Moxy Vote Blog

John Bogle recently wrote an opinion letter, published in BusinessWeek, expressing concern over the recent Supreme Court ruling allowing corporations to spend freely on political donations.  Moxy Vote has commented on this ruling here, on our blog.

Bogle’s concerns are consistent with the worries President Obama expressed in his January 2010 State of the Union speech.  While President Obama encouraged Congress to reverse the Supreme Court decision, Bogle puts the onus on shareholders, for a very good reason:

We can justifiably suppose that the individuals holding shares in these giant corporations hold a broad spectrum of opinions, and corporate political contributors can hardly honor them all. Past experience also suggests that corporate managers are likely to try to shape government policy in a way that serves their own interests over that of their shareholders.

Last week, we invited Warren Buffett to become an advocate on our site.  And, while we may be showing hubris by inviting two icons to our party in such a short period of time, we can’t help ourselves. So, here we go again:

Hey Mr. Bogle!  You are cordially invited to become an advocate on Moxy Vote. Here, you can rally shareholders to file and pass resolutions requiring that corporations not make political contributions without the approval of 75% of shares outstanding. If you’re interested, have your people contact our people.

Warren Buffett issued his annual letter to shareholders two weeks ago. These letters are always a great read, and this is one is no exception. Here, he comments on corporate governance and the credit crisis:

It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.

The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

Hey Mr. Buffett! You are cordially invited to become an advocate on Moxy Vote, where you can help us rally the retail vote and help influence the CEOs and Directors with some “sticks”. If you’re interested, have your people contact our people.

Flickr photo by apfriedman. Here’s another good one.

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.