Moxy Vote Blog

The Problem – Retail Voter Apathy

The biggest challenge that all shareholders face in collectively achieving better corporate governance is the lack of participation by “retail” (i.e., non-institutional) voters.  Approximately 25-35% of shares of public companies are held by individual retail shareholders.  This segment of the shareholder base is notoriously apathetic toward the completion and submission of proxy ballots.

Many reasons are offered to help explain retail voter apathy including the following:

• inefficient voting methods (e.g., paper or telephone)
• no sense of empowerment (i.e., a feeling of “what good will it do?”)
• little available information to allow a thoughtful voting decision
• little knowledge about the process and the right to vote

The Solution: Electronic Voting Platforms

Many institutional shareholders, like mutual funds, vote their clients’ proxies electronically through one of several online voting platforms.  The process is very efficient.  The ballots are delivered electronically to a Web-based application, and the votes are often submitted from within the same application.  Moreover, voters may create “default” proxy voting policies, or standing instructions, so that they do not need to return to the site to vote each ballot individually.  This method ensures that all votes are cast based upon pre-defined user-controlled preferences.

The development of electronic voting platforms for retail investors is the solution to the problems presented above.  Specifically, electronic platforms can provide information to allow investors to make informed voting decisions at the time that they are voting.  Group participation with other like-minded retail voters through these electronic platforms will strengthen the “voice” of the retail voter and empower the voter.  Electronic voting platforms that are seeking a profit will allocate resources to educating the investing public regarding the overall process and its importance in an effort to attract users.  Finally, electronic voting platforms are significantly more efficient than the currently available voting methods and would increase retail participation.

How do we create more and better electronic voting platforms?
There are numerous reasons for why proxy voting platforms for retail investors have failed to develop.  Recently my colleagues submitted a letter to the SEC that details these reasons.  Quickly, though, structural issues present in the industry inhibit the proliferation and effectiveness of the electronic voting platforms.

In our opinion, there is a simple solution, a silver bullet, to most of these issues.  The powers-that-be need to do two things:

1. Require firms that disseminate and collect proxy votes to be capable of delivery to all electronic platforms.
2. Require that all firms comply with the delivery instructions of the voter. Brokers and transfer agents must deliver to the platform chosen by the shareholder, just as they would deliver to a chosen physical address.

While these requirements may seem obvious, they do not reflect the current capabilities of the industry.  Regulators should work to implement these rules in order to force the industry to address its infrastructure issues and open things up.

Requiring firms to “plug in” to all electronic platforms would enable voting for a large block of shares that presently cannot be voted through the existing platforms (i.e., shares that are held “directly” and not through a broker).  Included in this group of shareholders are many participants in company 401(k) plans which are generally treated (for voting purposes) as directly-held shares despite being custodied at a broker.  Without this requirement, electronic platforms are rendered useless for this group of voters, and the apathy problem will persist.

It is of even greater importance for regulators to ensure that a shareholder has full control over the delivery of his/her proxy ballot because there are conflicts of interest among industry participants that could derail the development of electronic voting platforms.  The distribution agents in the industry work for the issuers (either directly or, indirectly, as is the case with broker-held shares).  As such, the agents have the incentive to satisfy these paying customers rather than do what is best for corporate governance.  By giving delivery control to the shareholder, we’d create a proper check and balance on the proxy distribution agents that otherwise may not have incentive to engage with all retail-friendly electronic platforms.

Back when Moxy Vote was little more than an idea on our whiteboard, we drew up a list of influential people who might eventually be interested in this project. One of the names on the list was Eliot Spitzer.  Yes, THE Eliot Spitzer, former Governor and Attorney General of New York. In these roles, Spitzer had a history of fighting for the little guy’s right to an even playing field on Wall Street, which meshes nicely with our goals at Moxy Vote.

In a surprising twist, we rolled into the offices last week to find that Spitzer already knows what we’re up to, and he’s writing about it on Slate. Here’s his neat summary of the opportunity we face:

About 25 percent of shares are held by retail investors—owners like you and me, as opposed to mutual funds, pension funds, or hedge funds. This 25 percent block of votes presents a huge opportunity, because only about one-quarter of that block votes. In other words, 18 percent of all shareholders are simply sitting out. After the economic cataclysm of the past two years, one might think the opportunity to bring these new voters to the table—just as in the 2008 campaign, is real. How to do it is the issue.

Technology may be the answer. Several Web sites focused on corporate proxy voting are hoping to emulate the success of recent political campaigns.

He then goes on to describe Moxy Vote, ProxyDemocracy, and ShareOwners.org, each of whom has a different plan to rally the retail vote.

We too think the world will be a better place when people tune in and get involved.  We’re honored to be on your radar screen, Mr. Spitzer, and thanks to Slate for helping to spread the word.