Tag Archives | proxy voting

Blanks Votes: Australia & US

It is great to see Manifest, the proxy voting agency, raising the issue of management voting proxy items left blank by shareowners.

In the majority of markets with developed shareholder voting procedures, for each proposal, the shareholder has three choices; to vote for, against or abstain. Alternatively, shareholders can actively elect for the chairman to direct their votes at his/her discretion (a directed proxy). In cases where the shareholder has not made a choice in any regard (an undirected proxy), it is common for Continue Reading →

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Will 2011 be a Watershed Year for Activism?

2011 was the first proxy season in which companies were required to provide advisory votes on executive compensation. Corporate governance advocates, mindful of the fact that annual compensation for CEOs at S&P 500 companies increased by 35% in 2010, might well find themselves agreeing with James McRitchie of CorpGov.net, who told SocialFunds.com in June, “2011 could be a watershed year if next year people look back and wonder why the hell they didn’t do anything.”

…board declassification, a majority voting standard, an independent board chair, and reporting on political spending, received more than Continue Reading →

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Governance Roadshows Prepare for Proxy Season

Francis Byrd, Laurel Hill Advisory Group, Jeffrey Morgan, National Investor Relations Institute and Kenneth Wagner, Peabody Energy Corporation, discussed the governance roadshow idea at the Society of Corporate Secretaries and Governance Professionals conference in June.

Now might be the time to begin preparing to engage shareholders with such an effort – especially since the recent stock market slide is likely to make the largest investors even more edgy. Such an effort can alert directors to areas where policy adjustments can head off problem areas, allowing companies to retain the trust and confidence of shareowners.

Morgan suggests traveling to visit key investors during the off-season to keep communications open and to develop relationships that may come in handy later.  Byrd says, ‘This will help you prepare the board to deal with the governance issues most important to the shareholders.’ Wagner suggests that directors sit down with the largest investors and answer their questions on compensation and other governance topics.

Read more: Is it time for a governance road show? Corporate Secretary, 8/12/2011.

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Will Netflix Listen to Shareowners?

eBay moved to eliminate supermajority requirements in its bylaws at its first regularly scheduled meeting after shareowners approved a ballot measure by John Chevedden. So far, no real word from Netflix on whether or not they will heed the will of shareowners.

It is great to see this issue covered by Bocco Pendola in Seeking Alpha.

This push to move from a supermajority to simple majority vote came after shareholder activists, led by John Chevedden, got the proposal on the ballot at eBay’s recent annual meeting of shareholders. If you follow the link to the official SEC filing of eBay’s proxy statement, you’ll see that the company opposed the proposal. eBay shareholders, however, voted in favor of it, prompting the eBay board to adopt the proposal just two months after it held the meeting.

This move by eBay puts considerable pressure on Netflix (NFLX)… Netflix notes it “will consider” ratifying the proposal ” in due course.” Like an online auction, the clock is ticking.

via Will Netflix Follow eBay’s Lead in Heeding Its Shareholders? – Seeking Alpha, June 29, 2011.

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Biogen Idec (BIIB): How I Voted

Biogen Idec (BIIB) is one of the stocks in my portfolio. Their annual meeting is coming up June 2. ProxyDemocracy.org had five funds voting.

Checking the Summary Compensation Table, it appears former CEO/Chairman James C. Mullen was paid more than $20 million and current CEO George A. Scangos was paid $9.4 million.  Using the United States Proxy Exchange (USPX) released draft guidelines, I voted against most pay packages where the company paid more than the median $9 million last year. I also voted against Robert W. Pangia (Chair), Alexander J. Denner, Eric K. Rowinsky, and Lynn Schenk, since they served on the compensation committee.  I voted for a pay advisory every year and in favor of declassifying the board, a management proposal.

The 2011 Annual Shareholder Meeting will be webcast live on Thursday, June 2, 2011 at 9:00 a.m. ET. To access the live webcast, please visit Biogen Idec’s Investor Relations section (investor.biogenidec.com). An archived version of the webcast will be available following the meeting.

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How I Voted: Home Depot

Home Depot (HD) is one of the stocks in my portfolio. Their annual meeting is coming up June 2. ProxyDemocracy.org had five funds voting.

Checking the Summary Compensation Table, it appears CEO/Chair Francis S. Blake was paid about $10.5 million. Using the United States Proxy Exchange (USPX) released draft guidelines, I am voting against most pay packages over the median for large-caps of $9 million, including this one. I also voted against all members of the compensation committee: Brenneman, Codina and Hill.

I voted in favor of the proposal by Evelyn Y. Davis for cumulative voting. This right could become increasingly important is shareowners are ever given proxy access. I voted in favor of William Steiner’s proposal to allow special meetings to be called by 15% of the shares. I’ve introduced similar proposals and see this as simple good governance.

Similarly, I favor the proposal by Trillium Asset Management for a diversity report. Home Depot should take a leadership position on this important issue. I also favor the proposal from NorthStar Asset Management Funded Pension Plan to allow a shareowner vote on specified political expenses. After Citizens United, I think such votes at every company are warranted.

