Director Votes, Impending Hurdles
August, 2006 – The New York Stock Exchange’s Proxy Working Group recently made several recommendations that will likely be of critical importance to public companies, as follows:
- Amend NYSE Rule 452 to make the election of public company directors a “non-routine” matter. This would prevent brokers from doing what they’ve always done in the past: vote shares on behalf of their individual shareholder clients who had not already voted on such proposals, 10 days prior to the annual shareholders meeting. Since brokers typically hold more than 70% of a company’s stock, and have usually voted “for” directors up for election, this could present serious challenges to corporations trying to get their directors elected each year. In addition, the rule change would a) increase the disturbing possibility of quorums not being reached at shareholder meetings, leading to the embarrassment and heavy cost of a postponed event; b) prescribe the long-awaited elimination, or at least mitigation, of barriers (intermediary layers) in communication between a corporation and its “street” shareholders; c) clearly necessitate greater education of individual investors on their need to vote their proxies each year, regardless of the size of their shareholdings (a project already entrusted to the NYSE); and d) be at least a temporary windfall for proxy solicitors, whose services would be in even greater demand to “bring in the vote.” Shareholder Service Solutions®, and others, expect this rule change to be approved before next year’s proxy season.
- Engage a third party to study the entrenched process, pursuant to NYSE Rule 465, whereby ADP “alone” distributes proxy material to brokers and banks, and tabulates returned votes from “street” shareholders. As good a job as ADP does, the study will determine if ADP’s process is as efficient as it can be, and also if the prices it charges issuers to do this work are as economical as possible.
- Request that the SEC study the role of institutional shareholder “advisory groups” in making voting decisions over large blocks of shares held by institutional investors – shares which these advisory groups themselves do not own, and in which they have no economic interest.