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Is Your Proxy Voting Strategy Beneficial or Detrimental?
Apr 13, 2023
As Registered Investment Advisors (RIAs) and other institutional investors prepare for the proxy season and the accompanying increase in workload, those responsible for proxy voting at their firms should evaluate whether their current strategy is effective. Additionally, they should consider if it will remain effective under the new SEC regulatory framework (https://www.sec.gov/rules/final/2020/34-89372.pdf).
Best practices may include asking the following questions:
Does your current practice benefit your investors?
The most crucial question to address is whether your current practice aligns with your investors' needs for return on investment. Are you employing a short-term or detrimental proxy voting policy, such as consistently voting with management? While this approach might be easy to implement and seem low-cost in the short term, if it fails to meet your clients' needs, it can become expensive quickly.
Another strategy to consider is allowing investors to vote themselves. However, if an investor lacks the time or expertise to manage their investments, they are unlikely to have the necessary knowledge to vote proxies effectively. If your firm does not want to assist investors in this matter, rest assured one of your competitors will.
Does your current practice meet future and current regulatory requirements?
For RIAs and other institutional investors, it is essential to adopt a practice that meets both current and upcoming regulatory requirements. Many firms adopt a simple "always vote with management" policy, only to discover after a decade that it did not meet regulatory standards. Proxy voting is complex and crucial – a blanket approval of board decisions is likely not the best solution for you or your clients.
If you are outsourcing proxy voting to a proxy firm or another provider, it is probable that they will fall under the new proxy voting rules. Ensure that your provider is aware of this and complies accordingly.
Does your current practice work for your firm in terms of both dollar cost and the time cost?
In a world of costs and limitations, hiring a large staff to handle proxy voting rarely makes economic sense. If you decide to outsource voting, ensure that the price is reasonable and that you are not overwhelmed with lengthy reports that take hours to review and audit. Moreover, confirm that your provider does not have so many consulting and other conflicts that it takes more time to audit and review these issues than it would to handle voting in-house.
In summary, in today's complex proxy voting landscape, it is essential to make sure you are executing your strategy correctly and that your proxy provider is doing the same.
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By Alyssa Festin
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