Getting Out the Proxy Vote

Efforts to kick-start corporate democracy are running up against the reality of voter apathy--in this case individual shareholders. And this season a change in regulations may make it harder for companies to get a quorum and easier for shareholder activists to foment unrest.

As proxy season starts, $29 billion insurer Prudential is breaking new ground by offering registered shareholders who vote their proxies the choice of a socially-aware tote bag with Prudential's logo or having a tree planted in their name.

Providing the gifts will cost the company less than paying a proxy solicitation company to call shareholders, says Peggy Foran, Prudential's chief governance officer and corporate secretary. Prudential's offer targets its 2.4 million registered shareholders-individuals who had insurance policies and received shares in 2001 when the insurer demutualized.

The tote bags are made of recycled organic cotton by union workers in the United States, Foran says, adding that the offer underscores Prudential's environmental values. Making its proxy materials available on line has cut the number of pieces the company mails by 2 million, enabling savings on paper and energy.

Such an inducement seems a good approach, especially this year, according to Gene Marbach, group vice president at Makovsky & Co., an investor relations and public relations consulting company, who says he hasn't seen a company offer gifts to shareholders to vote. "By and large, retail voters don't come out to vote," Marbach says. "Anything to encourage shareholder democracy is good." The gifts are "relatively innocuous, not something that costs [Prudential] a lot," he adds.

Retail investors' participation in proxy votes has always been light. And it declined even more last year, after the Securities and Exchange Commission allowed companies to provide most proxy materials online and notify investors by mail that that the materials were available. Investors who received e-proxies proved less likely to vote than those who received proxy materials in the mail. The SEC tweaked its e-proxy regulations last month to try to bolster voting.

However, a bigger threat to retail participation this year is a change by the SEC that disallows, for the first time, brokers' voting shares held in street name in director elections. In the past, if retail investors whose shares were held by their brokerage firm failed to provide it with voting instructions, the brokerage would vote on their behalf. Observers say the elimination of those votes could mean some annual meetings fail to achieve a quorum and some directors may not get enough votes to be elected.

"The broker votes typically came in on behalf of management," Marbach says. "Brokers just simply voted yes for management, and that was a reliable base of support."

In the absence of those votes that lined up with the company's management, "it's going to make it a little easier if you're an activist shareholder and you want to stir up some kind of trouble," he says.

"I think you're going to see a lot more companies doing something to turn out the vote," Marbach adds. "Anybody who might have a potential threat of shareholder activism might want to look to an inducement program of some kind."

For more on the outlook for proxy season, see Say on Pay Dominates New Proxy Season.

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