Proxyvote.com encourages voting by retail shareholders by allowing them to, with one click, set all votes “for” a corporate board’s recommendations, from electing directors and approving executive pay to adopting anti-takeover defenses. Are they just facilitating voting by a group, “whose participation in corporate elections has been in decline of late,” as Broadridge claims, or are they skewing votes to management? (Top U.S. proxy vote site favors boards, critics say, Ross Kerber, Reuters, 5/29/2012)
The vote with management button results in zombie voting. While it may help corporations achieve quorum, it should not be Broadridge’s or the SEC’s role to help corporations achieve quorum. Indeed, if corporations had a more difficult time achieving quorum, they might do a better job of legitimately reaching out to retail shareowners and giving them more reason to participate.
Broadridge (one of the stocks in my portfolio) seems intent on facilitating votes for management in several ways. In his article about the vote with management button, Kerber briefly mentions “a default setting that records votes left blank as being cast for board recommendations.” 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. See petition File 4-583 here. Send comments to rule-comments at sec.gov with File 4-583 in the subject line.
This problem is not the same as “broker voting,” where brokers vote when the retail investor fails to vote at all. In the case of “blank voting,” 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.
Just as broker votes were mostly eliminated so that votes counted reflect the true sentiment of shareowners, the practice of converting blank votes to votes for management should also end. 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.” (my emphasis) Broadridge, instead, uses an asterisk and practically microdot type in a footnote.
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.
Some time 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 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.
You can easily support our SEC petition by filling out a quick form at http://www.change.org/petitions/bring-fairness-to-corporate-elections.