The Power of Proxy Voting

Proxy voting happens thousands of times a year, and in aggregate, has the potential to have more impact that a presidential election.

Here's why. Proxy voting is how we can have a say in the direction of the companies we're invested in. Think of it like submitting a ballot, not every four years, but multiple times a year. From how much the CEO gets paid, to whether a company creates a climate policy and sticks to it. Every public company has an annual shareholder meeting. If you're invested in companies individually or through index funds, which is the most common way we invest today, you have hundreds of opportunities to advocate and vote just by investing. You own the right to influence these decisions at the companies you're invested in.

So how did proxy voting begin? Voting at a company's annual meeting was originally designed as an in-person event more than 200 years ago. If you own shares of a stock in a company, you would show up to the annual meeting and cast your votes. As the investor base of companies expanded from being locally owned to nationally and internationally owned, it became really hard for people to physically attend, as this was before planes existed.

Proxy voting was the answer, allowing people to vote remotely. Today, it's the standard way to vote in corporate elections.

Over the last few decades, index funds, those low cost funds that let you own a piece of an entire market have become the primary way to people to invest. And for good reason. They have been one of the most effective ways to diversify your investments and build wealth over the long term. This shift came with a cost.

When you own a fund that buys you into the biggest 500 companies in the US, the S&P 500, you own a piece of the fund that owns the companies. You don't own the companies themselves directly. Millions of individual investors buying into these low cost index funds gave asset managers like BlackRock, Vanguard, and State Street, the companies who manage the funds, great power in exchange for making it really easy to invest.

These asset managers became the people voting for you. They ended up holding a large amount of the voting power across all companies. It's estimated that those three asset managers combined on almost a quarter of the votes of the S&P 500. And they regularly voted against or abstained on topics individual investors care about advancing.

Thankfully, there's been progress. Concepts like pass through voting are starting to get rolled out. Pass through voting allows you to choose policies and have those applied to the votes at the companies you're invested in through that fund. At Illuminate, we're progressing it further. We've created a proxy voting policy that automatically advocates and votes for climate policies across all the company elections you're eligible to vote on.

And for the first time, we're also giving you access to the votes casted and how that influenced each election.

So why does this all matter? Proxy voting works. In 2021, a small activist investor named Engine No. 1 waged a campaign to install four directors to the board of ExxonMobil with the goal of pushing the oil and gas giant to reconsider doubling down on fossil fuels as the rest of the economy worked to decarbonize. The campaign was successful with three of the four nominees elected.

We put a lot of time, energy, and money into our political elections. And for good reason. They matter. But there are many other election days that happen every year. These are corporate elections.