The Coalition’s letter urges full Commission consideration of the proposed amendment to Rule 452 because of the broader policy issues raised in the comment letters submitted on this proposal. These policy issues include: (1) the need to educate individual investors about the proxy voting system, so that they are not disenfranchised by an amendment to Rule 452; and (2) the need to review outdated SEC shareholder communications rules, which prevent effective communication between issuers and their beneficial owners.
The amendment to Rule 452 before the SEC would eliminate broker discretionary voting in uncontested director elections. You can learn more about this proposal on the Regulatory Action and Stock Exchange Activities pages of the Coalition’s website: www.shareholdercoalition.com
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Manifest has written to the SEC in support of rule changes designed to eliminate uninstructed broker votes being used at director elections. The New York Stock Exchange had recently filed a request with the SEC to change Rule 452 which allows brokers to use client votes if no instructions have been received. The proposal has been stuck with the SEC since October 2006 and investor groups such as the Council of Institutional Investors have been pushing reform for over a decade.
Comment letters have been arriving at the SEC from all sides of the debate with some corporations claiming that the rule change would “suppress the voice of individual investors”. Others have been concerned that the time-table set for the report will give opponents time to mount a counter-reform campaign.
Manifest set out the view that, while the reform was both long overdue but extremely welcome, there are many aspects of the US proxy system which are in need of radical overhaul. The broker vote problem was just one symptom of wider systemic failures which prevents issuers and investors from properly communicating with one another and create immense inefficiencies such as, for example, record dates more pertinent to an age of the Pony Express rather than a web-enabled financial services industry which looks to STP as a matter of course.
The US Securities and Exchange Commission (SEC) has moved a step closer to approving the New York Stock Exchange’s Rule 452 proposal to eliminate broker discretionary voting in director elections. This proposal was developed by the Exchange’s Proxy Working Group in 2006.
The NYSE has recently re-filed its proposed amendment to Rule 452 and includes the reports of the Proxy Working Group and the comment letters it received on its work.
It has been estimated that broker votes can give management-supported director elections an automatic 20% to 30% of share of the vote. Although some US companies have already moved to majority voting from plurality voting, (getting just one more vote than another candidate for the seat is enough to win) banning broker votes will have little effect in plurality contests.
Bearing in mind current market conditions and the Obama administration’s commitment to reform, the SEC is likely to move quickly on this proposal. Once the SEC publishes the proposed NYSE Rule amendment, there will be a 21-day comment period.
Niels Holch commenting on behalf of The Shareholder Communication Coalition said: “broker discretionary voting is so interrelated with other proxy process issues that the SEC should be conducting a comprehensive review of all shareholder voting and communications issues, instead of trying to reform the proxy system in a piecemeal fashion. ”
Piecemeal or not, the US is making major and very welcome moves in proxy reform.