Shareholder Democracy Summit Coming to Toronto: Blank Vote Issue

The Canadian Society of Corporate Secretaries announces the Shareholder Democracy Summit ─ a Canadian first. CSCS has invited key stakeholders to gather this coming fall on October 24 and 25 in Toronto for an important national summit on shareholder democracy.

CSCS President Lynn Beauregard announced today that invitations to register for the Shareholder Democracy Summit will be issued in the coming weeks to all key participants. The CSCS President remarked that when Canadian shareholders vote, whether they are individual shareholders or one of our largest institutional shareholders, their voice is often not heard or it is misheard. People think it’s like voting in an electoral campaign – once a shareholder fills out a ballot correctly, the votes get counted. Unfortunately, that is often not the case.

Canada’s current proxy voting system is so complex and dysfunctional that it isn’t possible to know whether the vote of any beneficial shareholder was counted or not – and shareholders and companies are often not aware that it is happening.

David Masse, Chairman of the Board of CSCS, and chair of the Shareholder Democracy Summit Committee, remarked that efficient and robust voting processes for corporate elections are a now a pressing necessity. The sharp focus increasingly placed on shareholder involvement, whether through director elections or Say on Pay shareholder advisory votes on executive compensation, demands that those processes be credible and reliable. According to Masse,

In truly Canadian and CSCS fashion, this unprecedented gathering of policymakers and stakeholders will ensure that everyone who plays a role in the system will have a voice. Our ultimate goal is to have the views of all constituents addressed in effective solutions.

The Summit will include representatives from corporate and securities regulators, government, stock exchanges, listed issuers, proxy voting advisors, intermediaries, proxy agents, proxy solicitation firms, industry associations, governance minded organizations, institutional investors, brokers, transfer agents, clearing houses, board directors and corporate secretaries. Ms. Beauregard announced:

Every publicly traded company in Canada and every one of their shareholders are impacted by flaws in our proxy voting system, whether they know it or not. The Summit is the first step in developing a straight-forward system where shareholders, directors and companies are protected from the impacts of lost votes, empty voting and over voting.

“Those in the know are increasingly aware that our current shareholder democracy processes are deeply flawed” Mr. Masse said. “One of the obstacles to improving those processes is the inherent complexity of the system and the diversity of players” he added.

The current system is efficient in dealing with the financial rights of both beneficial and registered shareholders, including trades and settlements, and the right to receive dividends.

The other rights attached to shares, including the right to vote, the right to attend shareholders’ meetings, have yet to benefit from the same efficiency. Corporate laws have not kept pace with the rapid evolution of the markets and the result is a patchwork of rules, processes and practices that often fails to respect adequately the beneficial shareholder’s role in corporate democracy…

For a more efficient, fair and equitable system of shareholder democracy to take hold, it is critically important that the key stakeholders collaborate in a concerted way to share their understanding of the current system. If all of the processes, roles, risks and opportunities come to light, are shared, properly understood, and mapped, the shared knowledge will serve as a solid foundation on which to build better rules, and more robust processes. This summit will provide a forum for this collaboration between all stakeholders to take place through open dialogue.

See also, CIRI takes aim at proxy plumbing, Inside Investor Relations, 9/9/2011. Makes me wish I still lived in Toronto.  I won’t be able to make this event but hope to here from some who do on the progress made. Wouldn’t it be nice if they took up the issue of proxy items left blank going mysteriously to management. See our petition to the SEC. Comments are still invited and posted by the SEC.

The petition seeks to correct a problem brought to our attention by John Chevedden. See petition File 4-583 Send comments to with File 4-583 in the subject line.

The problem is that when retail shareowners vote but leave items on their proxy blank, those items are routinely voted by their bank or broker as the subject company’s soliciting committee recommends. Current SEC rules grant them discretion to do so. As shareowners who believe in democracy, we have filed suggested amendments to take away that discretionary authority to change blank votes, or non-votes, as they might be termed. We believe that when voting fields are left blank on the proxy by the shareowner, they should be counted as abstentions.

This problem is not the same as “broker voting,” which has already been repealed on “non-routine” matters and, we hope, will soon be repealed for so-called “routine” matters, such as the election of directors. For example, even though “broker voting” has been repealed for shareowner resolutions, if a shareowner votes one item on their proxy and leaves shareowner resolutions blank, unvoted, those blank votes are routinely changed to be voted as recommended by the company’s soliciting committee.

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, Staples. You can see blank votes that are 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 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 it may fall short of what the SEC requires. 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.” (my emphasis)

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 they move forward with a rulemaking to remove discretion to change blank votes and to require blank votes to be counted as abstentions. While the petition is being considered for action, we hope Broadridge will modify its system to clearly indicate in red bold-face type how votes will be cast for each item where a blank vote will be changed.

A few months ago, 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, are:

Again, please submit comments on the petition to with File 4-583 in the subject line.

, , , , , , , ,

Comments are closed.

Powered by WordPress. Designed by WooThemes