Trillium News

The (R)evolution Will Be Computerized: Web 2.0 Technologies Will Make “Shareholder Democracy” a Reality

Just as doctors at dinner parties hear about fellow guests’ medical dilemmas, people tend to confess to me that they throw out their shareholder proxy ballots. They’re too jargon-filled and arcane, and who’s got the time to evaluate whether the auditor is a good choice or whether a shareholder resolution is as prepos­terous and costly as management says it is? Besides, they only own 50 shares of the company.
Estimates range widely, but all agree that the vast majority of individual investors regularly toss their ballots into the circular file. Economists call this “rational apathy,” but while it may be rational for an individual to conserve his or her energies for more effective pursuits, there are consequences. Ninety percent of in­stitutional investors do vote, so when individuals don’t, we cede control of corporate behavior to private and public pension funds, mutual funds, universities, and other large actors.* The problem is that these organizations frequently vote without re­gard to the preferences of their beneficiaries. Further, they are arguably irrational in their voting, tending to cast votes in favor of management far more often than not. As a result, directors are regularly elected with 99% of shares voted, and reasonable, timely shareholder proposals on urgent matters like climate change rarely, if ever, receive a majority vote.
What if someone stepped in and made proxy voting less of a bore and a chore for the individual investor, providing advice from multiple sources on how to vote, and making voting as easy as a few mouse clicks? Could the retail shareholder vote be roused into action to hold corporations accountable? This is the experiment currently underway using the new generation of interactive, information-sharing technologies often dubbed “Web 2.0.”
Fifty-one percent of individual households hold stock, including direct ownership of stock (so-called “retail” shareholders) and indirectly through vehicles like mutual funds, 401(k)s or IRAs. These households collectively own 41 percent of outstanding U.S. equities. Until this voice is mobilized, corporations will never be held account­able for their impacts. In this article, we highlight some promising new Web 2.0 efforts that aim to give individual inves­tors a new voice.
Help for the Rationally Apathetic Retail Investor
Are you overwhelmed with ennui when your corporate bal­lots arrive during the spring proxy season? Stricken with guilt by June? Banish that forever with, the brainchild of Kim Cranston, a longtime progressive activ­ist and former president of the Social Venture Network. Trans­parent Democracy makes it simple to learn more about ballot questions (and not just for shareholder ballots but electoral questions as well). From the home page, the user selects a com­pany and is directed to a list of all the ballot questions,along­side advice on how to vote. The advisors include recognizable names (prominent unions and nonprofits), shareholder pro­ponents who file many resolutions, and corporations them­selves. For example, if one visits the page for IdaCorp.’s ballot, recommendations in favor of Trillium Asset Management Cor­poration’s climate change proposal are proffered by the envi­ronmental coalition Ceres, the actor and activist Ed Begley, Jr. Visiting the ExxonMobil page, you can view advice from the Pride Foundation, the Sisters of St. Dominic of Caldwell, NJ, the Responsible Endowments Coalition and several more.**
The startup, set to launch this fall, will pro­vide a similar service with a leg up – shareowners will be able to upload their brokerage accounts, enabling them to vote their shares directly on the site. Users will also be given the choice to automatically vote all their proxies as a particular advisor does; as one (humbly suggested) example, one could set prox­ies so that they are automatically cast ac­cording to Trillium Asset Management Corporation’s (“Trillium”) guidelines.
Help for Mutual Fund Shareowners, Too
Existing options for mutual fund shareowners who are uncomfortable with their fund’s proxy voting practices are few. They can complain to fund man­agers (about as effective as it sounds) or move their assets to another fund that shares their values.
