SEC approves broker voting reforms, promises to look at the plumbing

In a widely anticipated move, the US Securities and Exchange Commission has moved forward with an aggressive reform program to update the US proxy system. The SEC met  today (01/07/09) to approve the New York Stock Exchange’s proposal regarding broker discretionary voting in uncontested director elections (NYSE Rule 452). In addition to the introduction of a new rule to require the disclosure of proxy voting results within 4 days of any shareholder meeting,  SEC Chairman Mary Schapiro announced that the Commission would undertake a review of the proxy “plumbing” issues over the remainder of the year.

Many aspects of the US proxy system have features which are more characteristic of the age of the ‘pony express’ and have failed to match the reality of current market technological capabilities. What European, particularly UK investors, can sometimes take for granted in terms of short record dates (eg 48 hours in the UK), short voting deadlines, universal ballot cards and share register transparency are much admired luxuries elsewhere. It is an irony for many US investors that they can find themselves with significantly more generous shareholder rights when they invest offshore than at home. Equally many less desirable aspects of the US securities system have crept into the  European market, notably the imposition of pooled nominees by custodian banks, a custom almost unheard pre the late 90s, which has had significant negative impacts on efficient voting.

 Here is a summary of today’s SEC meeting:

Say on Pay for TARP Companies.  The Commission voted 5-0 to release a proposal implementing a statutory requirement that TARP recipients provide for an advisory shareholder vote on executive compensation.

Corporate Disclosure Amendments.  The Commission voted 5-0 on a package of corporate disclosure enhancements related to: (a) compensation policies; (b) director nominee qualifications; (c) company leadership structures (e.g. separation of Chairman/CEO roles); (d) the board’s role in a company’s risk management process; and (e) potential conflicts of interest involving company compensation consultants.  The Commission proposals also include: (a) a new rule to require a company to report the voting results from a shareholder meeting within 4 business days; and (b) several amendments to the proxy solicitation process.  

Rule 452 Amendments.  The Commission voted 3-2 in favour of approving the NYSE proposal (Amendment #4). The dissenting votes were from Commissioners Casey and Paredes.  Both Commissioners voted against the NYSE proposal because, in part, of their view that this issue should be one component of a broader review of the proxy voting and communications system.  Commissioner Paredes also mentioned in his remarks the 93 comment letters received (out of a total of 136) that urged a comprehensive review of the proxy system. 

All of the other Commissioners (Schapiro, Walter, and Aguilar) also mentioned the importance of studying the proxy “plumbing” issues and, near the end of the meeting, Chairman Schapiro committed to undertake such a review during the balance of this year. 

“With over 800 billion shares being voted annually at over 7,000 company meetings, it is imperative that our proxy voting process work – starting with the quality of disclosure and continuing through to the integrity of the vote results,” said SEC Chairman Mary Schapiro. “These three items considered today are all related to the fundamental goal of enhancing the quality of the system through which shareholders exercise their franchise.”

 The written statements of all five Commissioners, including references to the proxy plumbing issues, can be found at the SECs news & Speeches site below:


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