Getting Out The “Employee Vote”… Including Votes From Officers… And Directors… Whose Big Votes Ofttimes Go Missing… Even In ‘Vote No Campaigns’ Against Officers And Directors Themselves!
How ironic – and how totally crazy this is! Every year, we see more and more “Vote No” campaigns against officers and directors – more “close” or even “losing votes” on individual Director approvals – and on proposals companies want to pass – and on things they don’t want to pass… and where the “employee vote” would almost certainly have tipped the scales in favor of management…if only those votes showed up at the meeting.
As we have been pointing out with regularity, it’s NOT just that many activist investor causes are gaining traction with regular voters – as indeed they are – that make so many proposals increasingly close calls these days – and giving more of them winning margins each year: It’s the number of once “regular voters” who don’t bother to vote anymore – plus the increasing number of voters who are abstaining on many items, instead of voting yes or no – plus the fact that ACTIVIST INVESTORS ALWAYS VOTE. So it’s not at all unusual these days to have a quorum of 80%+ - but to have the total number of FOR and AGAINST votes total only 50% of the outstanding shares, since broker non-votes and abstentions don’t count on such matters – and for the difference between shareholder approval or rejection to be a mere one or two percentage points.
Against this background one would think that companies would be paying much more attention to the normally pro-company employee vote than ever before. Yet instead, we see dozens and dozens of companies each year where 6% of the shares are held by employees – and dozens and dozens more when total employee ownership is in the high teens, and sometimes higher – but where all but a small fraction of the employee, and officer and director votes too, go totally missing.
HERE’S OUR ANALYSIS OF WHAT GOES WRONG IN THE EMPLOYEE VOTING ARENA:
For starters, individual investors of every stripe have become increasingly apathetic about proxy voting with every passing year… And employee-owners typically lag the general investor population by a huge margin when it comes to voting, so please read on….
Most individual investors are already over-busy – so it’s no big surprise that voting proxies is pretty far down on their lists of ‘things to do this week’ – but employee owners have many additional challenges:
Ahuge inhibitor; individual investors - andemployee- owners especially, we find - feel that their holdings are “too small to make a difference”…And most public companies have done nothing to change their minds…unless you include those mindless slogans on the “Notice and Access” envelopes, which, as we keep pointing out, envelop little or nothing that will impel them to vote, much less help them to quickly cast their vote.
Another factor worth noting, most employee-owners don’t really think of themselves as “investors”, much less act like investors: For many of them – and probably for the majority of them – their Employee-Plan or 401- k position is perceived as an “employee benefit” – and is the only investment in securities they have.
Very important for public companies to note - and activist investors should really take note here too - most individual investors are not truly “invested” in the proposals that are on the agenda…And they really have no way – even if they had the time – to become better informed about the few items on the increasingly long lists of proposals to mull over that might actually matter to them…if only they knew more.
Another big factor in the low-voting department, employee owners tend to get the shortest shrift of all when it comes to get-out-the-vote campaigns… because, in our experience, many companies fear they might be perceived as using “undue influence” to sway the voting if they try too hard, or too often, to reach out to employee owners. Totally wrong, we say…unless of course they go at in an amateurish and ham-handed way…as yes, we have seen more than a few companies do.
Thebigmoveto Notice and Access – while it has saved billions of dollars for corporations – has become a major contributor to increased voter apathy and absenteeism - at least where smaller investors are concerned. It requires investors to exert considerable initiative – and expend valuable personal time – to become informed. And, unlike the systems that institutional owners use to pre-register “standing instructions” with voting agents on various types of matters, there is no way for individual and employee investors to do the same – even though most would vote, we’re sure, to automatically cast their votes for the home team if there was such a system.
Worse yet, as we have noted with regularity – the majority of the informational and voting sites – and the information one finds, or tries to find thereon – suffer from such bad design – and present the information so badly over the web, that even a saint would give up in disgust, and never come back.
The biggest inhibitor to employee voting - as we have reminded time and time again – is that many employee-shareholders - including lots of senior and mid-level officers too - have serious concerns about the confidentiality of their vote. Why? Because many employees have certain officers and certain directors they just don’t like – and don’t want to vote for. And some employees sympathize with some proposals that companies oppose. And sadly, your editor has witnessed far too many cases where corporate people snoop – and sometimes hold such votes against employees – and sometimes even take reprisal actions. But even if they DON’T – as most companies don’t – the fear that they might is a powerful one… So “playing safe” by not voting at all seems like the smartest thing to do, and sometimes is…
SO WHAT’S UP WITH THOSE OFFICERS AND DIRECTORS?
WHY DO SO MANY OF THEIR VOTES GO MISSING?
Let’s start with the most obvious thing: Corporate officers and directors tend to be even busier that the rest of us. And…hello…they are used to having most of their paperwork handled for them by someone else…and tend to simply assume it will all get handled.
