Archive for March, 2006

Most people don’t directly encounter proxy voting. When you invest in a mutual fund or even when you hire a money manager to trade on your behalf, they usually (always, for a mutual fund) receive and vote your proxies. Proxies are your chance to exercise the tiny power you have as a shareholder. Since one share = one vote, the more shares you have, the more your vote counts.

It can be argued that it is a sensible solution to have fund managers vote proxies: the investment manager (or firm) is the entity most in touch with the performance of that company and what directors or changes are best for maintaining that performance. Further, the fund as a whole might hold enough shares to make their votes draw the attention of the company and allow an opportunity for influence. Unfortunately for the would-be socially responsible investor, most investment managers are focused purely on financial measures and might vote or influence differently on say, prohibiting discrimination based on sexual orientation as part of a stated employment policy, than I would. [Less than 1% of Advanced Auto Parts votes supported such a resolution in 2005.] One solution is to switch to an SRI investment manager and hope that their values are more in line with your own.

Nowadays, you don’t just have to hope: the SEC released a ruling that after August 1, 2004 funds have to “make accessible to shareholders” how they voted their proxies. That can be satisfied by making them available on request, after the season. Fortunately several leaders in socially responsible investing began disclosing their proxy votes prior to the SEC ruling, as part of pressuring the SEC to make this a requirement for all mutual funds. Domini funds is a leader in this, posting current and past proxy votes on their website. This proved to be very useful to me tonight, when Qualcomm called my house.

We have one investment account where the proxies still flow through to us. Most of the time we ignore them, truthfully. I have phases on and off where I’ll open them (well, now they go to Darrin by email, so that’s even tapered off) and withhold votes on everything to make the votes of those who know something more meaningful, rather than just default to management’s recommendations.(There are good reasons to do this also because of the way directors are elected. Another blog!) Even better, if there’s an interesting looking shareholder resolution I’ll surf around on the web and try to figure out what’s going on and what the “responsible” vote would be. Unfortunately there isn’t a good information source. The Interfaith Center for Corporate Responsibility (ICCR) has been the leader on shareholder resolutions for over a decade and they’ve decided to turn that knowledge into a for-fee product. They’ll report old proxies and how they fared (they’re the source for the Advanced Auto Parts data) but nothing on current proxies unless I want to order a book or join their service targeted at larger fish than me.

Very occasionally, like once a season – oh yes, it took me about 4 years to realize that annual meetings and proxy voting have somewhat of a season, it seems to align with spring – someone will actually call our house and urge the shareholder-of-record to vote the proxy. I’m always a little suspicious when this happens, it seems clearly to signal a vested interest, though they never communicate one – I’m assuming that to do so must be prohibited. That seems a little more interesting to me, so I usually make the effort to try and figure out what the fuss is, though I’m not always successful. Tonight the nice man (this was also like the 3rd call over the last week, the company meeting is in two days) left me a 1-800 number, “since this is now the only way to vote” – it’s too late for mail. Apparently the nice man or the majority of small shareholders doesn’t understand internet proxy voting. No matter, Darrin finds the email ballot.

What could be interesting on Qualcomm’s ballot? Something that someone is willing to coordinate an effort to call down even smaller shareholders and get them to vote. A shareholder resolution is a likely candidate, but whatever it is there’s contention, so let’s get down to it and start searching on “Qualcomm Proxy Fight”. That doesn’t turn up much, but I do find this: a letter to the SEC objecting that Qualcomm has been allowed to bundle two proposals into one vote. Hmm, that seems like a point of contention. More surfing is unsatisfying so let’s just take a look directly at the Qualcomm documents. These include a letter, reminding shareholder that we have not voted and would we please vote for all directors and proposals as recommended by management, in particular Proposal 2. “Proposal 2, to approve the elimination of the classified Board of Directors and cumulative voting, requires approval by two-thirds of the outstanding shares. This is an extremely high hurdle and all stockholders are urged to vote who have not yet done so.” Aha, thus the phone campaign to beat the shareholder bushes. And that sounds suspiciously like a bundled proposal. Is it good? Is it bad?

I know board declassification is a hot topic in corporate governance. Basically, some boards are broken up into “classes” with staggered terms, so not every board member is up for reelection every year. The CSR take on this seems to be that it’s bad, that it makes it more difficult to remove bad directors because they might not be up for reelection next meeting. Declassification forces every board member to run every year. Declassifying a board is a good thing from a CSR perspective.

I’m unfamiliar with cumulative voting. Some quick surfing turns up this definition:
From the SEC website: “Cumulative voting is a type of voting process that helps strengthen the ability of minority shareholders to elect a director. This method allows shareholders to cast all of their votes for a single nominee for the board of directors when the company has multiple openings on its board. In contrast, in “regular” or “statutory” voting, shareholders may not give more than one vote per share to any single nominee.” The Center for Voting and Democracy has some interesting discussion here. Seems like a good thing and we’d want to keep it.

Here’s the bundling: we’ve got a good proposal (declassifying the board) paired with a not-so-good proposal (getting rid of cumulative voting). Now what? Which counts more and who will give me guidance? I am ready to take a pass, until I remember Domini. Hurray for Domini! I surf over to their site, check out their Shareholder Proposals section and hope they hold Qualcomm, and they do. I can look at their past votes and better yet their current votes, including those for the meeting of March 7, 2006. Domini votes… FOR Proposal 2. Not only does Domini show their vote, but they note whether it was for or against management recommendation. They don’t seem to think much of Qualcomm this year – 6 of 8 votes are “Against Mgmt”.

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