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Business Costs & Regulation

Shareholders Demand More Say

Investors call boards on everything from executive pay to climate change.

Count on it: this proxy season, investors will not be shy about giving company management a piece of their mind.

Shareholders are expected to file more than 1,000 requests, called resolutions, asking companies for the chance to have a say about such hot topics as executive compensation, political contributions and how management addresses climate change, to name a few. Some of the petitions will make it onto proxy ballots, to be put to a vote at annual meetings.

Although they're nonbinding, these so-called advisory votes send a powerful message -- which executives ignore at their peril. At a growing number of companies, board directors serve only at the pleasure of a majority of shareholder votes. Thwarted resolutions can lead to campaigns to withhold those votes, triggering resignations by board members.

Ironically, withdrawing a resolution before it comes to a vote can be a measure of its success because that typically means management has agreed to address investors' concerns. "It's amazing, the leverage a shareholder resolution creates," says Tim Smith, of Walden Asset Management, in Boston. In about one-fourth to one-third of cases, resolutions are withdrawn as management and investors come to a meeting of the minds, says Smith.

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Earlier this year, for instance, McDonald's shareholders withdrew a resolution after the fast-food chain -- the largest buyer of potatoes in the U.S. -- agreed to work toward reducing the use of pesticides by its suppliers. Intel investors withdrew a resolution asking for the right to ratify executive pay after the company agreed to put its compensation practices up for an advisory vote at its annual shareholder meeting.

So far this season, investors have filed more than 100 executive-pay proposals. Five have been put to a vote, and 19 were withdrawn -- many after they became redundant with Congress's mandate that hundreds of financial firms receiving government aid under the Troubled Asset Relief Program allow shareholders to vote yea or nay on executive-pay packages.

You don't have to be a big shot to file a resolution; you simply have to hold $2,000 worth of stock for one year. Resolutions must be crafted carefully because companies can ask the Securities and Exchange Commission for permission to exclude them on a number of grounds. Proponents must attend the company's annual meeting. To make that easier, a new group called the Investor Suffrage Movement puts investors in touch with representatives who live near annual-meeting locations and are willing to submit proposals on behalf of shareholders.

Also, institutional investors with which you're affiliated -- say, your alma mater, a religious organization or a pension fund -- may already be working on your issue or may be willing to take it up. Don't underestimate the power of simply voting your proxy.

You can hold your mutual fund accountable, too. Funds must disclose on their Web sites how they vote proxies. Or you can check sites such as ProxyDemocracy.org, which tracks votes by institutional shareholders and most major fund families. Don't like what you see? Call your fund company and say so.