The Society of Corporate Secretaries & Governance Professionals (the Society), which serves over 2,500 issuers, recently submitted a comment letter to the Securities and Exchange Commission regarding the New York Stock Exchange’s proposed change to NYSE Rule 452 which would eliminate broker discretionary voting for the election of directors.
According to the Society, the broker discretionary vote “does reflect the overall views of ...the ‘street name’ retail holders”. The elimination of broker votes would de-stabilize the proxy voting system, the Society argues, because a disproportionate amount of weight would then shift to institutional investors who are influenced by large proxy advisory services who often effectively decide the results of annual shareholders meetings without having an economic interest in the shares that are voted.
The Society also argues that the elimination of broker discretionary votes would result in significant costs and burdens for issuers: approval of proposals would require higher proxy solicitation fees while making it more difficult for issuers to achieve quorums, particularly smaller issuers.
Accordingly, the Society urged the Commission to refrain from changing any individual part of the proxy system before conducting a thorough examination of the entire proxy voting system. In that context the Society believes that the following measures should be considered:
- Proportional Voting, whereby brokers vote uninstructed shares in the same proportion as the actual retail vote.
- Notice and Access, which thus far has seen low participation by retail investors, should be revised by permitting shareholders to receive a voting instruction form, with return envelope, along with the initialnotice card, which should lead to higher retail voting levels.
- Regulating Proxy Advisors to require disclosure of conflicts of interest and business practices.
- Investor Education should be facilitated by an effort to educate retail shareholders about the proxy voting system and the impact of voting decisions.
The Society recommended that the Commission extend the comment period by an additional 90 days to allow the Commission and interested parties additional time to collect data and to complete an evaluation of the measures addressed in the Society’s Comment Letter.