Rock the shareholder vote

A local investment fund wants to spread democracy among the stock-holding populace.

After toying with an idea for a website that makes it easier for shareholders to vote on issues at public companies, Richmond-based TFS Capital plans to invest $2 million.

TFS Capital, which runs two mutual funds and two hedge funds with around $900 million in assets, has hired three people to build and run MoxyVote.com.

The startup will compete against a handful of other sites that do the same thing.

TFS hopes that if the site takes off, then the stock market will be more efficient because more stockholders will be participating in the companies they own.

“We spent a good bit of time researching it and trying to find reasons it wouldn’t work or legally couldn’t be done,” said Larry Eiben, the Chief Operating Officer at TFS Capital. “But there were none.”

“A strong functioning public equity market is dependent on participation by owners,” Eiben said.

MoxyVote has no office, instead borrowing space from TFS’s offices in Richmond and Pennsylvania and using subcontractors for website support.

The website will allow shareholders to register and then sign up to monitor proxy votes at the companies they own. Then users can follow what issues are being put to proxy vote – typically things like the appointment of board members and hiring of accounting firms for auditing – and actually place their votes using the site.

Pat Fishe, a professor of finance at the University of Richmond’s Robins School of Business, said that there is momentum toward more shareholder power. He said that decisions about normal operations are not put to proxy vote (for example, a company’s decision to open a new store in a new market).

However, important issues like a merger or acquisition and proposed rule changes are put to vote, Fishe said.

TFS’s timing coincides with a stepped-up effort by the Securities and Exchange Commission – which oversees the stock market – to expand shareholder power.

In a speech Nov. 5, SEC Chairwoman Mary Schapiro said that the agency wants to improve the proxy voting system.

“We have proposed rules that would require shareholders to be given more information about the qualification of directors and nominees, the structure of board governance, the compensation consultant fees and conflicts, and the relationship between a company’s overall compensation policies and its risk profile,” she said.

Shapiro also said she wants to help reverse an overall decline in voting participation.

And in January, the New York Stock Exchange will prohibit brokers from voting in director elections with companies that their customers’ own.

Historically proxy voting was all done through the mail, but there are other websites that let shareholders vote over the Internet.

The $2 million came from the profits of the firm, which manages around $900 million. That’s up from around $350 million the firm managed at the end of 2008.

Eiben said he anticipates being able to sell advertising on the site. “We should develop a nice community of voters. We may actually end of up charging third parties – advocates – to promote [on the site],” he said, “Any group that has an opinion about a particular resolution on a ballot could be a candidate as an advocate,” Eiben said.

For the first year or two, that service will likely be free, he said.

“The question is, these groups aren’t well funded. So we are also looking at other business models or opportunities for revenue.”

Steve Cooke, the director of investments at Heritage Wealth Advisors, said that the markets would be improved if more people followed the companies in which they owned stocks, but that many casual investors are not likely to get hooked into following nitty-gritty corporate votes.

“If it’s a shareholder that’s interested in a company and done some homework on the company, then they may be more inclined to get involved with the event, they would want to hear about it and are inclined to get involved regardless of the medium the company used to send out the proxy vote – by mail or online,” Cooke said.

“For those people that are not interested or agnostic about what’s going on in a company, they are probably going to ignore it regardless of the medium they are getting it.”

As for the name, Eiben said it comes from the word “moxie,” which he said is meant to encourage retail voters (those who are not professional money managers) to take action.

“It rhymes with proxy, so there is an added benefit,” he said.

Aaron Kremer is the BizSense editor. Please send news tips to Editor@richmondbizsense.com.