Broadridge No-Action Request Threatens Democracy
Broadridge No-Action request threatens democracy, so it deserves a second post because of its critical importance. At an in-person meeting, everyone can easily see a show of hands when the moderator asks if anyone needs more time to vote. Not so at virtual shareholder meetings, which have quickly become the norm under Broadridge’s leadership.
My proposal requests that Broadridge Financial Solutions “provide a reasonable time for votes to be cast or changed after the final proposal is presented at the Company’s annual general meetings.” Broadridge filed a “no-action” request with the SEC, asking the agency to take no action against the Company if they leave my proposal off the proxy.
Like most shareholder proposals, mine is advisory. Even if every shareholder votes in favor of it, Broadridge can ignore the wishes of their shareholders. But Broadridge doesn’t want to take the pulse of its shareholders on allowing them a “reasonable” amount of time to vote.
The Board argues that deciding when to close shareholder voting during the annual meeting is simply a procedural matter falling under the SEC’s “ordinary business” exemption, like having a question and answer session. If SEC Staff agree, Broadridge (and every other company) will be free to close the polls immediately after proposals are presented (as Broadridge did in 2020) or even before any proposals are presented. (See coverage in Responsible Investor, Corporate governance experts await SEC ruling on AGM voting windows proposal)
Broadridge No-Action Request Threatens Democracy: Why Target Broadridge?
I targeted Broadridge because of its history and key role in setting standards. In 2020 they closed the polls as soon as I finished presenting my proposal, allowing shareholders no time to use the information provided to vote or change their vote.
Broadridge then reformed its practices. Based on their responsiveness to complaints, I thought they would be amenable to setting a standard in their governance documents or proxy statement indicating how much time they would allow for voting after all proposals had been presented and how they arrived at their standard.
Broadridge is widely admired and dominates both in its proxy and virtual shareholder meeting services. Their practices are likely to be copied by other companies. In my experience working with them on the Report of the 2020 Multi-Stakeholder Working Group on Practices for Virtual Shareholder Meetings, I believed Broadridge wanted to be known as a company that could bring issuers and shareholders together for constructive dialogue. They tried to set a good example.
When proponents present their proposals at annual general meetings (AGMs), they are making their last pitch to investors. Often they add additional information from the news or rebut arguments included in the Board’s opposition statement.
Broadridge No-Action Request Threatens Democracy: Supplement to Prior Rebuttal
Ms. Allen (Broadridge’s Corporate Secretary) asserts that my shareholder proposal can be omitted because it deals with a matter relating to the company’s ordinary business operations and is impermissibly vague.
Although I raised the point below in my earlier response (BR no-action rebuttal 7-25), I made it more explicit by more fully quoting the SEC.
As the SEC noted in Release No. 34-87458 on page 6 (Nov. 5, 2019),
Rule 14a-8 enables shareholder-proponents to easily present their proposals to all other shareholders, and to have proxies solicited for their proposals, at little or no expense to themselves. The rule, the concept of which was first adopted by the Commission in 1942, thus facilitates shareholders’ traditional ability under state law to present their own proposals for consideration at a company’s annual or special meeting, and it facilitates the ability of all shareholders to consider and vote on such proposals. (my emphasis)
“At” the meeting has a different meaning than “before” the meeting. If the rule is to facilitate consideration at the meeting, voting must be allowed after consideration is given to all the information on the proposals. That includes presentations of board and shareholder proposals. Significantly, shareholder presentations may rebut the Board’s opposition statement, which is included in the proxy. Additionally, shareholders need time to consider any questions on proposals raised at the meeting and any responses provided. Shareholders do not know what relevant information will be provided at the meeting until such presentations and any questions and answers on proposals are completed.
In my updated rebuttal, I go on to quote statements in 1943 by SEC Chairman Ganson Purcell, such as “The rights that we are endeavoring to assure to the stockholders are those rights that he has traditionally had under State law, to appear at the meeting; to make a proposal; to speak on that proposal at appropriate length; and to have his proposal voted on.”
If the Broadridge request is granted, the SEC would abrogate the explicit language and intent of prior rulemakings on Rule 14a-8 and its predecessor rules since 1943. Broadridge and many other companies may then find it advantageous to close the polls even before proposals are presented. Granting the no-action request could reduce annual meetings to a meaningless exercise. (BR no-action rebuttal 8-10d).
Broadridge No-Action Request Threatens Democracy: Arguments from Sanford Lewis
Since the challenge from Broadridge threatens the democratic nature of annual general meetings, I hired Sanford Lewis to act as my legal counsel. The right to vote at the AGM after hearing the information presented is core to our legal framework of corporate governance. Mr. Lewis’ argued (Broadridge Supplemental Response McRitchie 8823) the history of shareholder meetings and deliberation can be reasonably divided into three eras.
In the first era, prior to the innovation of proxy voting, the shareholder meeting culminated with shareholders present in the face-to-face meeting casting their votes in response to arguments presented in the meeting.
In the second era, as proxy voting has become a norm, and supported by SEC protective rules ensuring that investors are adequately informed of the issues to be debated in the meeting, the volume of voting gravitated towards most votes being cast remotely, through the proxy process and ultimately through online voting vehicles including those supported by Broadridge. Relatively few shareholders attended the physical meetings and the norm of in-meeting voting devolved into an almost insignificant part of the corporate governance process, especially given the recent adoption of universal proxy rules.
In the third era, which began during the recent Covid pandemic, virtual attendance in shareholder meetings became a practical opportunity. Unlike the second era, in this new third era, technology has enabled broad shareholder attendance in the corporate annual meeting, with the possibility of shareholder meetings becoming a revitalized and engaging real-time forum for shareholder engagement with the CEO and board of the company, a real-time exchange of views, and the opportunity for shareholders to consider the arguments presented and to cast their votes accordingly.
He goes on to argue that we are moving from the presentation of proposals as a formality to viewing the technology Broadridge pioneered as facilitating debate and deliberation.
Virtual technology has thus enabled a new era with the opportunity for profoundly expanded shareholder engagement, and a real-time engagement process that culminates in many shareholders listening to both sides of the arguments and then casting their votes accordingly…
It is of utmost interest to shareholders to ensure their opportunity to deliberate and vote in the meeting, a matter of essential corporate governance…
will the deliberative norm of meetings be made real?
If Broadridge is granted its no-action request, AGMs can be reduced to a prerecorded message, with election results included.