Another major stumbling block, most of this crew – and many regular employees too, please note – tend
to have their holdings in many different places these days: Many officers and directors have big positions in their own names – often with several different brokers – and often in joint names with spouses, once they become ‘vested’…and sometimes in registered form too.
And…hello again…many officers, directors - and regular employees too - often have shares in multiple kinds of employee-ownership and executive comp plans – often with a number of different trustees and “plan administrators.” And many such people naively think that filling out one proxy, or one VIF votes all their shares!
Last, and one of the most common things we see at “close meetings” – officers and directors – or their AAs – typically check the box that they will attend the meeting…but then, never realizing they need to do so, fail to bring the required Legal Proxy to vote their street-shares in person. Over the past few years we have seen at least two dozen cases where last minute scrambling around to get Director votes into the tally actually turned the tide in a major way - and even more cases where companies woke up to the fact that Director votes could have turned the tide, but only after they’d lost a director or two, or on a proposal or two.
HERE ARE OUR TOP TEN TIPS, PLUS ONE TO GROW ON - TO GET OUT – AND TO MAXIMIZE – YOUR USUALLY PRO-COMPANY EMPLOYEE AND OFFICER & DIRECTOR VOTE:
First and foremost, create a complete inventory of all your employee and O&D stock ownership plans, including the number of shares in each – and the plan administrators and recordkeepers for each one. (And please remember, that only shares that are “issued and outstanding” have the right to vote, so no “phantom shares” should be on this list.)
Create a list of all your Directors – and all your NEOs – and maybe the next ten most highly compensated officers – and tactfully try to find out where all, or at least the majority of their shares are actually held… explaining to them – and/or their AAs – that their votes are extremely important, and that every single vote counts in today’s environment.
Next, with respect to employee plans, try to consolidate as many of the votes into a single file, and onto a single voting platform as best you can – so that one single trip to the voting site and one press of “the button” will indeed cast most of their votes. Most of the better proxy tabulators are able to consolidate most, if not all of these votes with the “registered investor” file.
Next, take a tiny portion of the big savings from “electronic delivery” and reinvest them in one or more thoughtfully designed and executed voter education and voter outreach programs. Th more “customized” they are for each discrete subset of voters, the better they will work.
When handled well, Notice and Access and electronic delivery rules can help you greatly increase the voting by “regular employees”: The best practice we’ve seen is to email employee shareholders directly, with a brief message from the Chairman (and where a short audio-visual message is the most powerful motivator by far, we think) – but in any event, noting that their votes are important (and maybe particularly important to the company this year), Include a very brief primer on the issues, and a link to the proxy statement, “if you wish to review information on the agenda items in detail.” Most important of all, end the email with a link directly to the voting site, like, “To cast your votes now, please click here”… so viewers will be inclined, and able to vote right then and there if they are ready to do so.
As we hope we implied above, assuring employees that their votes will be kept completely confidential - and strictly off-limits to any management scrutiny whatsoever - will, in our experience, markedly increase the employee vote. (And here, the usually cited exceptions forproxy fights, andformalchallenges to the reported results tends to draw attention to the fact that management MAY be allowed to peek! It can, we think, be handled much better by promising to restrict access - even in such rare events - to non- management officials, like the company’s outside counsel, or to an Independent Inspector of Election – who would not – and would not really need to disclose specific voter information to management at all: We can’t emphasize enough how “antsy” many employee voters feel (including many fairly senior officers too) about the possibility that their own votes will come under top management scrutiny…and what a vote killer this is.
Now for the hardest nuts to crack, but often, and pardon the triple pun, those nuts with the biggest returns; the Director and Senior Officer voters: The easiest and best way to deal with them, we think, is to instruct the folks on this list to sign and mail back (or maybe hand you personally) any and all proxy cards and Voter Instruction Forms they get…as soon as they, or more typically, their AAs, get them.
It’s also very worthwhile, in our experience, to tell them that they do NOT need to mark any of the boxes to vote for the entire management slate, which will save them time and trouble, and assure that there are no slip-ups: Every single year we see one or more Directors who dutifully tick all the FOR boxes – without realizing that sometimes they may be voting AGAINST the company’s recommendation to vote NO. One CEO actually lost a proxy fight we worked on a few years ago, by doing that very thing!
Resolve to closely track the Employee Plan and the individual Officer and Director voting as the meeting date approaches: This isn’t always easy – but very often, just a friendly emailed reminder is all that is really needed – as long as you don’t wait ‘til the last minute.
If emailed reminders to regular employees seem advisable, as so often they really are, “specially crafted and tailored messages” are very good things to employ - to explain WHY they should vote - regardless of HOW they vote. And be sure to remind that while it appears they may not have voted yet, you will NOT ever compile a list of non-voters and that you will NOT ever know HOW they vote if they do so.
Finally; be sure to include that “Vote Now” link in any and all such reminders: Ironically, employee and officer and director voters are the biggest segment of voters you can actually REACH with emails.
Readers: If you have any other tips – or any programs that worked well for you, please let us know!
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