Proxy voting is the way shareholders vote on company or fund matters without attending the meeting in person. A "proxy" is both the authority given to someone else to vote on the shareholder's behalf and the person who holds that authority. Shareholders use proxies to elect directors, approve auditors, vote on executive pay, decide on mergers and support or reject shareholder proposals.
Because most shares today are held by institutions, proxy voting is dominated by asset managers, pension funds and other professional investors, who vote on behalf of millions of end investors. In the United States, proxy solicitation is regulated by the Securities and Exchange Commission (SEC) under Section 14(a) of the Securities Exchange Act of 1934. In the EU, the revised Shareholder Rights Directive (Directive (EU) 2017/828) sets common rules on voting and engagement by institutional investors.
Proxy voting in plain terms
Imagine a residents' association that meets once a year to decide on repairs and elect a committee. Most residents cannot come, so they sign a slip that lets a neighbour vote for them, or they tick boxes on a postal ballot. That slip is a proxy. The meeting still happens, but most of the votes arrive before anyone walks into the room.
With large companies, the "neighbour" is usually the fund manager that holds the shares on behalf of savers. The manager reads the voting papers, decides how to vote and submits the votes electronically. Savers seldom see this happen, but their money gives the manager its voting power.
How the proxy process works
Before an annual or special meeting, a US company files a proxy statement (Schedule 14A) and sends it, with a proxy card or voting instruction form, to its shareholders. The statement explains each item on the ballot, including director nominees, pay, the auditor and any shareholder proposals submitted under Rule 14a-8.
- Record date. The board sets a date; whoever is on the register that day may vote.
- Distribution. Because most shares are held in street name through a broker or bank and a central depository, voting materials pass through intermediaries before reaching the beneficial owners.
- Instructions and tabulation. Owners return instructions online, by phone or by post; the company's transfer agent or an independent tabulator counts the votes.
- Contested elections. Since 31 August 2022, Rule 14a-19 requires a "universal" proxy card listing both management and dissident nominees, so shareholders can mix candidates as they could in person.
Mutual funds hold shareholder meetings too, for example to change a fundamental investment policy, approve a new advisory contract or elect the board of trustees. Because fund investors are numerous and small, reaching a quorum can require repeated solicitation and is often expensive.
Fund voting duties and Form N-PX
A fund or asset manager votes the shares in its portfolio. Since 2003, SEC Rule 206(4)-6 has required every registered investment adviser that votes client securities to adopt written policies designed to vote in clients' best interest and to handle conflicts of interest. Registered funds describe their voting policies in the Statement of Additional Information (SAI) and report every vote cast each year on Form N-PX.
Amendments adopted on 2 November 2022 and effective 1 July 2024 made N-PX reports more structured and standardised, required funds to disclose how many shares they voted or lent out, and extended filing to institutional managers that file Form 13F, which must now report their votes on executive pay ("say-on-pay"). Reports cover the twelve months to 30 June and are due by 31 August. Some large managers now offer "pass-through" or choice voting, letting institutional and, in some pilots, retail investors pick a voting policy for their share of a fund's holdings.
Proxy advisers and stewardship
Proxy advisory firms research ballot items and recommend how to vote. The market is dominated by two firms, Institutional Shareholder Services (ISS) and Glass Lewis, which also offer platforms that submit votes for clients. The SEC changed its rules on proxy voting advice in 2020 and rolled back some of those conditions in 2022, and proxy advisers remain the subject of political and legal disputes in the United States.
Voting is one part of wider investment stewardship, which also covers corporate engagement with boards. Investor coalitions such as Climate Action 100+ and signatories to the Principles for Responsible Investment (PRI) coordinate engagement on climate and other issues, though voting decisions remain with each investor. In the UK, the Financial Reporting Council's Stewardship Code sets voluntary standards for asset owners and managers.
Criticism and limitations
Critics argue that a few large index fund managers hold enough votes to swing many elections, giving outsized influence to firms that do not pick stocks. Others say managers vote too passively and follow proxy advisers without independent analysis, or that votes on environmental and social proposals reflect managers' preferences rather than those of the savers behind them. Practical problems persist too: the chain of intermediaries can lose or delay instructions, shares on loan cannot be voted unless recalled, and retail turnout is low. Shareholder proposals are also mostly advisory, so a majority vote does not always force a company to act.