Exxon Mobil Launches Program Allowing Retail Shareholders To Issue “Standing Voting Instructions.” A Potential Game-Changer… Or A Major Flop Ahead?

It seems that every law firm in the country has been summarizing Exxon Mobil’s attempted vote-getting effort, speculating that others will follow suit and offering pointers on what to watch for and
what to do. 

We, however, as 60+ year observers of actual U.S. proxy voting behaviors, are expecting this to become an expensive and totally embarrassing flop… unless a robust Investor Education Program on the VALUE of shareholder votes – and on voting itself – becomes part of the solicitation process. 

First off - with respect to claims from many activist investors who’ve been threatening lawsuits – it’s worth noting that Proxy Voting - and the Validity of Proxies - is determined by State rather than Federal laws. It is clearly permissible to honor such “standing proxies” in Delaware - and, as far as we know, having reviewed the Bylaws of hundreds of public companies as part of our Inspector of Elections business, is not prohibited by any State we know of - nor should it be.

But as investors - who firmly believe that “Shareholder Votes Have Value” – and that this is clearly and empirically demonstrable - we feel certain that soliciting revocable proxies that would authorize the transfer of value to the company’s proxy committee - without including a thoughtful, thorough and totally impartial educational

program in place - fails to fulfill a company’s duty to properly and fully inform its investors when asking them to take action.

Equally important to note, the basic premise behind the effort - that it is somehow “rational” for investors to be “indifferent” to the many items that come before them for a vote is not only WRONG – it will doom the effort to utter failure: Exxon is hoping to motivate the huge majority of their individual investors who are NOT VOTING NOW – to sign and return a new kind of Voting Instruction Form??? And asking them to give them a “blank check” in the bargain???… Fat chance, we say.

We hate to say this, since we are still hoping to win Exxon over, but their recent record of dealing with corporate governance and related voting matters has not resonated well with investors to say the least: Just three years ago, activists at Engine Number One literally rammed them head-on – ousting three directors in the polls. Shortly thereafter Exxon sued two smallish activist funds who tried to offer shareholder proposals –  where Exxon was slapped down again, in court. And now, the activist community is mostly up-in-arms about this proposal, which will almost certainly generate even lower pro-management votes in subsequent elections.

So what WOULD motivate investors to take action on this program – or much better yet, we say - to actually vote their shares?

Our Step-By-Step Roadmap To Success

We have been working since 2003 – when the big and unrelenting falloff in retail voting began – on a Plain English educational program explaining the value of voting and offering tips on how to make it as easy as possible.  

Our educational booklet “Shareholder Votes Have Value: Don’t Let Your Votes Go To Waste” – opens with a short cover letter, continues with clear evidence that votes DO have value, then offers simple tips on how to make up one’s mind – and how to pick a method of voting that’s easiest for them. It can be delivered as a light-weight, compact, 8 ½ x 11 sheet of paper, folded into a small four-page booklet that “rides free” with any mailings – or it can - and should - be delivered essentially “free” via emailed proxy materials.

Most readers say, yes, it is easy to understand, and yes, it makes sense to them. And it is especially written to make investors aware that not voting costs the companies they own serious money – which is really their money that is going to waste when they don’t vote.

How Do We Motivate Busy Investors to Vote — and Make the Message Stick?

Answer:  Show them their vote matters - and make the message personal, meaningful and compelling.

                                                     THE PLAYBOOK

• Send the “Shareholder Votes Have Value” booklet to every shareholder who receives a “Notice” via the Notice and Access model.  
• Include a branded cover letter as the first page: it always draws attention and, with SEC approval, can be included with the Notice and mailed at virtually no extra cost. (If you are soliciting “standing instructions” be sure to note that most years, voting as Directors recommend is a “rational choice”  - and if you are a mutual fund, spell out all the choices you’re offering - and clearly explain that investors can override the instructions by voting themselves at any given meeting.) 
• The booklet itself costs less than what most companies spend now on generic inserts - over 90% of which are currently ignored by individual investors, as your own results are certain to show.
• Send the booklet to all registered shareholders and to any and all accounts that still receive hard-copy materials. The extra cost is minimal - and hard-copy recipients have the highest propensity to pay attention - and to vote.
• Reach employee shareholders, too: Email the booklet and a personalized letter to Employee Stock Ownership Plan (ESOP) participants — with a clear note that voting is confidential. Employees often own 10%+ of your shares, but vote less than 6% of them – largely due to fear of management retaliation if they vote against a single management recommendation..
• Make the booklet, and the message, easy to see:
  • Summarize the message in the Notice of Meeting.
  • Put the booklet on top of hard-copy mailings.
  • Post both the letter and booklet on your Investor Relations Page, and feature them as the opening section of all online voting platforms.
• Add a proven incentive to emphasize that votes DO have value: We know of three companies that have increased their meeting quorums by 6% or more by donating $1 to charity for every account that votes. That 6% of mostly-friendly votes will do away with embarrassing “squeakers.”
• PLEASE, we urge you: review the booklet: “Shareholder Votes Have Value: Don’t Let Your Votes Go To Waste” (Click here to read it now, while this is fresh in your mind.)

