See the rulemaking and comments already posted to SEC site. I’m concerned that provisions meant to facilitate voting on broker platforms may lead us right back into what is essentially broker voting. See discussion of Enhanced Broker’s Internet Platform beginning on page 37. I would much prefer a more open system as I described in my Harvard Law post, An Open Proposal for Client Directed Voting. See also proxy plumbing comments by Moxy Vote and proxy plumbing comments by VoterMedia.org. Continue Reading →
Tag Archives | proxy plumbing
This Week in the Boardroom: 12/13/12. TK Kerstetter, Chairman, Corporate Board Member; Ken Bertsch, CEO, Society of Corporate Secretaries and Governance Professionals; Jeff Morgan, CEO, National Investor Relations Institute (NIRI) discuss recent hot topics and something of what to expect in 2013. Continue Reading →
Jay M. Hoffman and Melissa Ghislanzoni of Miller Thomson in Toronto recently posted Empty Voting – Waiting for a Regulatory Response. While focused on Canada, the post applies equally to the US. The recent Telus decision of the British Columbia Court of Appeal “appears to signal a green light for the continuation of empty voting, at least until a regulatory response is implemented.” That case involved Mason Capital Management LLC, a US hedge fund. The Court found no violation of law, “to the extent that cases of ‘empty voting’ are subverting the goals of shareholder democracy, the remedy must lie in legislative and regulatory change.” Continue Reading →
The new SEC Investor Advisory Committee (SECIAC) met for the first time last week. It appears there may be agreement by Committee members to first concentrate their efforts on retail investors. At least that was the message of several Committee members and the expressed wish of Commissioner Luis A. Aguilar. The SECIAC would do well to recommend leveling the playing field between retail and institutional investors and between investors of all types and corporate management. Retail investors are more likely to return to the market if the scales aren’t so often tipped against them. Continue Reading →
The Changing Profile of Board Recruitment, in the November/December issue of The Corporate Board by Bonnie W Gwin of Heidrick & Struggles, discusses a continued risk aversion among the leadership of the Fortune 500.
Companies seeking to fill directors’ chairs with only current or former CEOs will find it nearly impossible to increase diversity on the board. This may create a conundrum for corporations who want to do both.
Companies are torn between the safety and reliability of veteran leadership but also Continue Reading →
The Canadian Coalition for Good Governance (CCGG) released their 2011 Best Practices for Proxy Circular Disclosure. Companies in many countries will find this a useful document since it discusses the primary communication link the board and its shareowners.
CCGG outlines how to articulate, in plain language, the governance practices and activities of the board, the qualifications of directors, the issuer’s executive compensation programs and alignment with shareowner interests without exceeding the company’s risk appetite.
Keith Paul Bishop writes:
Section 951 of the Dodd-Frank Act requires companies that are subject to the SEC’s proxy rules to include in their proxy statements “a separate resolution subject to shareholder vote” to determine whether a shareholder vote on executive compensation will occur every 1, 2, or 3 years. When the SEC was considering amendments to its rules to implement this Continue Reading →
The Harvard Institutional Investors Roundtable will convene tomorrow, bringing prominent members of the institutional investor world together focus on lessons from the first year of say-on-pay votes. During the second Continue Reading →
The Securities Transfer Association (STA) released a study, 2011 Transfer Agent Survey to Estimate the Costs of a Market-Based Proxy Distribution System, that evaluates the costs to public companies of beneficial owner proxy processing services over providing those same services to registered shareowners.
The study concluded that public companies could save more than 42% if proxy services were subject to free market competition instead using a Continue Reading →
The Canadian Society of Corporate Secretaries announces the Shareholder Democracy Summit ─ a Canadian first. CSCS has invited key stakeholders to gather this coming fall on October 24 and 25 in Toronto for an important national summit on shareholder democracy.
CSCS President Lynn Beauregard announced today that invitations to register for the Shareholder Democracy Summit will be issued in the coming weeks to all key participants. The CSCS President remarked that when Canadian shareholders vote, whether they are individual shareholders or one of our largest institutional shareholders, their voice is often not heard or it is misheard. People think it’s like voting in an electoral campaign – once a shareholder fills out Continue Reading →
Worth Reading … SEC Comment Letters on Proxy Plumbing | Governance Center Blog. Gary Larkin, writing for the Conference Board, points to several comment letters worth reading. I’m pleased to have my letter among those listed. I’ve greatly abbreviated Larkin’s list and added a few nominees.