Backing up a moment, however, how does one even determine how a mutual fund votes on corpo­rate ballot questions? Since 2003, mutual funds have been re­quired to disclose their proxy votes (thanks to a Securities and Exchange Commission rulemaking change petitioned by our colleagues at Domini Social Investments). Two web sites have since sprung up to monitor mutual fund voting patterns. was inspired by its founder’s “personal experience of being a confused shareholder.” Writing case stud­ies for Harvard Business School, Andy Eggers’s interest was piqued by his research into the important role shareholders should play (at least in theory) in keeping boards of directors and corporate managers honest. But even with his background (Eggers is a Ph.D. candidate in Government at the university), he found it difficult to know how to vote on ballot questions, and was stumped by the lack of information available to indi­vidual investors. (Proxy research analysis is available, but it is affordable only to institutions.) So in his spare time, he cre­ated ProxyDemocracy. Like, the site offers users a look at how responsible institutional inves­tors (nine to date, including Trillium) plan to vote their prox­ies. But ProxyDemocracy’s added contribution is its exposure and analysis of mutual fund voting patterns. It assigns scores based on the funds’ records in key areas such as director elec­tions, executive compensation, and environmental and social issues. (For example, Green Century Capital Management‘s overall activism score for 2008 was 66 of 100 possible points, placing them in the 95th percentile. By way of comparison, Fidelity’s funds averaged a 22.8 activism score, placing them in the 48th percentile. Goldman Sachs’s score was a respective 32.7 and 73rd percentile.), the brainchild of Canadian Jackie Cook, also aggregates mutual fund voting records. The site’s data set consists of 12 million voting decisions from 450 mutual fund com­panies spanning five years of public re­cords to date. Suppose you own shares in an Oppenheimer mutual fund. The site reveals that between 2004 and 2008, Oppenheimer’s fund managers voted against management only 2, 0.6, 0, 1.3 and 1.6% of the time in each of those years, respectively. FundVotes also prepares studies based on the data. Its most recent report, co-authored with Ceres, is Mutual Funds and Climate Change: Growing Support for Shareholder Resolutions (March 2009).
Cambridge, Massachusetts consultant Glyn Holton, an expert on trading and risk management, is spearheading an out-of-the-box experiment to test whether mutual fund share­owners might be able to “take back the vote” from mutual fund managers. Holton envisions a web-based database wherein mutual fund shareholders can place their proxy voting rights. Using a feature similar to MoxyVote’s, they could then designate a third party to vote their shares. Holton’s project,, is also serving as a formal clearinghouse for inves­tors to network with others who can present shareholder proposals at stockholder meetings that the proponents themselves cannot attend, making it possible for activists to expand their filings. If Holton’s scheme succeeds in liberating voting rights from mutual fund managers’ absolute control, it will be a game changer. While we are skeptical that mutual fund companies will cooperate, it is worth every effort to try.
Something For Everyone
No matter what kind of shareholder you are, you should be bookmarking, an action-oriented news and blog site “educating shareholders about their rights and duties.” The site was developed to provide “what was missing in the corporate governance debate – the voice of the average investor,” as Rich Ferlauto, one its developers, told recently. Ferlauto is director of pension policy for the Amer­ican Federation of State, County and Municipal Employees; he blogs on the site along with corporate governance activist Jim McRitchie and other mem­bers can post their own commentary through the site’s use of Ning social net­working technology. Ferlauto contin­ued, “it was the coming together of the need in terms of people were outraged and upset and, frankly, had lost con­fidence in the markets. We wanted to use a vehicle that would help organize their voices, and also provide them with education and back­ground information to begin to build investor self-confidence, or confidence in the markets….[W]e also think shareholders need to be able to communicate better with their financial in­termediaries and financial professionals- brokers and mutual funds-and make sure that those institutions put their client interest, rather than their own particular interest, first and we think that’s the way that they can build market share.”***
A poll found that 17% of investors (24 million people) would be interested in joining an organiza­tion that would educate them and give them a voice. This site, with its nonpartisan tone and friendly design, is well poised to do just that.


* Clients of Trillium Asset Management Corporation typically authorize us to vote proxies on their behalf. Our proxy voting guidelines and voting record are posted on our web site.
** Beginning in 2010, the site will include Trillium Asset Management’s voting recommendations.
***”It’s Time for Directors to Step Up to the Plate,”