The Annual Meeting

Every publicly traded firm has an annual meeting of its stockholders, during which stockholders can both voice their views on management and vote on changes to the corporate charter. Most stockholders, however, do not go to the annual meetings, partly because they do not feel that they can make a difference and partly because it would not make financial sense for them to do so.1 It is true that investors can exercise their power with proxies2, but incumbent management starts of with a clear advantage3. Many stockholders do not bother to fill out their proxies, and even among those who do, voting for incumbent management is often the default option. For institutional stockholders, with significant holdings in a large number of securities, the easiest option, when dissatisfied with incumbent management, is to vote with their feet, i.e., sell their stock and move on. An activist posture on the part of these stockholders would go a long way towards making managers more responsive to their interests, and there are trends towards more activism, which will be documented later in this chapter.

1 An investor who owns 100 shares of stock in Coca Cola will very quickly wipe out any potential returns he makes on his investment if he flies to Atlanta every year for the annual meeting.

2 A proxy enables stockholders to vote in absentia for boards of directors and for resolutions that will be coming to a vote at the meeting. It does not allow them to ask open-ended questions of management.

3 This advantage is magnified if the corporate charter allows incumbent management to vote proxies that were never sent back to the firm. This is the equivalent of having an election where the incumbent gets the votes of anybody who does not show up at the ballot box.

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