- The Corporate Governance Network, James McRitchie, Publisher, Oct. 20. Excerpt: The issue of blank votes was previously discussed in my May 15, 2009 petition to the SEC to amend Rule 14a-4(b)(1)… In this section I address the need for Voting Instruction Forms (VIFs) to meet the same standards as proxies… Broadridge’s ProxyVote.com appears to fall short of full compliance with SEC regulations with regard to notifying the voter being solicited as to how blank votes are counted.
- Wachtell, Lipton, Rosen & Katz, Oct. 19, Excerpt: …The prevalence of empty voting, and the increasingly sophisticated and manipulative ways in which it is employed, risks allowing voters who are not economically aligned with a corporation and its economic shareholders to subvert the corporate machinery to the detriment of those shareholders, the corporations that they own and, ultimately, the American economy…. The singular role that proxy advisory firms play in the field of corporate governance and elections, and the broad reach of their influence, calls for comprehensive and particularized regulation by the Commission for the protection of all investors…
- The Corporate Library, Nell Minow, Chair, Oct.19. Excerpt: …. I would support the UK approach of putting the burden of proof on institutional investors to show why they have not been actively engaged in exercising those rights, and I would support a vigorous enforcement program to address the issues of conflicts of interest we have documented in the repeated failure of institutional investors to vote against value-destroying compensation plans (even when proxy advisory services tell them to do so).
- Center for Capital Markets Competitiveness (part of the U.S. Chamber of Commerce), Tom Quaadman, Vice President, Nov. 15. Excerpt: …we recommend that the CCMC and ISS develop standards that would set forth a formal process that ISS would observe to formulate and update its corporate governance policies.
- National Association of Corporate Directors, Barbara Franklin, Chair; Kenneth Daly, President and CEO. Oct. 20. Excerpt: …New technologies and social media are changing the way boards garner information and sentiment from shareholders. Companies can do more to use technology in board-shareholder communications…. We do not believe that, for the most part, proxy advisory firms need additional regulation. However, if companies vote shares on behalf of owners, they should register as investment advisors.
- Lawndale Capital Management, Andrew Shapiro. October 25. Excerpt: …Confidentiality is necessary to allow objective voting to take place and not interfere with the legitimate flow of investment due diligence interaction that would come from retaliatory treatment….changes to the NOBO/OBO regime and other proxy and Section 13 disclosure rules that reduce investor privacy also risk disruptions in the efficient allocation of capital.
- United States Proxy Exchange (USPX), Glyn Holton. Comment Letter. Excerpt: In an honest election, votes that aren’t cast should remain not cast. You don’t offer those votes up to whomever would like a little extra suffrage: “Unused votes here! Who would like ‘em?” That, essentially, is what the post-reconciliation and hybrid methods do, at least as described in the Concept Release. By “recycling” votes other shareowners have chosen not to cast, they boost certain shareowners’ voting power beyond what it would be if individual shares were tracked through clearance and settlement to individual beneficial owners … We do not believe it is a purpose of the Commission to help corporations achieve quorum. If they had more difficulty achieving quorum, corporations might take more effective actions to attract participation by individual investors in the proxy process.
- VoterMedia.org, Mark Latham. September 29. Excerpt: …To maximize the benefit to our economy, CDV should be open and free… Competition among proxy advisors is important to ensure that we get value for money. Letting us retail investors allocate collective funds by vote to competing advisors would also ensure loyalty to our interests… OBO should be the default status for all retail investors. NOBO should be by opt-in only. A NOBO default would increase the entrenchment of corporate management. An OBO default would better protect retail investors’ privacy. Issuers should not be able to solicit proxies directly from beneficial owners… management should communicate with shareowners via the public forums created by Open CDV and competitive markets for public advice.
And for a UK perspective, check out US proxy reform: It’s completely broke, please fix it!
