Thursday, May 11, 2006

Corporate shinola

This is the time of year when I and thousands of other stockholders receive a nice shiny annual report from each of the various companies we have an interest in. Invariably, these are accompanied by an invitation to come to the annual meeting, where the stockholders exercise our powers of ownership. Generally, you exercise this power by filling out a proxy vote card, or registering your vote online.

Generally, the board of directors decides what we get to vote on. Usually, the first thing is to vote for some number of directors. The board nominates who they want, and those are the only people who are on the ballot. You can vote for them, or you can decline to vote for tehm. But they're sure not going to lose, because nobody else can get any votes. I have no idea if there's any company that has ever had a contested board election.

Secondly, you can vote to approve the company's selection of auditor. Or not.

Thirdly, there are occasionally some board proposals, generally to award massive numbers of stock options to senior executives. You can vote for or against these, or abstain.

Fourthly, there are often shareholder-initiated proposals. These are most often resolutions to specify that the company will not club baby seals, or to promise not to pollute so much. The board of directors recommends AGAINST every shareholder proposal 100% of the time.

If any shares' proxy votes are not received properly, and on time, the shares are voted per the board's recommendations. Since most large companies have more than 50% of the shares oustanding in the hands of small investors, who have no practical reason to vote, generally the board has its way.

Which is a really big deal, because the board has only a tenuous connection with what the company does, or how it is run anyway.

What's really funny is that many times there are hundreds of pages of documentation to help me make up my mind on how to vote. This is particularly true in the case of acquisitions. I have some curiosity as to what they put in there, but I just can't face even skimming the stupid things.

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