Groundbreaking “Retail Proxy Voting Program” Could Be a Game Changer

A business-friendly SEC has greenlit a new and innovative company program to engage retail voters (i.e. individual investors, non-institutional investors) in a major development that could benefit companies with a large retail investor base.

Why it matters: The program, proposed by ExxonMobil, allows retail shareholders to authorize a standing voting instruction to have the company vote their shares in accord with the Board’s recommendations.

• The Retail Voting Program is available to all retail investors on an opt-in basis, and shareholders can choose whether to apply their standing vote instruction to all matters or exclude contested director elections and mergers and acquisitions.

• Shareholders can still override the standing vote instruction if desired.

Incentives for retail investor voting: Exxon Mobil believes the policy will promote voting by retail investors, who often don’t vote, while removing time and other burdens from the voting process. Companies with a large retail shareholder base may find it particularly attractive, especially insofar as the retail vote serves as a balance to institutional shareholders that vote in line with proxy advisors.

SEC’s response – go ahead: The staff agreed that the proposal does not violate SEC policy or Delaware corporate law in a positive development that could be a game changer for many public companies who may choose to implement a similar policy.  

On the other hand: A recent WSJ op-ed from a climate activist at Olshan Frome Wolosky criticized the program, indicating that it weakens “shareholders power to reject bad deals, vote out underperforming directors, or express disapproval” which undermines good governance.

• Social activist investor “As You Sow” asked the SEC to rescind its approval of the program, calling it an unlawful outreach and “direct attack on shareholder rights.”

• For social activists, the concern is clear: if more retail investors choose to vote (and vote with management), it dilutes the impact of the activists and makes it harder to pass their agendas.

Bottom line: This is a fascinating development that could benefit any company with a significant retail investor base. Now is the time to consider discussing with management, the board, and outside investors whether a similar program might be right for your company.