CII Reports on CDV

The Council of Institutional Investors published an independent assessment of client directed voting, a topic that is under consideration by the Securities and Exchange Commission (SEC) as part of its wide-ranging review of the U.S. proxy system.

The paper was written by Alan Beller, Janet Fisher and Rebecca Tabb of the law firm Cleary Gottlieb Steen & Hamilton. While the paper will inform the comment letter that the Council plans to submit to the SEC on its concept release on the proxy system, it is an independent study and does not necessarily reflect the views of the Council or its members. The white paper on client directed voting is posted here on the Publications page of the Council’s Web site.

I gave it a quick read. At least they clearly see the danger in a likely reversion back to broker votes if going with the proposal from Stephen Norman. I don’t see much likelihood of support for changes that will help fund vehicles leading to more informed voting and I’m not real happy with the characterization of a single page from Broadridge being labeled “The most advanced thinking.” (page 6)

The report gives voting in elections substantially more force than voting in the market by buying or selling shares. I’m not sure that’s true.

Disclosure and conflicts of interest would appear to be issues that need to be addressed as we discuss in Part IV. Second, if an investor who has not made informed investment decisions (or whose agent does not) loses money, other investors and the company generally do not suffer the consequences. The same may not be true in the exercise of voting rights insofar as a substantial uninformed vote (or misinformed vote, if the voting mechanism failed to protect against fraud or conflicts of interest) can influence the outcome of a ballot item. (page 9)

Interesting discussion of Rules 14a-1 and -2. Looks to me like changes are needed. According to the report, “A robust CDV model is likely to have a long gestation period.” Better to leave it alone while systems build than to implement a closed system with limited options. See An Open Proposal for Client Directed Voting, HLS Forum CorpGov & FinReg, 7/14/10 and Investor Group Releases Paper on Client-Directed Voting, RMG, Ted Allen, 9/1/10.

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