There is not an issue of concern to any investor that is not being systematically harmed by unfair proxy vote counting practices. Although it is late in the day, we ask you to weigh in on the ISS survey to ask them to recommend FOR simple-majority voting and counting proposals in the upcoming proxy season.
As I previously reported (ISS Proxy Voting Survey Due Friday at 5:00 pm ET), ISS has circulated a 2016 survey. They encourage participation from any-and-all (not just ISS clients) so it would be entirely appropriate for all readers to weigh in.
In addition to shareowners, the press has a strong vested interest in doing so. Most reporters must write their stories the day of the AGM (or by the next morning) but the actual vote results are not delivered to the SEC until several days later. This makes them unwitting mouthpieces for deceptive managers that counts abstentions as no votes. Few reporters go back to correct or augment their story. Thus, we unwittingly help perpetuate an essential myth promulgated by management’s use of variant vote-counting formulas.
Act Today on ISS Survey
Here’s how to inform ISS of the issue.
For those who have not yet submitted a 2016 ISS survey, here’s a link:
- The place to input comments on vote-counting is in item #18 on the last page. If you wish, you could easily ignore all the questions except for #18 (or opine on other items, if you wish).
If you have already completed your survey, simply amend it by emailing to: email@example.com
- For example, the language Tim Smith used yesterday for this was simply: “I would like to add the following comment to the 2016 survey we completed. Walden is a co-filer of resolutions on this topic.” Then he pasted in the ‘long form’ sample comment shown below.
The deadline for comments is 5pm TODAY – Friday, Sept. 4th. However, to make participation convenient, two sample comments are copied below – either may be used as-is or modified at will. Though there is a stated deadline, given it is Friday of a long weekend I’d be surprised if anyone at ISS would do anything with the survey before next Tuesday. So our hope is that even “late” submissions will still be weighed. If it turns out that the survey monkey does shut down, you can still deliver your thoughts using the firstname.lastname@example.org e-mail address.
ISS Sample Comments to Address Proxy Vote Counting Issues
- Sample SHORT FORM Comment:
We strongly request that ISS recommend a vote FOR proposals that seek a simple majority vote-counting standard. Thank you.
- Sample LONG FORM Comment: (you may use or edit any portion of what appears below)
We would like to see ISS recommend FOR shareholder proposals that seek a simple majority vote-counting standard – whether in the form of not including abstentions in the formula, or in the form of removing supermajority requirements that are not either approved by shareholders, or mandated by regulation.
Proxy Vote Counting Issues Background
The harmonization of vote counting and vote reporting is a straightforward good governance issue that matters to every aware shareholder.
Under the status quo:
(1) Voter intent is unknowable, but management is permitted to use abstentions to diminish, if not entirely disregard, shareholder input – even to the extent of subverting true majority votes and portraying them as having failed.
In our estimation, there is no valid argument to support such gamesmanship.
It should be noted that under a simple majority standard shareholders are still able to cast an ‘Abstain’ vote, and thus fully retain the ability to ‘send a message’ to management.
(2) Results are confusing – because there is one outcome that the company reports to shareholders and the press, but an entirely different outcome mandated by the SEC for determining resubmission eligibility.
The company figure is presented at shareholder meetings as being definitive when it is not, and when neither shareholders nor the press are able to ascertain differently until well after the fact (and even then only by conducting specialized research).
There is not an issue of concern put forward by shareholders that is not systematically diminished by the use of vote-counting formulas which universally count abstentions as ‘Against’ votes.
(3) There is no level playing field. This hampers our role as an asset owner in portfolio management, because issues of concern voted on at an array of companies we own are not reported on consistently.
Harmonization makes logical sense, and is the only practical way to consistently and accurately portray voting results.
(4) Companies often claim to count all management and shareholder items the same. But in each case examined this has proved to be factually inaccurate, because the board of directors vote (management proposal #1) does not include abstentions in the formula.
ISS has many times repeated erroneous management claims such as these in its research reports, thus misinforming clients.
Besides being factually inaccurate, such claims also imply equivalence of outcome, when including abstentions in the formula creates a 7.6 times larger negative impact on shareholder proposals than on management items – which seriously erodes the ability of shareholders to provide input and guidance.
This disparity has been reported on by the WSJ and Corporate Secretary magazine:
Proxy Vote Counting Key Framing Elements
(a) Voter intent for an abstaining shareholder is unknowable. Thus, there is no compelling justification for counting all abstentions as if ‘Against’ an item.
(b) Institutional Shareholder Services has itself written that: “a simple majority of voting shares should be all that is necessary to effect change regarding a company and its governance provisions.”
(c) The Council of Institutional Investors states in Governance Policy 3.7 that: “Uninstructed broker votes and abstentions should be counted only for purposes of a quorum.”
(d) A CalPERS / GMI Ratings study found that 48% of the S&P 500 and Russell 1000 use a simple-majority standard, making it a mainstream practice. Harmonizing this to become 100% is in the best interest of shareholders, companies, and the markets.
(e) Roughly a third of companies presented with a simple majority vote-counting proposal (to eliminate abstentions) have adopted simple-majority as an enhancement to their governance policies. These companies are all from the S&P 500, and half have been Delaware-chartered.
From 2012-2015, shareholders voted 89 times on a similar simple-majority proposal that sought to replace supermajority requirements with a simple majority standard. In each instance, shareholders voted overwhelmingly in favor of a simple-majority standard, with vote tallies ranging from 62.3% up to a unanimous 100%.
Across the board, shareholders clearly appreciate the accuracy and fairness of simple-majority voting and prefer it as the default standard.
Shareholders deserve a harmonized, fair, and consistent voting system – not a 2-tier system that creates multiple outcomes, disproportionately impacts shareholders and tends to favor management at the expense of shareholders.
We strongly request that ISS recommend a vote FOR proposals that seek a simple majority vote-counting standard. Thank you. This post was almost entirely drawn from correspondence from Bruce Herbert of Investor Voice. Thanks to Bruce for bringing the issue to our attention again at this critical time.