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Google: How I Voted

Google (GOOG) is one of the stocks in my portfolio.  Their annual meeting is coming up June 2. ProxyDemocracy.org had several funds voting. Although I reviewed how they voted, my votes didn’t align with any of the funds.

Checking the Summary Compensation Table, it appears two senior vice presidents (Patrick Pichette and Nikesh Arora) each got more than $22.5 million last year. That’s too much, even for Google, when the median large cap CEO is getting a little more than $9 million. Using the United States Proxy Exchange (USPX) released draft guidelines, I voted against the pay package, against the stock plan and against L. John Doerr and Paul S. Otellini, since they served on the compensation committee. Management wanted a say-when-on-pay frequency of three years but I voted for every year.

Turning to shareowner proposals, I voted in favor of John Harrington’s bylaw to establish a Sustainability Committee. Although Google is doing more than many companies, I think soliciting public input and issuing periodic reports to shareholders and the public, as requested in the proposal, would put Google farther ahead in this important area. I also voted in favor of John Chevedden’s proposal that each shareowner voting requirement impacting our company, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws. I submitted similar proposals at other companies and see this as good governance to avoid entrenchment.

I voted against the proposal by the National Center for Public Policy Research to report on possible conflicts of interest. Although the proposal sounds good, I think this is the same group that has encouraged companies to account for lobbying costs to support cap and trade programs, so I don’t trust them.

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InGovern Proxy Analysis Launched in India

A new proxy vote analysis service, InGovern Corporate Governance Platform, allows institutional investors to analyze various companies, follow the agendas of shareholder meetings, exercise votes and collaborate with other investors. Research based on “objective criteria” – Governance Radar – is also embedded into the platform, according to a press release from Bangalore.

This is a part of InGovern’s pioneering efforts at promoting shareholder activism among institutional investors in India.

Global research has shown that there is high correlation between good corporate governance and long term returns on an investment. Shareholder activism is in its infancy in India. The Ministry of Corporate Affairs and SEBI have been prodding institutional investors to exercise their rights as minority shareholders in companies. Investors can hope to get superior investment returns by actively participating in enhancing the corporate governance culture in India.


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IRobot: How I Voted

IRobot (IRBT) is one of the stocks in my portfolio. Their annual meeting is coming up May 24. ProxyDemocracy.org had only one fund voting, CBIS, when I voted yesterday. MoxyVote.com had none. Today is the last day to vote using MoxyVote.com.

Checking the Summary Compensation Table, it appears CEO/Chair Colin M. Angle was paid more than $2.3 million, which is more than the $2.2 million median for a small-cap firm.  Using the United States Proxy Exchange (USPX) released draft guidelines and adjusting for company size, I voted against the pay package. However, because the difference was relatively small, I didn’t vote against the compensation committee. Management wanted a say-when-on-pay frequency of three years but I voted for every year. I voted using the MoxyVote.com platform.

1.1 Elect Director Gail Deegan For
1.2 Elect Director Andrea Giesser For
1.3 Elect Director Jacques S. Gansler, Ph.D. For
2 Approve Executive Incentive Bonus Plan For
3 Ratify Auditors For
4 Advisory Vote to Ratify Named Executive Officers’ Compensation Against
5 Advisory Vote on Say on Pay Frequency One Year


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How To Steal a Corporate Election

http://glynholton.com/wp-content/uploads/2011/04/vif.jpgThere are plenty of ways to steal an election. Some require guns. Others depend on bribes. Perhaps the simplest involve misleading ballots. For its corporate election this year, American Tower Corporation (AMT) has produced a humdinger. Item 04 of their ballot (technically a VIF; I will explain this legal nicety some other time) gives shareowners the option of voting “for,” “against” or “abstain” for the following:


In years past, shareowners have placed similar “say-on-pay” items on other corporations’ ballots. These tended to garner strong support as shareowners, concerned about lavish executive compensation, sought an opportunity to weigh in. But last year’s Dodd-Frank financial reform act mandated say-on-pay votes at all public corporations. So why Continue Reading →

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How I Voted at BP & Why I Vote on MoxyVote

BP, one of the stocks in my portfolio of about 50 companies, has an Apr 14, 2011 Annual Meeting coming up. I pulled up the “proxy statement” but didn’t have much patience with it… couldn’t easily find pay package, etc… perhaps because not US company. I checked in with ProxyDemocracy.org and MoxyVote.com… last day to vote using MoxyVote!

At ProxyDemocracy I see that Trillium voted against management on just about everything. I’m not quite that rebellious. I went with Florida SBA and CBIS, taking the harder line against management whenever they differed.

