I thought this recent correspondence was noteworthy. I’m so happy CII exists. I wish there were a similar organization representing the interests of retail shareowners. Most footnotes are removed and the letter is slightly edited for formatting. Original.
Via Hand Delivery May 22, 2014
Keith F. Higgins
Division of Corporation Finance
U.S. Securities and Exchange Commission 100 F Street, NE
Washington, DC 20549-1090
Re: Follow-up from April 4, 2014 Meeting
Dear Mr. Higgins:
Thank you for meeting with us on April 4, 2014 to discuss three proxy related issues of great interest to the Council of Institutional Investors (CII) and that, in our view, warrant the prompt issuance of staff interpretative guidance or rulemaking by the U.S. Securities and Exchange Commission (SEC or Commission).
As you are aware, CII is an association of corporate, union, and public employee benefit plans, foundations, and endowments, with combined assets exceeding $3 trillion. As long-term investors with a significant investment in the U.S. markets, CII members share the Commission’s expressed interest in ensuring the “U.S. proxy system as a whole operates with the accuracy, reliability, transparency, accountability, and integrity that shareholders and issuers should rightfully expect.” [Concept Release on the U.S. Proxy System, Exchange Act Release No. 62,495, at 7 (July 14, 2010),]
1. Proxy distributors
As discussed at our meeting and as indicated in CII letters to the SEC of March 11, 2014, March 6, 2014 and May 17, 2013, CII believes the Commission should promptly take whatever steps are necessary to specify or clarify that the obligation of impartiality required by Rule 14a-2(a) extends to the disclosure of preliminary voting information. We believe that such action would assist in improving the level of investor confidence in the basic fairness and integrity of the proxy process. That confidence was shaken by Broadridge Financial Solutions, Inc. (Broadridge) in May 2013 when it abruptly reversed its long-standing practice of providing vote status information to shareowners engaged in exempt solicitations. That confidence was again shaken this past February, when Broadridge released a statement indicating another change in its long-standing reporting procedures for preliminary voting results, and then retracted the change indicating that the original communication was erroneous.
I understand the view expressed at the meeting that SEC rulemaking, rather than staff interpretative guidance, would be necessary to revise Rule 14a-2(a) consistent with our request. In that regard, we note that subsequent to our meeting, Broadridge released a memorandum on proxy vote reporting that included the following statement:
If there is concern that the practice of providing interim voting information is inconsistent with . . . [acting impartially], Broadridge welcomes clarification from the SEC . . . whether that be through interpretative guidance or rule making.
As indicated in our meeting and as detailed in our letters, there is ample evidence indicating that many investors, including many CII members, are concerned that Broadridge’s practice for providing interim voting information lacks impartiality. We, therefore, respectfully request that the SEC respond to Broadridge’s invitation and our repeated requests by promptly pursuing a limited scope amendment to Rule 14a-2(a).
In the meantime, we would also respectfully request that you communicate directly to Broadridge the SEC staff’s views about whether investors are concerned about the current practice for providing interim voting information. Perhaps such communication will prompt action by Broadridge and dispose of the need for rulemaking. In any event, we believe such communication may foster some self-examination by Broadridge that may help them avoid future errors in judgment that result in practices that conflict with our shared goal of ensuring that the proxy system operates with integrity.
2. Universal proxy cards
As discussed at our meeting and as indicated in CII letters to the SEC of March 11, 2014 and January 8, 2014, we also believe the Commission should pursue a near- term initiative to revise Rule 14a-4(d) to facilitate shareowners’ ability to vote for their preferred combination of director nominees in a proxy contest. We note that our petition for rulemaking on this issue is generally consistent with the July 2013 recommendation of the Investor as Owner Subcommittee of the SEC’s Investor Advisory Committee.
We believe a limited scope amendment to Section 14 is necessary to more fully enfranchise shareowners and better fulfill the Commission’s long-standing goal of ensuring that the proxy process functions, as nearly as possible, as a replacement for an in-person meeting of shareowners. At our annual conference in Washington, DC earlier this month, issues relating to universal proxy cards and CII’s related petition for rulemaking were prevalent topics of discussion for both conference presenters and CII members in attendance.
Conference presenters addressing issues relating to universal proxy cards included SEC Commissioner Kara Stein. As reported by Reuters:
Stein drew applause when she threw her support behind requiring universal proxy ballots, a plan that CII formally petitioned the agency to consider in January.
“It is time for the commission to consider permitting, if not mandating, universal proxy ballots, Stein said.”
We wholeheartedly agree with Commissioner Stein that “it is time” for the SEC to act on our rulemaking petition.
3. Director compensation arrangements
Finally, as discussed at our meeting and in CII’s letter to you of March 31, 2014, we believe that the SEC should promptly develop and issue interpretative guidance or a limited scope amendment to Section 14(a) to improve the disclosure of information about compensation arrangements between a nominating shareowner and a nominee to the board of directors. As discussed at our meeting and in our letter, there appears to be significant controversy surrounding the practice of nominating shareowners’ compensating directors or director nominees in the context of threatened or completed proxy contests.
We believe the appropriate approach to address this controversy is through requiring greater transparency to investors about such arrangements. Support for our view on this issue is not limited to institutional investors. For example, just last week, the corporate law firm of Wachtell, Lipton, Rosen & Katz issued the following statement endorsing our request:
[W]e support CII’s call for the SEC to consider interpretative guidance or amendments to the proxy rules to require shareholder contestants in a proxy contest to disclose [certain specified information]…..
CII has identified a[n] . . . inconsistency between the . . . proxy disclosures [for] . . . director pay, and the . . . disclosures required of shareholders waging a proxy contest. . . . [F]ull transparency would . . . enable shareholders to be fully informed when considering a dissident slate.
We, therefore, respectfully request that the staff promptly issue, at a minimum, interpretative guidance to Section 14(a) to improve the disclosure of information about compensation arrangements between nominating shareowners and director nominees.
Jeff Mahoney General Counsel
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