Over on LinkedIn, ExxonMobil’s announcement of its retail voting program has prompted a sharp response from Prof. Sarah Haan, who describes it as providing for “perpetual blind proxies.”  Here’s an excerpt from her critique:

The proxies are “blind” because shareholders sign up without knowing anything about how management will cast their votes. In fact, the votes are “cast” before the proxy statement is distributed to shareholders—meaning that shareholders have not yet been able to learn who’s running for election, what matters will be voted on, or the company’s position on any of these things. (As a point of fact, a shareholder could invalidate the blind proxy for that one election by executing a follow-on, fully-instructed proxy, but telling shareholders that their vote has already been “cast” is confusing and will discourage this.)

Obviously, the point of perpetual blind proxies is to shift voting power from retail voters to corporate managers, by making it exceedingly difficult for shareholders to navigate the complexities of voting their personal preferences. Perpetual blind proxies are presented as a pro-democracy innovation, but actually they demonstrate the vulnerability of proxy voting as a legal device. Incumbent boards have strong motives to use proxy voting to discourage shareholders from exercising independent choice. This is exactly what perpetual blind proxies do.

Prof. Haan’s post has received many likes and favorable comments from shareholder democracy advocates. I think a big part of what these folks are concerned about is that Exxon’s program is likely to be very popular with retail investors, who are inclined to side with management if they vote at all. This program is designed to make it easier for them to vote, and so I’m 100% certain that Exxon management believes that it will enhance the level of support it receives for its agenda.

I’m also sure that many retail investors won’t think that’s a bad thing. Take me, for example. I dutifully fill out my proxies and return them every year- and I’ll let you in on a little secret, I follow management’s recommendations almost all of the time.  Since that’s the case, I’d like to have an option to do that on a “set it and forget it” basis.

Do I understand what that means in terms of shifting power to management? You bet I do, and I think it’s condescending to assume that other retail investors won’t and paternalistic to suggest that they shouldn’t have the option to sign up for something like this.  I’m not going to opt in to a program like Exxon’s if I have concerns about management, but in that case, I’m probably just going to sell my investment anyway. Shareholder democracy proponents will say that’s a cynical and apathetic choice. Perhaps it is, but I also think it’s not an irrational one for a retail investor.

So, where others see Exxon as creating a mechanism for “perpetual blind proxies,” I see it as facilitating “rational apathy” on the part of retail investors like me – and there are a lot of retail investors like me. Shareholder democracy advocates know that too, and I think that it shows in their response to Exxon’s program.

– John Jenkins