For my nephew’s 13th birthday, I transferred some shares to a UTMA account for him under a Dividend Reinvestment Plan (DRIP), and I have been using the investment as a teaching opportunity. Every time I receive a statement or other correspondence about the investment, I forward it to him with a short note explaining what it is and what it means to him and his investment. While composing my last email to him about the proxy statement we received, I realized that other people trying to teach kids about investing might also appreciate reading my notes. So I edited it slightly to make it a bit more cohesive for people with no background knowledge, and I offer it to you …

I received a message from Fortune Brands (Ticker: FO) and since you are also an owner, I wanted to share it with you.

In a small corporation like mine (I have an IT consultancy), I am the sole owner, president, and most of the workforce. However, public companies like Fortune Brands are owned by thousands or even millions of individual investors like you and me. As owners, we can control the company.but there are too many of us for everyone to get involved in day-to-day operations, that would be crazy. Instead, we exercise our control by electing a board of directors that provides direction and guidance to the company. The board of directors hires a CEO for the company and some of the other senior officers, and these officers run the day-to-day operations of the company.

You and I do not participate in decisions about manufacturing, sales, shipping / receiving, hiring / firing employees, payroll and benefits, business hours, or office locations; We leave that to the officers of the company, who are selected by the board of directors that you and I elect. Since we do not get involved in the daily routine, the company produces annual and quarterly status reports for us on its activities, successes and failures. An annual Power of Attorney Statement solicits our votes for the board of directors and our opinion on some additional important matters. We can send our votes by mail or online, or we can attend the meeting in person in Illinois at the end of April.

I am enclosing the company’s 2010 Proxy Statement (omitted in this article), which contains information on the upcoming shareholders meeting. It’s going to look very confusing, but don’t worry, I don’t need you to read it all, I just wanted to show you something on one page …

Board members have a limited term, so we vote to replace those who expire this year. Knowing who to vote for can sometimes be a difficult matter. Different people approach this in different ways. All of the candidates offered to us have been selected by our current board of directors, so they are people our board believes we will like and will be a good fit with the other board members. For many owners, that’s good enough and they just follow the board’s recommendation, especially if they’re happy with the way the business has been running. Other owners can do some research on individual candidates’ resumes and past experiences before making a decision.

I approach it in another way: I want the members of the board to have my interest at heart, and that is that I want my investment to increase in value. To make sure they have the same interest, I look for candidates who, themselves, have large investments in the stock of the company. If you open the attached PDF file and turn to page 60 (sorry, readers, imagine it), you will find a table titled “Certain Safety Stock Information” that reveals this information. The table shows the number of shares owned by each officer and director of the company, and by multiplying these numbers by the share price, I know how much money each of them has invested in the company. I only vote for those with considerable investments. Today they were all, but I always check because from time to time I have seen candidates who have little or no stake in the company.

In addition to the election of directors, the proxy statement goes on to solicit our votes on various other items, such as approving an auditor, approving a change in voting requirements, and approving a plan to pay directors with additional shares. I like the way the board has been handling things, so I voted in favor of all of their requests.

There is also one last special item on the list. As the owners of the company, you and I have the right to raise our own business for the other shareholders to vote on. The last item on the list is one of those proposals from another shareholder. He wants us to establish a rule that, at any given time, 10% of shareholders feel strongly about something they can call a “special meeting” of all shareholders, rather than waiting for this regular annual meeting to discuss and vote. about importing. It’s the kind of thing you’d like to be able to do yourself, but it could start to be costly and disruptive for the company to have to post announcements, book auditoriums, and arrange flights and executive accommodation every time a vocal minority wanted to talk about an insignificant topic. . I voted against.

As custodian of their shares, they sent me a single proxy statement for the total of their shares and mine, so I already voted for both of them. In the future, when you are old enough to control your own investments, the responsibility to vote on these issues rests with you. If you have questions, I will always be happy to help.