The latest development in the case of unfair ballots favoring management at Altrea is that Broadridge has now “corrected” the language on their voter information form (VIF) for the shareowner proposal to eliminate supermajority voting requirements. However, the “correction” fails to accurately portray the proposal at all, and simply places yet another hurdle in the path of shareowners. In fact, the new language highlights the issue of what happens to blank votes and, once again, calls into question why VIFs are, according to Broadridge, exempt from the rules that apply to proxies… although, at least with the corrected VIF, Broadridge included an explanatory letter and the full text of the proposal.
I see two primary issues. First, the rules that apply to proxies should also apply to VIFs. If VIFs go out to about 1/3 of the total number of shareowners and the rules don’t apply to them, then the SEC appears to sanction the treatment of these shareowners as second class citizens, in comparison to those who receive actual proxies. (I don’t know the actual proportion going out as VIFs, but 1/3 seems like a reasonable guess.)
Under Broadride’s interpretation, VIF’s don’t have to be clear and impartial and they don’t have to warn about turning blank votes into votes for management. I’m told that Broadridge “tries” to summarize the issues but if that can’t be done easily, they put a general statement on the VIF, referring the shareowner to the proxy materials. Of course, most retail shareowners don’t read the VIF… even fewer read the proxy materials. I have asked the SEC for clarification on whether or not proxy rules apply to VIFs.
Second, if the SEC finds their rules do apply to VIFs, that takes care of the issue of the “clear and impartial.” Additionally, at least more voters would be alerted to the fact that blank votes will be counted as votes in favor of the position taken by the company’s soliciting committee because warnings will have to be in bold-type, instead of in micro-type footnotes.
However, I would argue that Rule 14a-4(b)(1) still needs to be changed. Just as the SEC finally agreed to abolish the practice of “broker voting,” because a non-vote isn’t necessarily a vote for management, the SEC should also amend 14a-4(b)(1) so that blank votes are counted as blank votes, not as votes in favor of the position taken by the company’s soliciting committee.
I previously discussed other cases when I filed a petition with the SEC last year to stop blank votes from turning into votes for management and when posted Investors Against Genocide Fighting American Funds, Broadridge and Vague SEC Requirements: More Problems Solved Using Direct Registration.
For those of you who are new to the issues, let me briefly illustrate them with the current case of the shareowner proposal at Altera. SEC Rule 14a-4(a)(3) states the proxy “shall identify clearly and impartially each separate matter intended to be acted upon, whether or not related to or conditioned on the approval of other matters, and whether proposed by the registrant or by security holders.” Broadridge claims they don’t have to follow the rules required for proxies because they use a Voter Information Form (VIF), not a legal proxy.
John Chevedden submitted a proposal to Altera, asking them to end supermajority voting requirements. His resolved language read as follows:
Shareholders request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws. This includes each 80% supermajority provision in our charter and bylaws.
Broadridge “made a mistake” and represented the proposal on the VIF, which most retail shareowners got, as follows:
TO CONSIDER A STOCKHOLDER PROPOSAL REQUESTING THAT BOARD TAKE THE STEPS NECESSARY SO THAT EACH STOCKHOLDER VOTING REQUIREMENT IN ALTERA S CERTIFICATE OF INCORPORATION.
In an April 1, 2010, letter to the SEC and Altera, Chevedden complained that voting would not be accurate with such a description of his resolution. On April 2nd, I posted an article entitled Abusive Practices Continue as VIFs Tilt Voting in Favor of Management and urged readers to bring this abusive practice to the attention of the SEC’s Investor Advisory Committee through use of their online comment form.
On April 9th, I heard from Timothy Smith of Walden Asset Management that Broadridge had acknowledged the error was sending out a corrected VIF. I was able to confirm this with a Broadridge representative. However, later that day I received an e-mail from John Chevedden with the “corrected” ballot language that now appears on the new VIF. The ballot language now reads as follows:
A STOCKHOLDER PROPOSAL REQUESTS A CHANGE TO ALTERA’S VOTING REQUIREMENTS, SEE PROXY STATEMENT FOR FURTHER DETAILS.
I was told that Broadridge uses this general language when they can’t easily summarize a shareowner proposal. I would like to give Broadridge the benefit of the doubt and call the first translation an error, but it is hard to believe they couldn’t easily summarize the shareowner proposal even on their second attempt when it was brought to their attention how they had butchered the ballot statement for a proposal to eliminate supermajority requirements.
Anyone vaguely familiar with the issue could have easily summarized the proposal as “Eliminate supermajority voting provisions.” There have been dozens of submissions of this proposal, so it is hard to believe that Broadridge can’t figure out how to abbreviate the resolution for the VIF. Way back on 7/20/2007, the RiskMetrics Group Governance Blog posted an article entitled, Strong Support for Defense Limits, which included the following:
Investor support remained high for proposals that ask companies to eliminate supermajority requirements to approve bylaw changes and other matters. These resolutions have averaged 67.2 percent across 21 meetings, about the same as the 2006 average of 67.8 percent.
Are we really to believe that Broadridge can’t easily figure out how to abbreviate a resolution to eliminate supermajority requirements… essentially the same resolution that has been submitted for years and years to dozens and dozens of companies… even after it has been brought to their attention that the resolution involves ending supermajority requirements?
Referring shareowners back to the proxy statement, as Broadridge has done in their “corrected” ballot, essentially disenfranchises shareowners. Most will conclude the opportunity cost of going to the proxy to read the language probably exceeds the expected benefit of an informed vote. Most will rationally remain uninformed and leave that item blank. Of course, if they do leave that item blank, the proxy will then be automatically changed and counted as a vote in favor of the position taken by the company’s soliciting committee… as a vote against the shareowner proposal.
Isn’t it interesting how the inability of Broadridge to “clearly and impartially” identify “each separate matter intended to be acted upon,” as required by SEC Rule 14a-4(a)(3) for proxies, seems to work in management’s favor? Broadridge has seen proposals to end supermajority requirements over and over again for years, but they are still not sure how to abbreviate such proposals for the VIF.
Their inability to understand a simple straight-forward proposal means many more shareowners will leave that item blank. Since Rule 14a-4(b)(1) allows blanks to be filled in as recommending by the company’s proxy soliciting committee, Broadridge’s apparent ineptitude works in favor of management. And isn’t it becoming difficult to believe these errors are truly simple mistakes?
The SEC should rule that all requirements for proxy statements, such as Rule 14a-4(a)(3), also apply to VIFs. Additionally, the SEC should move to amend Rule 14a-4(b)(1) so that blank votes are counted as blank votes, not as votes in favor of the position taken by the company’s soliciting committee. Let’s put an end to what essentially amounts to rigged voting in corporate elections.