Proxy Reform

Chris Kentouris takes up the issue of Who Pays for Proxy Reform? at Securities Industry News (1/12/2010) “In one corner is the New York-based Broadridge Financial, which is only too eager to tout the efficiencies of the current system in which it holds a virtual monopoly. It’s actually the world’s largest distributor of proxy materials for broker dealers and banks on behalf of beneficial shareholders. On the other corner are the Washington, D.C.-based Shareholder Communications Coalition (SCC) representing issuers and transfer agents, and The Altman Group, a proxy solicitation firm in New York. They say plumbing in the proxy industry is in major need of overhauling.”

Giving corporate management direct access to shareowners registered in street name “goes hand in hand with giving them a say in who will mail or electronically distributes their proxy materials and counts up their votes.” SCC wants issuers to have unfettered access. The Altman Group wants issuers to have access to objecting beneficial owners during a limited number of times a year, like when proxies go out.

For a more thorough comparison of proposals, see my Comparison of “Proxy Plumbing” Recommendations.

Companies have always been able to communicate with shareowners. The layers they have to go through just add expense that ultimately reduce shareowner earnings… although I’m reluctant to endorse any system that puts corporations fully in charge of their own elections.

As indicated in Co-Filers Wanted on Petition to Eliminate Street Name Registration, the United States Proxy Exchange and are working on “proxy plumbing” reforms that result in more communication between shareowners. We need to look at safeguards, such as “do not call” lists, so that shareowners themselves decide who can contact them directly outside annual elections and proxy contests. There are many details to work out.

Personally, my major concern is that those under “street name registration” only hold “security entitlements,” not real shares. SEC laws and regulations are written to protect shareholders, not those with security entitlements.

Therefore, Broadridge and others are interpreting requirements that apply to proxies as not applicable to their “voter information forms.” Counting blank votes for management, with only a microtype warning on the ProxyVote screen and summarizing resolutions so voters can’t even guess the subject are abuses that would end with a system of direct registration and the use of actual proxies.

These are issues left unaddressed by SCC or the Altman Group. Let’s hope the SEC gives them full attention.

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