How Charles Schwab Avoided an Investor Exodus and How You Can Too

Tesla’s 2025 annual proxy meeting was perhaps the most widely reported proxy meeting in years, primarily for Elon Musk’s massive pay package, which came with a maximum award worth $1T. The package gained significant controversy, despite support from many retail and institutional investors.

Days before the vote, news circulated that Charles Schwab had voted AGAINST Musk’s 2018 pay package in 2024 in many of its funds. Shortly thereafter, a flurry of retail investors threatened to leave Schwab if the brokerage did not vote for the 2025 award. Two days before the vote, Schwab announced it would vote FOR the Award. The award ultimately passed by more than a 50-point margin.

Charles Schwab avoided potential disaster for itself and customers over a single proxy vote. Similar debacles may be avoided by asset managers who take these steps.

1. Recognize the stakes
2. Understand investor interests
3. Align your voting policy
4. Make vote decisions clear
5. Pick the most reliable proxy advisor – Egan-Jones can address steps 1-4

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1. Recognize the stakes of proxy voting for client retention

Proxy voting decisions can alienate customers. Asset managers and some proxy advisors have contended with a push to move away from ESG, though investors’ concerns clearly go far beyond ESG as shown by Mr. Musk’s recent pay package controversy.

Further, it’s clear that those asset managers who rely on proxy advisors to manage proxy voting are not free from risk, as demonstrated by a letter sent by 23 state attorneys general regarding their pension funds and comments made by Jamie Dimon. Referring to two major proxy advisors,

““They are incompetent,” Mr. Dimon said at a BlackRock retirement summit. “They are owned by the NGOs,” meaning non-governmental organizations. Their data is “wrong,” he continued, yet “they don’t have to correct them.” And companies “can hire them” to improve their corporate governance ratings. “Really? They should be gone and dead, done with,” Mr. Dimon said.” (source)

In fact, Egan-Jones was the only major proxy advisor to recommend Elon Musk’s pay package under one of its five off-the-shelf policies. ISS and Glass Lewis recommended investors vote against the pay package.

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2. Understand investor interests

It’s important to stay in constant communication with a variety of types of investors to understand how their preferences are changing, especially over the most controversial proposals at shareholder meetings.

Asset managers should also consider investors’ concerns about proxy advisors. Recently, proxy advisors have come under scrutiny for conflicts of interest, soliciting revenue from both investors and the boards who are subject to their proxy vote recommendations. A recent antitrust probe by the Federal Trade Commission is exploring this conflict of interest.

Egan-Jones does not take any corporate consulting revenue.

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3. Align your voting policy with investors’ interests

Select a proxy voting approach that will align with priorities of most investors. Of course, investors have varying interests, which is why asset managers may need to offer different voting options for different customers.

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4. Make vote decisions clear

This is perhaps the most challenging part for asset managers who seek to execute proxy voting internally. It is critical to provide justification to investors as to how their votes are executed.

Should an external proxy advisor be chosen to recommend votes, an asset manager ought to choose a proxy advisor whose recommendations have a clear justification. For this reason, it’s important that all analysis for proxy voting be built from the ground up.

The proxy policy should also be clear. Thus, if shareholders are concerned about proposals that are approaching months in the future, they can understand quickly how the vote is likely to be cast.

Critically, votes on key proposals should be disclosed to investors to mollify concerns. To put an end to the controversy, Schwab made it clear to investors that they would support the pay package. When clients see that their interests are considered, they are less likely to jump ship.

For this reason, Egan-Jones strives to be first to market in terms of key votes to inform investors of each of our policies’ views.

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5. Pick the most reliable provider

Handling proxy votes internally brings additional reputational risk and seasonal operating complexity that isn’t necessary. The best solution is to use the most reliable proxy advisor, Egan-Jones Proxy Services. Thankfully, Egan-Jones can address these 4 tasks for you.

• Recognize the stakes – Egan-Jones has aided institutional investors for over two decades. We provide proxy voting services to the three largest asset managers.
• Understand investor interests – Egan-Jones has five off-the-shelf voting policies to meet most investor needs. Our regular communication with investors gives us an unparalleled understanding of investors’ interests.
• ‍Align your voting policy – Egan-Jones has the only Wealth-Focused proxy voting policy. We can provide access to multiple policies at an affordable rate.‍
• Make vote decisions clear – Egan-Jones’ justification and policy disclosures are designed for investors to clearly understand how we come to our recommendations.

Issues arise when asset managers adopt unnecessary compliance and reputational risk. Charles Schwab adroitly sidestepped a potential disaster. It would serve asset managers well to investigate their alternatives.

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