SEC Seal Home | Jobs | Fast Answers | Site Map | Search
U.S. Securities and Exchange Commission

Enforcement tips - how to send tips to the SEC's Division of Enforcement

Spotlight on Proxy Matters — Corporate Elections Generally

What is a corporate election?

Elections provide investors owning shares in the company the ability to participate in corporate governance by voting on who should be a member of the board of directors. In addition to corporate elections, shareholders also may be asked to vote on significant issues relating to the organization, including important policy matters and governance.

Why do companies hold elections?

Shareholder votes on certain critical corporate events, including an annual election for directors, are required under state law and under stock exchange rules for listed companies. The U.S. Securities and Exchange Commission administers laws and regulations relating to the solicitation of proxies for those shareholder votes, including disclosures in the proxy materials. As an investor owning shares in the company, you are entitled to vote in corporate elections.

When do most elections occur?

Most companies hold meetings and elections at least once a year, and most of these annual meetings occur between March and June. Shareholders may also be entitled to vote on certain types of corporate actions, such as mergers, which may necessitate a special shareholder meeting. These can occur at any time during the year.

Why should I vote?

As a shareholder, your opinion about a company matters. You have two key ways to express your opinions about the company in which you have invested: (1) you can vote in corporate elections; or (2) you can sell the securities of the company. Voting allows investors to make their voices heard on important corporate matters, without having to take more extreme measures like selling their stock. For example, you could vote against a proposed stock option plan if you don't believe that the plan is in the best interests of the company. Even absent a particular proposal, you could vote generally for or against the re-election of directors depending on how you feel they are running the company, including how they are paying the officers.

Is it important that I vote?

Yes! Individual investors are not required to vote — but the exercise of voting rights is a key tool for making your voice heard by the company's directors and management and may affect shareholder value. Moreover, many corporations encourage shareholders to participate in the affairs of the company through the proxy process as part of good corporate governance and investor relationship building.

Recent rule changes make your vote more important than ever. Brokers no longer have the discretion to vote their customers' shares held in companies other than mutual funds or certain closed-end funds in an election of directors without receiving voting instructions from those customers. In addition, brokers may no longer cast uninstructed votes on certain corporate governance proposals. As a result of these changes, if you don't complete the voting instructions, your shares will not be considered in these instances. For more information on these changes, click here and here.

What is "broker voting"?

Under most stock exchange rules, if you are a beneficial owner, your broker may vote on your behalf at shareholder meetings under certain circumstances. This is sometimes referred to as "broker voting." Generally, if you do not return your voting instruction form directing your broker how to vote on your behalf at least 10 days before the shareholder meeting, your broker may exercise discretion to vote on your behalf on certain routine matters.

While brokers generally no longer have the discretion to vote their customers' shares in an election of directors of companies without receiving instructions from those customers, brokers do continue to retain this discretion for mutual funds and certain closed-end funds.

What is "corporate governance"?

Generally speaking, corporate governance is the framework of rules and practices that reflect and define the responsibilities and the appropriate level of accountability of a company's decision-makers - both the directors elected by shareholders and the managers selected by directors. That framework, which may include rules and regulations, the corporate charter and bylaws, formal policies, as well as customs and other processes, determines the leadership, organization, and direction of a corporate enterprise.

The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.
Modified: 05/23/2012