In the words of the STA summary “of the 199 original letters submitted, only two expressed a “very negative” opinion on proposed reforms to any of the issues: the American Business Conference, and Broadridge (which stands to gain the most by maintaining the status quo). The implication is clear: the consensus among all stakeholders – from issuers to academics – is that major reforms are badly needed”.
We seem to have found the definitive diametric opposite of the good old maxim ‘if it ain’t broke, don’t fix it’.
On July 14, 2010 the Securities and Exchange Commission voted unanimously to issue a concept release seeking public comment on the U.S. proxy system and asking whether rule revisions should be considered to promote greater efficiency and transparency. Today is the last day to comment within the formal timeline. Looking through the comments posted thus far, here were some of the more interesting for me:
- Niels Holch, Executive Director, Shareholder Communications Coalition – More than any other group, probably helped establish the framework of the SEC’s release.
- James McRitchie, CorpGov.net. Sure, I’ll plug my work:
- One letter emphasizing the need for open client directed voting
- Another that blank votes shouldn’t go to management; VIFs should follow rules for proxies, with a corrected version (blankvotesVIFs10-20) dated today.
- Mark Latham, VoterMedia.org. Innovative market-based solutions. Open client directed voting, competitive funding for proxy advice, the need for the proxy communications system to be kept outside corporate management’s control — taking the opposite position from many on this last issue but with sound reasoning.
- John C. Wilcox, ICGN. Need for dematerialization of shares, establish guidelines for identifying the beneficial owner or “ultimate investor” entitled to exercise voting rights, supports further development of open client directed voting
- Glenn H. Davis, CII. Favors a robust system of client-directed voting, data-tagging for proxy–related materials
- Wachtell, Lipton, Rosen & Katz. Calls for proxy advisory services to be regulated and increase disclosures, a very closed form of client directed voting that essentially brings back broker votes
- Keith Bozarth, SWIB. Does not favor changing private OBO status
Broc Romanek, highlights some other comments at theCorporateCounsel.net this morning. Time is running out.
USPX just provided comments, which attempts a more comprehensive question by question response. A few creative highlights:
In an honest election, votes that aren’t cast should remain not cast. You don’t offer those votes up to whomever would like a little extra suffrage: “Unused votes! Who wants ‘em?” That, essentially, is what the post-reconciliation and hybrid methods do, at least as described in the Concept Release.
We define a reconciliation method as “accurate” if it reproduces the result that would be obtained if, instead of the current system of street name registration, a direct registration system prevailed, with individual shares tracked through clearance and settlement to individual beneficial owners. With an accurate reconciliation method, as so defined, there will never be over-voting of any sort. Votes won’t be recycled, as defined in our response to question 1. No investor will be denied a vote because someone else’s trade failed to settle. Investors’ interest in fair, undistorted corporate elections will be protected.
The Commission should enforce this right (to withhold proxies) by allowing shareowners to prevent anyone from voting a proxy on their behalf. One solution would be to do away with Rule 452 entirely. Another would be to provide a check box on all proxies or VIFs allowing shareowners to withhold their proxy.
Most of the problems with today’s proxy system arise because of the current system whereby shares are immobilized by DTC and shareowners trade security entitlements. This system was intended as a temporary stop-gap in the 1970s, when it was implemented. At the time, technology to support an automated direct registration system didn’t exist. Today, that technology could easily be implemented. Rather than keep patching the broken-down system of DTC and immobilized stock certificates, perhaps resources should be invested in a comprehensive direct registration system. That would solve many problems with the current proxy system, including that of confirming votes.
The OBO/NOBO distinction should be scrapped. Shareowners should not be allowed to refuse direct corporate communications.
We have serious reservations about allowing anonymous investment in public corporations. We understand this is a foundational issue, but we believe the time is long overdue for public debate on the question.
We believe it is in the public interest that individuals not be allowed to finance corporate activities—with their potential to produce enormous good or enormous evil—anonymously. We understand some believe anonymity is important for the conduct of certain speculative trading activities. We are unimpressed and remind the Commission that its mandate says nothing about facilitating speculative trading.
Disclosure of all beneficial owners would not harm investors. It should occur more frequently than annually and include information on the length of time shares were held, which would facilitate proving ownership for purposes of Rule 14a-8 and proposed Rule 14a-11. We are not concerned about disclosures impairing speculative trading strategies.
