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What is proxy voting?

IN A NUTSHELL: A proxy vote is when an entity (an individual, company or organisation) grants authority to an intermediary to vote on his/her or its behalf. In the context of a retirement fund (as a shareholder in a company), the board of trustees grants authority to the fund’s investment manager to vote at said company’s annual general meeting.

As a retirement fund trustee, you are mandated to consider the best interests of the members in every decision you make. Responsible and active stewardship of the fund’s assets requires due diligence, scrutiny and robust engagement from every trustee.

One way of exercising stewardship is through proxy voting. Through a single vote, a shareholder can empower the management of a company to either support or reject a decision, for example, how much compensation the highest earners in the company can receive.

These words refer to the same thing:
Retirement fund = investor = shareholder

How does proxy voting work?

A proxy vote is a legally authorised vote by a retirement fund, individual or company that gives authority to an intermediary to vote on their behalf, without him/her or it being physically present at the shareholders’ meeting. In the case of a retirement fund, the trustees permit their fund’s investment manager to vote on their behalf.

Proxy votes are cast ahead of a company’s scheduled annual general meeting (AGM). A proxy statement consisting of the agenda of the AGM is sent in advance to the person given legal authority to vote. That person assesses proposals and then makes an educated decision. In simple terms, a proxy vote is casting your vote in advance, so that investment managers don’t need to attend an AGM.

1 share = 1 vote

Real-time power of proxy voting

In the past, proxy voting was done by fax, post and courier. Today it all happens in real time on an e-voting platform. Proxy voting enables investors to have an immediate influence on corporate decisions as they are presented at the AGM. Even if investors are unable to attend a meeting, their proxy vote is counted as an e-vote and has the same real-time influence on the final ballot.

LET’S EXPLAIN:

Through an investment manager, a retirement fund has 500 shares in Company A. The company’s AGM is held at a conference centre in Johannesburg and the investment manager resides in Gqeberha. The AGM agenda for Company A states that it wants to invest more in fossil fuels. However, this is not in line with the retirement fund’s mandate of supporting sustainable energy. The investment manager casts 500 votes by phone against the move on the fund’s behalf. As votes are tallied, the investment manager, through the proxy voting platform, gives reasons for the decision. This feedback is in line with the retirement fund’s investment mandate.

It’s important to note that a trustee does not need to vote during every AGM meeting. Trustees can strategically pick and choose the agenda that reflects their retirement fund’s core interests and values. When these are under threat or need support, the trustees’ proxy vote becomes most valuable.

Each share a retirement fund owns equates to one vote. So, the collective shares owned by a retirement fund become a powerful voice within the invested company. Trustees can guide companies by advising their investment managers how to vote, which can in turn impact the decisions made by the company. Active stewardship at its best. 

This alignment of one share, one vote, proportionally distributes shareholder voting rights equal to a retirement fund’s economic exposure within a company.