Proxy Voting in Today’s Corporate Climate

Management proposals usually receive the majority of votes. However, due to recent corporate scandals that resulted in huge financial losses for shareholders, institutional and individual investors are using their proxies in an effort to make management more accountable. In addition, regulatory changes and the New York Stock Exchange listing rule changes are helping to increase management accountability.

Corporate scandals are a result of deficient corporate governance and conflicts of interest. Corporate governance refers to the relationship between management, the board of directors and the shareholders of a company. Management runs the business and is overseen by the board of directors. The board of directors, in turn, is accountable to shareholders. During the bull market of the 1990s, when stock prices were high and benefiting shareholders, corporate management generally was not held accountable by boards. Ultimately, in the most extreme cases, like Enron and Tyco, shareholder value was completely destroyed by lack of management accountability.

In this post-Enron climate, corporate governance has been recognized as a cornerstone of shareholder value. The largest pension funds in the world, such as CalPERS and TIAA-CREF, are taking very active positions on what were in the past “routine” or automatically approved items, such as the election of directors or the ratification of auditors. Socially responsible investors, such as Wespath Benefits and Investments (Wespath), have a history of attention to a company’s governance. Wespath is committed to monitoring best corporate governance practices and to voting all proxies on behalf of its participants in order to continue protecting shareholder value.

Shareholder proposals typically do not receive a majority of the votes, and, in fact, often receive 10% or less of the votes. However, even these percentages indicate to management that there is a significant number of concerned shareholders. These resolutions, often accompanied by media and consumer campaigns, can harm a company’s reputation and/or result in a potential loss of revenue.

For institutional investors, such as Wespath, votes in support of our resolutions are used both to communicate shareholder concerns to corporate management and to initiate further dialogue to address these concerns.

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