholders are entitled to vote on can vary considerably from one company to another. Some companies grant stockholders one vote per share, thus giving those shareholders with a greater investment in the company a greater say in corporate decision-making.
Alternately, each shareholder may have one vote, regardless of how many shares of company stock he or she owns. Shareholders can exercise their voting rights in person at the corporation's annual general meeting or other special meeting convened for voting purposes, or by proxy. Proxy forms are sent to shareholders along with their invitations to attend the shareholders' meeting. These forms list and describe all the issues on which shareholders have the right to vote. A shareholder may elect to fill out the form and mail in his or her votes on the issues rather than voting in person.
Since the issues on which shareholders can vote, at least in part, determine the profitability of the company going forward, voting rights in such matters give shareholders the opportunity to influence the success of their investment. Decisions made at the annual shareholders' meeting can be the deciding factor in whether a company's stock price subsequently doubles or declines by 50%. Therefore, it is important for shareholders to take advantage of the opportunity to positively influence corporate direction.
Shareholders should thoroughly analyze proposals being presented for a vote. For example, there may be proposals for the company to take action that amounts to creating a "poison pill" designed to thwart a possible takeover by another firm. While such proposals may be beneficial for corporate management personnel, they may not necessarily be in the best interests of shareholders who could realize substantial capital gains from their stock shares in the event of a takeover. Any proposed changes to the company's bylaws should be carefully scrutinized, as should company management proposals to change legal or accounting firms.
Proposed stock option or stock split plans can have a significant impact on the value of existing shares, and so such proposals merit careful evaluation by shareholders prior to voting. Another item for shareholder analysis is the company's Compensation Committee Report. Investors should review the company's compensation plan to determine things such as the overall reasonableness of executive compensation packages and how effectively bonuses are tied to actual performance.