On February 26, the New York Stock Exchange filed with the Securities and Exchange Commission a proposed rule change to amend NYSE Rule 452, eliminating broker discretionary voting for the election of directors of NYSE-listed companies with the exception of companies registered under the Investment Company Act of 1940. Rule 452 currently allows brokers to vote on “routine” proposals if the beneficial owner of the stock has not provided voting instructions at least 10 days prior to the scheduled meeting. The proposed amendment would be applicable to proxy voting for shareholder meetings held on or after January 1, 2010.  

The current NYSE Rule 452 treats as a routine proposal an “uncontested” election for a company’s board of directors. However, in recent years the definition of a “contested” election has been questioned by a number of parties and interest groups due to the rise of new types of proxy campaigns. On “non-routine” matters, which generally are those involving a contest or any matter which generally affects the rights of stockholders, NYSE prohibits brokers from voting without receiving instructions from beneficial owners.  

This proposed rule change eliminating broker discretionary voting for elections of directors could significantly impact the director election process, particularly in connection with establishing a quorum at shareholder meetings. The Proxy Working Group, which reviews NYSE rules regulating the proxy voting process (and supports the amendment of Rule 452) speculates in a report addressing an earlier version of a Rule 452 amendment that this proposed change will likely result in issuers having to spend more money and effort to reach shareholders who previously did not vote and could most dramatically affect those issuers who have a smaller proportion of institutional investors and thus more difficulty contacting shareholders to vote in uncontested elections.