In a May 20th petition to the SEC, Ed Durkin of the Carpenters’ Union asks the SEC to eliminate the “withhold authority” voting option by amending Rule 14a-4(b)(2). The well reasoned and well documented 9 page petition includes an attached appendix listing 820 companies that have already adopted a majority vote standard, including the 397 of the S&P 500 (78%). via Proxy Season Blog.
Durkin argues,
The symbolic ‘withhold’ vote, a vestige of a plurality vote standard era, is not a valid vote option under any vote standard and its continued use contributes to confusing and misleading proxy communications that threaten the integrity of director elections…
While the number of “withhold” votes cast in a majority vote election at a company with a director resignation policy has no legal effect on the outcome of the election, the “withhold” votes may have a practical effect on a director’s term depending on a board’s decision whether or not to accept a tendered resignation…
Corporations that retain a plurality vote standard choose not to afford shareholders a valid opposition vote, and Commission rules should not permit them to present a symbolic “withhold” vote on the form of proxy that has no legal effect on the outcome of an election. In these elections, shareholders that do not support a nominee or slate can chose to abstain from voting…
The use of the “withhold” vote in plurality vote elections contributes to and enables confusing and misleading disclosure in proxy materials that in some instances mask the absence of a majority vote standard and a valid opposition vote.
And here is an interesting footnote:
The Boston Scientific (a plurality vote company) 2011 proxy statement describes its “Majority Voting policy” and the role of “WITHHELD” votes. The form of proxy provides a “For” and “Withhold” option, but the associated electronic ballot for the meeting provided at www.proxyvote.com by Broadridge provides a “For” and “Abstain” vote option, raising the question of whether an abstention will be treated as a “withhold” for purposes of the company’s “Majority Voting policy.”
I encourage readers to submit comments in favor of the petition. The easiest way to submit comments is to send them via e-mail to rule-comments@sec.gov. The subject line of your message must include the File Number for the rule. In this case that is 4-630. If you attach a document, indicate the format or software used (e.g., PDF, Word Perfect, MS Word, ASCII text, etc.) to create the attachment. They accept comment letters in PDF format. DO NOT submit attachments as HTML, GIF, TIFF, PIF, ZIP, or EXE.
As an example, here is my comment e-mail:
I am a retail investor and the publisher of CorpGov.net, which since 1995 has served to facilitate a dialogue between shareowners, boards, corporate executives, employees, NGOs, and other stakeholders. I write in full support of the Carpenters’ Union petition to eliminate the “withhold authority” voting option by amending Rule 14a-4(b)(2).
Ed Durkin does an outstanding job of laying out the rationale for the petition both historically and on a point-by-point legal basis, so I won’t repeat his arguments. As a shareowner, I will say that I have always been confused by the term “withhold.” “For,” “against,” and “abstain” are words I fully understand. The term “withhold” sounds like something out of “Brave New World” or some other science fiction story where people don’t even have the right to vote against the single slate of candidates offered; they only have the right to vote for them or to “withhold” their vote in meaningless protest. In our August 1, 2002 petition to the SEC for proxy access, Les Greenberg and I included a quote from a European investor who told us of his disappointment with how U.S. directors were elected.
“This is exactly how voting in communist countries worked. Everyone could vote, but there was just no choice of candidates. The point was not how to be elected, but how to get on the election list. With this system no changes were possible, so there was no motivation to improve the governance.”
We still generally have no choice of candidates and when we do, there is confusion again with separate proxies and how to split votes between them. As retail voters using Broadridge’s proxyvote.com system, we still see our blank votes turn, as if by magic, into votes for management. (see my May 15, 2009 petition) We have a judge in Texas who has taken the law into her own hands by denying a shareowner his rights because she interprets the suspended rules concerning required proof for submitting shareowner nominees to apply to shareowner proposals. (see Texas Secession Led by Apache, KBR and Kinetic Concepts) I understand, the SEC probably doesn’t have the budget to protect its own rules in US district courts as far away as Texas.
Hopefully, it is within the SEC’s budget to make this relatively simple change in the rules. I look forward to commenting on the SEC’s proposed rule to eliminate “withhold authority.”
Since I wrote to the SEC, I now see a recent post from Keith Paul Bishop, If I Were A Carpenter, I’d Build A Better Proxy where he makes an important distinction between voting and signing a proxy card.
Comments are closed.