It would also be helpful for the Commission to establish guidelines for identifying the beneficial owner or “ultimate investor” entitled to exercise voting rights. For example, full voting rights should be passed to 401(k) plan participants for holdings in the employer’s company.
Banks and brokers should not be offering their retail clients options such as “always vote with management”, “always vote against management” or “vote according to this third party’s recommendations”. Rather, they should be offering their clients the single option of transferring their proxy to a voting platform that would then make all the same options—and many more—available to them.
Because the voting platforms would receive proxies—and not VIFs—they could pass client votes directly to vote tabulators, bypassing the expense and inevitable errors associated with passing votes back to the client’s securities intermediary and then on to Broadridge.
We have serious concerns about rudimentary forms of client-directed voting that would have shareowners making elections such as “always vote with management”, “always vote against management” or “always abstain”. We call such rudimentary forms of client-directed voting “zombie voting”. If offered on proxy voting platforms along side of more robust options, we believe these rudimentary options would be little-used, posing little problem. If offered at the bank or broker level, as part of only a limited suite of options for client-directed voting, we believe these rudimentry options would be quite widely used, causing systemic problems.
Another form of client-directed voting mentioned in the Concept Release would allow shareowners to elect that their shares be voted according to recommendations— or pre-announced votes—of some third party. Again, we believe such options would be appropriate if offered through a proxy voting platfform. If offered at the bank or broker level, they will pose unique systemic issues. In particular, they will likely lead to violations of Rule 13(d).
Rule 14a-2(b)(6) should be revised to provide for discussion of issues related an issuers proxy up to the date voting closes.
We believe all VIFs should be replaced with discretionary proxies.
As many of you know, I petitioned the SEC last year to change the rule that allows blanks on a partially filled proxy or voter instruction forms (VIFs) to go to management and have also complained to the SEC about Broadridge’s failure to impartially identify proxy proposals on VIFs (see Investors Against Genocide Fighting American Funds, Broadridge and Vague SEC Requirements: More Problems Solved Using Direct Registration and “Corrected” Ballot at Altrea Tips Votes to Management).
At every turn, the deck seems stacked against retail shareowners, in favor of entrenched managers and boards. Now, with the enactment of Dodd-Frank, the SEC is seeking comments on provisions that require rulemaking by the Commission. Additionally, the SEC issued a Concept Release on the U.S. Proxy System with comments due October 20. These opportunities for comment offer our best chance to finally level the playing field in these areas.
Attached (at bottom of post) is a copy of the letter I sent to firstname.lastname@example.org twice yesterday, under two subject fields. One subject was “DF Title IX – Executive Compensation – voting by brokers.” The other subject line was “S7-14-10.” I hope some of you will also object to blanks fields going to management and VIFs that do not impartially identify proxy proposals. Remember, comments are due tomorrow, October 20th.
SEC. 957 of Dodd-Frank prohibits granting discretionary authority to brokers with respect to directors and executive compensation or “any other significant matter, as determined by the Commission.” If beneficial owners fail to provide instructions on how their proxies should be marked with respect to “significant” matters, no one should be empowered to vote on their behalf. The intent of that prohibition should extend to management in the case of blanks items on a partially completed proxy or VIF, as well as brokers completing a totally blank proxy or VIF. The SEC should use its rulemaking powers, not only to conform the provisions of Rule 14a-4 to the mandated and implied intent of Dodd-Frank but should also make a determination that all proxy matters are “significant.” After the complicity of auditors in abusive practices, such as those uncovered at Enron, no proxy item is insignificant.
The integrity of the voting system is critical. The SEC’s current rules send the wrong message to shareowners. They say, “don’t worry about voting. If you fail to submit a vote at all or you leave an item blank, we will allow your votes to be assigned to someone else… but not to someone of your choosing” regardless of possible conflicting or nonaligned interests of brokers, banks and corporate management.
The current rule does not reinforce a robust market or vigilance by shareowners. It does not send a message that voting is important. It is no wonder that shareowners then become shareholders, with only entitlements and no responsibilities, much like gamblers with betting slips. The Commission should encourage responsible ownership, not gambling.
