Following up on the ExxonMobil retail voting program that recently received Corp Fin no-action relief – that I blogged about a few weeks ago – here’s an excerpt from this Cooley Alert penned by Brad Goldberg and Michael Mencher:
“Contrary to the allegations of the retail voting program’s detractors, the SEC’s no-action response provides clear guardrails to ensure that retail voting programs do not undermine shareholder choice. Under such programs, retail holders must actively opt in to provide standing instructions. Participating shareholders can also opt out at any time at no cost, and companies will be required to send annual reminders with instructions on how to opt out during the time period when the company is not soliciting votes for its annual shareholder meeting. In addition, participating shareholders can simply override their standing instructions by voting against management through the normal proxy voting process.
Critics have noted that shareholders are only offered one automatic voting option – voting with management – without the ability to set a standing vote against management’s recommendations. Their argument is framed as promoting a balanced approach to shareholder choice, but it fails a basic test of rationality and informed decision-making.
A retail holder’s standing vote in favor of management reflects a general trust in the company’s leadership and strategic direction that aligns voting behavior with investment behavior. In contrast, a standing vote against management is, by definition, uninformed and misaligned. Unlike index fund holders, who cannot selectively divest from individual companies, retail shareholders have full control over their portfolios. If they fundamentally distrust a company’s leadership, they can simply sell their shares. Continuing to hold stock while automatically rejecting every management proposal reflects a contradiction – a wholesale lack of trust in leadership coupled with a decision to remain invested.
Critics of the retail voting program also voice concerns that participating investors may no longer pay attention to annual proxy statements and shareholder proposals included therein. In other words, a cumbersome system that disenfranchises retail voters should not be reformed to make it too easy to vote, lest investors not sufficiently engage with the hundreds of shareholder proposals submitted to public companies every year, despite increasingly low levels of support and questions as to their legality under state law.
This concern, however, misses a crucial point: Retail investors who opt in to a standing voting program still receive full proxy materials and retain the ability to review, override or change their votes at any time. Streamlining the voting process does not eliminate choice or transparency – it simply removes unnecessary friction that has historically discouraged retail participation.
Moreover, it is inconsistent to demand heightened engagement from retail investors while overlooking the fact that many institutional investors have long outsourced their voting decisions to third-party advisors. If anything, efforts to empower retail shareholders with accessible, flexible voting tools should be applauded. These tools promote broader participation and reflect the reality that ease of access does not equate to lack of responsibility.
Undoubtedly many shareholders will choose not to participate in retail voting programs. For those who do, however, opting in represents a deliberate decision to vote their shares – an outcome unambiguously more aligned with the ideal of shareholder democracy than one where retail holders are largely silent and activist investors and special interest groups capitalize on their apathy.”
Authored by
Broc Romanek