When you own stock in a corporation, you have certain rights, and certain responsibilities. One of the most important of these is the right, and responsibility, to vote. Each year, companies are mandated by the Securities and Exchange Commission to send shareholders a proxy statement and a proxy ballot.
The proxy statement describes shareholder resolutions and the material facts on which shareholders will vote. The issues to be voted upon may include questions about the company's auditors, board of directors, option plan, as well as social issues. Management always gives its recommendation on shareholder votes.
The proxy ballet gives written authorization for the management to cast your votes at the shareholder's annual meeting. Votes are always for or against.
Initiating dialogue with company management to top
Speaking with company management about issues of concern is common technique among institutional shareholders. Talking with management avoids the confrontational approach of shareholder resolutions and may find a friendly ear.
While large shareholders such as pension and mutual funds may have a greater ability to get the attention of management that should not stop individual investors from voicing their concerns. Addressing a letter to the president or the investor's relation department as a shareholder will most likely get a response.
Sponsoring shareholder resolutions to top
The Securities and Exchange Commission (SEC), the governmental body that oversees the stock market, has established a series of rules controlling shareholder resolutions. For individual investors there are four issues that are most important.
First, a resolution sponsor must own $2,000 (or 1%, whichever is less) of the company's stock for at least one year and must maintain this threshold level of ownership through the date of the annual meeting.
Second, a proposal for the forthcoming annual meeting must be submitted to the company at least 245 days (9 months) after the date the proxy statement was released in the previous year. Since most shareholder meetings are in the spring, you should consider submitting your proposal in November or December. Call the investor's relations department for a firm date.
Third, the proposal and a supporting statement can be no longer than 500 words.
Fourth, the proposed resolution must pass the SEC's grounds for exclusion. For instance, the proposal cannot suggest breaking laws or rules or deal with "ordinary business" operations
While any shareholder can become an activist, it is common for groups of shareholders to jointly agree on a resolution before it is submitted. That way, resolutions will have the best chance to receive broad support. For a more complete discussion of developing a resolution please reference our Step-by-step Guide to Filing a Shareholder Resolution
Additional information can be found at Friends of the Earth website.
Divestment to top
The last resort for shareholder activists is divestment, or selling stock in an offending company, after attempts at dialogue or resolutions are deemed ineffective. Although divestment by an individual shareholder is unlikely to affect a corporation, many institutional investors, such as pension funds and mutual funds can carry a lot of weight through divestment. This strategy has been used to try to stop companies from doing business with countries led by repressive governments, such as South Africa in the 80s or Burma in recent years.