The New York Stock Exchange is eliminating discretionary voting by its broker members in all director elections, whether contested or uncontested. The new rule will apply to proxies given by NYSE broker members regardless of where the issuer’s stock is listed, beginning with shareholder meetings held on or after January 1, 2010.
The current rule permits brokers holding securities on behalf of beneficial owners to vote those securities at their discretion in uncontested elections (considered “routine”) if the customer has not otherwise provided voting instructions by a certain deadline. The new rule removes director elections from the list of routine matters and is intended to encourage individual investors to vote.
For U.S. companies, the rule change could be significant because broker discretionary votes often make up a substantial percentage of the shares represented at annual meetings. Companies may need to include a routine item on their agenda (such as the ratification of auditors) in order to allow broker votes to be counted toward a quorum for the meeting. In addition, the rule change could increase the influence of special interest groups and shareholder activists (at the expense of individual investors who do not vote) and could make it more difficult for companies with “majority voting” provisions to achieve a successful election.
By comparison, the rule change will have less effect on Canadian companies listed on U.S. stock exchanges because broker discretionary votes typically do not make up a substantial percentage of the shares represented at meetings.1 Moreover, under Canadian securities laws, Canadian brokers are generally not permitted to vote on any matter without written client instructions.