We’ll be happy to help you customize the letter - and the text, if you have a better way to explain the value of voting - to ensure you will make the strongest possible impression with investors. 

The cost of doing this is minimal compared to what’s already spent on preparing, distributing, tabulating, and soliciting votes — much of which often goes to waste. 

Bottom line: This is a low-cost, proven way to boost retail voting.

We Know This Approach Works:

Three years ago, our Editor in Chief successfully launched an “outreach and education program” at a 70+ year-old private club — where 40% of the founding members couldn’t be located, let alone encouraged to vote. This made achieving a quorum difficult — and in some years, impossible.

We introduced a campaign encouraging members to donate shares to a Trust to Preserve and Protect the Club, and asked those who wished to keep their shares to sign Revocable Proxies to the Trustees. Roughly half of the non-voting members quickly and willingly did so — once they understood the importance of voting.

• If you’re considering launching an Investor Education Program around the value of shareholder votes — as we hope you will — please contact Peder Hagberg at phagberg@cthagbergllc.com or call him at 917-848-6772.

Why Is An Investor Education Program So Important?

• Back in the 1970s and early ’80s, individual investors—who then owned 80% of all stocks at the peak—religiously voted nearly 75% of their shares. Today, at most companies, individual investors return proxies less than 10% of the time—and typically vote less than 6% of the shares they own
  as a group.
• Voting numbers have been dropping every year since “Notice and Access” was introduced over 25 years ago. (Most of the figures you see floating around are flat-out wrong because they count “Broker Non-Votes”—which can’t be cast for most proposals on the ballot—as “present.”)
• As a result of voter apathy, publicly traded companies are literally wasting billions of dollars each year on pumping out proxy materials that fail to induce individual investors to vote—even though voting is easier than ever before!
• Every year, more and more companies fail to achieve a quorum on the first or second attempt—forcing them to spend even more money on additional solicitations and to reschedule and reconvene shareholder meetings—often to no avail!
• In short, doing nothing to educate investors on the economic value of their votes—or worse, acting as if they have NO intrinsic value—is ABSOLUTELY NOT A GOOD STRATEGY in today’s environment.
• A well-delivered and strictly impartial Investor Education Program on the value of voting will surely be seen as an exercise in good corporate governance, earning the issuer some well-deserved “brownie points” with individual and institutional investors alike.
• The program should also be viewed as a smart and worthy exercise in “good corporate stewardship”—since currently, as noted, more than 90% of the billions of dollars spent on printing, postage, emailing, soliciting, and processing voting materials each year are, quite literally, going totally to waste!
• As most observers know, individual investors who do vote tend to support management’s positions—as long as the issuer is a reasonably good performer and is considered a “good corporate citizen.”
• This is a perfectly rational behavior—even when the company is going through a rough patch. But as noted below, there is a huge new generation of investors on the horizon for whom environmental and social issues loom large—and who don’t “simply respect and defer to authority” the way their elders tended to do. Ignore this at your peril.

More Good Reasons For Issuers To Spring Into Action:

• • Quite suddenly—although we have long predicted this would happen—individual investors have been increasing in both numbers and shares owned at an astounding rate: A recent Gallup poll shows that 62% of all U.S. households own shares of stock—an all-time record.
  • At many companies—especially small, mid-cap, and micro-cap ones, which tend to have a large population of insider and employee owners and superfans—individuals own a majority of the shares! Many of the largest, strongest, and best-established companies also have unusually large retail populations, who can clearly make a big difference in close calls, especially during proxy fights.
  • Especially important to note, an even bigger demographic trend is looming: the historically unprecedented transfer of wealth from Baby Boomers and Gen X—estimated to be around $30 trillion over the next ten years.
  • Another demographic trend has been gathering steam fast: The entry of “working class” investors. “Among Americans with incomes between $30,000 and $80,000, 54% now have taxable investment accounts. Half of them have entered the market in the past five years,” according to a new survey conducted by nonprofits Commonwealth and the Black Rock Foundation. And none of them, we are sure, haven’t a clue about the Proxy Voting Process.
• We are confident these trends will soon make individual investors the largest voting class of all… And please note: today’s investors tend to be very self-directed, tech-savvy, receptive to receiving and sharing information over social media, and highly engaged on social and environmental issues.  Unlike their parents and grandparents, they don’t simply defer to “authority” - but they are very much in need of education about how proxy systems work—and about the real VALUE of their votes.