The SEC should regulate the power relationships between actors in the market to provide a level playing field, not tip the balance to one party when the other fails to act. Instead, the SEC should remind each party of the importance of their respective roles. The current Rule 14a-4 misaligns interests by yielding disproportionate control to brokers, bankers, managers and boards, instead of educating and engaging shareowners.
(Thanks to the many individuals who reviewed and provided comments on the attached recommendations to the SEC.) blankvotesVIFs10-18
It should be noted that you can avoid much of the blank vote issue right now by always voting on MoxyVote.com. They use Broadridge’s electronic voting platform too and can’t submit a VIF back to Broadridge without populating (gathering a vote from a user) every item on a ballot. However, their system lets you set up your own default, instead of automatically having your blank vote go to management.
To do so, simply log in to your account at MoxyVote, go to:
- My Profile
- Down the left column, hit the button that says “Prioritize and Manage”
- In about the middle of the page, you’ll see “Default Voting Positions” with the choice of voting
- with the board’s recommendation
- against the board’s recommendation
I’ve got mine set to abstain whenever I leave an item blank. You may want to set yours differently. Using MoxyVote, at least you have a choice right now. You won’t find that at ProxyVote.com, the platform that most brokers send you to. Since most shareowners still use ProxyVote, we still need a change in the rules by the SEC regarding how blank votes are counted. Additionally, VIFs still need to follow the rules applicable to proxies, like providing an unbiased description of each item to be voted on. These descriptions will continue to slant votes to management unless the SEC requires a level playing field, so it is important to comment to the SEC about these issues.
Disclaimer: Given Dodd-Frank, proxy plumbing and all those comments I want to provide the SEC, the report below doesn’t do the ICGN Mid-Year Conference justice. I wrote this up more than a week later with poor notes and memory. Comments, corrections and substitute photos are solicited.
The Financial Crisis Inquiry Commission will report in December to give an unbiased historical accounting of the causes of financial crisis. It will be out in book form but will also be available through download.
$11 trillion in wealth was wiped away. The market took until 1954 to get back to the levels of 1929. Let’s hope this one doesn’t take as long but, more importantly will we learn the lessons necessary to prevent or minimizes future bubbles?
It was a failure of accounting and deregulation. Too many were rewarded based on volume not on performance and their was no continuity in risk (they thought) after all the slicing, dicing and creative complexity.
Rewards can’t be asymmetric and function properly. This was not a natural storm; the clouds were seeded. Signs were there, such as a 2004 warning from the FBI about a housing fraud epidemic, but they were glossed over. Now, our remaining investment banks are largely trading banks, not focused on generating capital but on gaming the markets. The betting market is much larger than the real economy… with more than 85% of transactions being synthetic.
Dodd-Frank requires the investment banks to hold 5% of the securities they sell but I’m not sure what good that does since that portion of their business is now minor. We need to rethink the role of finance in our economy. Continue Reading →
As many of you know, I petitioned the SEC last year to change the rule that allows blanks on a partially filled proxy or voter instruction forms (VIFs) to go to management. (see 4-583 at http://www.sec.gov/rules/petitions.shtml)
The way I read Dodd-Frank SEC.957, it appears to prohibit broker voting for say on pay, directors and “any other significant matter, as determined by the Commission, by rule.” I think that language gives an additional impetus for the SEC to deny both broker votes and blank votes that go to management for all proxy items. After Enron, who can say that even voting on the auditor isn’t significant?
With proxy plumbing and Dodd-Frank, this is the perfect time to ask the SEC to amend Rule 14a-4(b)(1) to do away with both broker and blank votes going to management altogether and to require VIFs to meet the same requirements as proxies.
I’ve attached a draft of my comments below but would very much appreciate scrutiny by others. Are there other rules that need to be changed to accomplish this? Are my suggested amendments reasonable? I don’t want to jeopardize the ability of shareowners to be able to assign proxies or to implement an open client directed voting system, such as that being developed by MoxyVote.com. Does my saving clause protect those abilities?
Please e-mail me at email@example.com with suggestions and/or leave comments here. If we can get rid of blank votes going to management, we’ll win more elections. This is one more change needed to create a level playing field.
Attachment: Draft Letter blankvotes&VIFs10-9.doc