Janet Kissane, SVP & Corporate Secretary
NYSE Euronext Legal & Government Affairs
Dear Ms. Kissane:
Earlier this month the NYSE announced it intends to amend NYSE Rule 452 to prohibit members from voting uninstructed shares if the matter to be voted on relates to executive compensation, including “say-on-pay” proposals, at meetings occurring after July 21, 2010. An exception will be made for those meetings on which the NYSE has issued a “may vote” ruling prior to July 21. As you know, the driver for this amendment is Section 957 of Dodd-Frank, which also prohibits voting of uninstructed shares by member organizations in the election of directors (excluding companies registered under the Investment Company Act of 1940) and in other matters as determined by the Securities Exchange Commission (“SEC”). I would like the NYSE to recommend to the SEC that NYSE members be also be prohibited from voting all uninstructed proxy items on shares with some instruction.
Although the NYSE, NYSE Amex and NYSE Arca rules have already been amended, effective for annual or special meetings as of 1/1/10, to prohibit member organizations from voting uninstructed shares in connection with the election of directors, when retail shareowners vote using a voter information forum (VIF) and they leave directors or any other items blank, votes are automatically cast “on their behalf” in favor of those recommended by the company’s soliciting committee. Current SEC rules grant them discretion to do so. As shareowners who believe in democracy, several of us filed a rulemaking petition with the SEC last year, suggesting amendments to take away that discretionary authority to change blank votes.
We believe that when voting fields are left blank on the proxy by the shareowner who has voted at least one item, they should be counted as abstentions. A similar recommendation from the NYSE would make the SEC more likely to address this issue and would be in the spirit of the intent of the recent Dodd-Frank provisions.
See two examples. At Interface, I voted only to abstain on ratification of the auditors. Yet, you can see ProxyVote automatically fills in my blank votes with votes as recommended by the soliciting committee. A second example, at Staples, shows much the same. Blank votes changed also include the shareowner proposal to reincorporate to North Dakota, even though such proposals are not considered routine and are not subject to “broker voting.”
Just as broker votes or nonvotes should be eliminated so that votes counted reflect the true sentiment of shareowners, the practice of converting blank votes to votes for management should also end.
In our petition, we also highlight a secondary concern. When shareowners utilizing the ProxyVote platform of Broadridge vote at least one item and leave others blank, the subsequent screen warns them that their blank votes well be voted as recommended by the soliciting committee. This provides an opportunity to the shareowner to change their blank vote before final submission, if they don’t want it to be voted as recommended.
Of course, if we are going to have a system that allows the votes of shareowners to be changed, it is salutary of Broadridge to provide advanced notice. We applaud them for that effort. However, we note that SEC Rule 14a-4(b)(1) requires that when a choice is not specified by the security holder, a proxy may confer discretionary authority “provided that the form of proxy states in bold-face type how it is intended to vote the shares represented by the proxy in each such case.” Broadridge uses small print, not bold-face type.
Broadridge says that shareowners using ProxyVote are communicating “voting instructions” to their bank/broker. They are not voting a proxy. Since Rule 14a-4(b)(1) pertains to “forms of proxy,” not the “voting instruction form,” there is no violation. However, subdivision (1) refers to the “person solicited” and the need to afford them opportunity to specify their choices. The person being solicited is the beneficial shareowner. Therefore, unless the subdivision applies both to a voting instruction and a proxy, the requirements to indicate with bold-face type how each field left blank will be voted loses meaning.
However the SEC interprets the current rule, we hope you will urge them to move forward with a rulemaking to remove discretion to change blank votes and to require blank votes to be counted as abstentions.
The Millstein Center for Corporate Governance and Performance released Voting Integrity: Practices for Investors and the Global Proxy Advisory Industry. While this important briefing was primarily focused at the proxy process for institutional investors, the need for integrity applies equally to the votes of retail investors:
At the heart of any discussion about proxy voting is the humble shareholder ballot. In its simplest interpretation, the ballot is arguably the principal method by which a company’s shareholders can, while remaining investors in the company, affect its governance, communicate preferences and signal confidence or lack of confidence in its management and oversight. The ballot is the shareholder’s voice at the boardroom table. Shareholders can elect directors (and, in several jurisdictions, have the right to remove them), register approval of transactions, supply advisory opinions and (increasingly) authorize executive pay packages, all through the medium of the ballot. It is one of the most basic and important tools in the shareholder’s toolbox… Safeguarding the intention of a voting instruction is of paramount importance to system integrity.
Co-filing with James McRitchie, Publisher of CorpGov.net, were:
- John Chevedden, Rule 14a-8 proposal proponent since 1996
- Glyn Holton, Executive Director, United States Proxy Exchange
- Mark Latham, Ph.D., VoterMedia.org
- Eric M. Jackson, Ph.D., Managing Member, Ironfire Capital LLC
- James P. Hawley, Ph.D., Professor and Co-Director, Elfenworks Center for the Study of Fiduciary Capitalism, Saint Mary’s College of California
- Andrew Williams, Ph.D., Professor and Co-Director, Elfenworks Center for the Study of Fiduciary Capitalism, Saint Mary’s College of California
- Andrew Eggers, President, Proxy Democracy
- Bradley Coleman and Erez Maharshak, Proxy Democracy