MoxyVote had recommendations from three groups but it is a little more difficult to compare them on that site since you have to click on each to get their recommendations, unless they are on your list of good causes. It looks like “Diversity” is asking people to vote against the only Continue Reading →

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MoxyVote.com Adds Advocates

Right in the middle of proxy season, we are thrilled to welcome a few new Advocates on the site.  Here’s the rookie lineup straight from MoxyVote’s blog:

  • Bill Davis is an independent shareholder activist who works to address corporate governance issues and increase shareholder involvement. Davis was recently nominated for a lifetime achievement award by the Social Investment Organization for his shareholder engagement and advocacy efforts. Be sure to read his resolution at Canadian Imperial Bank of Commerce (CM).
  • NorthStar Asset Management, a Boston based SRI asset management firm, files and supports shareholder resolutions focused on corporate governance practices, corporate environmental policies, and diversity and anti-discrimination efforts within the workplace. Be sure to check out their human rights resolution at Ecolab (ECL).
  • The Center for Social Philanthropy (C-SocPhil) provides innovative research, resources, and tools to encourage long-term social and environmental philanthropic impact. They’re supporting shareholder resolutions to encourage individuals and larger organizations to vote for initiatives that support their socially responsible outlook.
  • FreedomWorks is headquartered in Washington, DC and works with hundreds of thousands of grassroots volunteers nationwide. Through their volunteer activist network, FreedomWorks engages in activities that promote individual liberty through decreased government involvement and corporate initiative. Be sure to check out their opinions for resolutions on the Duke (DUK), General Electric (GE), and Pfizer (PFE) ballots.
  • PAX World Investments has several mutual funds geared toward SRI and ESG investing. Through their proxy voting and advocacy efforts, PAX World supports shareholder initiatives focused on corporate social responsibility and sustainability efforts. Keep an eye out for future ballots with PAX World’s vote recommendations.

Florida SBA has also been added to the mix at MoxyVote and that’s critically important because they are the 4th largest public pension fund in the United States and they own a little bit of thousands of companies. Now, when you turn to MoxyVote for voting advice they won’t just have one advocate’s position on one issue on your ballot. You’ll also get voting advice on directors and corporate sponsored measures at most of the companies you might own.

I’m glad to see the growing lineup. Please keep in mind, if you don’t find the advice you need on MoxyVote, you can always go to ProxyDemocracy.org to find more advice from institutional investors. Then you can come back and vote with Moxy.


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How I Voted at Apple

There was never any question in voting my shares of Apple. Egan-Jones Proxy Services, Glass, Lewis & Co. LLC, and ISS Proxy Advisory Services all endorsed a majority vote election standard proposed by CalPERS for unopposed board candidates. Who wouldn’t? If shareowners can’t make the nominations, they should at least be able to turn out directors who fail to represent us. The management of Apple insists that one vote in favor of a director should be enough to get elected. That doesn’t seem reasonable to me.

I also voted in favor of the Laborers’ International Union’s measure to have directors issue an annual report on CEO succession planning. Certainly, with Jobs getting a liver transplant in 2009 and talking another medical leave, it is high time the Apple board gave serious thought to succession plans.

Ten resolutions on succession planning have been submitted so far this proxy season and I’ll be supporting all I can vote for.  I’m a little surprised to see only CalPERS reporting out their votes on Apple at ProxyDemocracy.org. CalPERS also reported their votes on their site, the first of at least 300 this proxy season. If we’re lucky, maybe they’ll start reporting in advance for all their proxy votes.

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Don’t Toss That Proxy! Learn From CalPERS

Resolution MB 8/09, approved at CSEA’s last General Council, sought to expand on the leadership CalPERS has shown in the area of corporate governance by exploring how CalPERS could better influence the proxy voting of its own members and in helping us to evaluate which mutual funds vote in alignment with our own values and those of CalPERS.

In response to our request, CalPERS will be dramatically increasing the number of proxy votes they announce in advance in order to influence how we vote in corporate elections. This increased communication will be a two-way street. As members become more aware of how CalPERS votes, we may also have recommendations as to how they should vote. I would be happy to hear from CSEA members and other organizations that represent CalPERS members in that regard. Continue Reading →

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Shareowners Speak Louder in 2011

Passive or apathetic investors, take vote [note] : Now your votes  have actually begun to mean something. More so than ever, shareholders can truly feel like they’re part owners of public companies.

That makes now the perfect time for a push for better corporate governance policies. As it turns out, large institutional shareholders are striking while the iron’s hot this year. (In 2011, Shareholders Speak Louder Than Ever, Fool.com, 1/26/2011). See also: Don’t Toss that Proxy.

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How I Voted at Hain, Cisco & Accuray

I waited too long to vote on the MoxyVote.com platform. However, even waiting until the day before the meeting, I was still only able to get minimal advice. I hearty thanks goes out to CalSTRS and their cooperation with ProxyDemocracy.org. At least they had announced votes for Hain and Accuray as I cast my votes this morning.

At Hain, I voted down the line with CalSTRS, withholding votes from director nominees Berke, Futterman and Meltzer, as well as voting against the long-term stock plan proposed by management. At Accuray, I would have voted with CalSTRS and management. However, the ProxyVote platform wouldn’t accept the control number provided to me by my broker. With all the proxy plumbing issues mentioned in the SEC’s concept release, I guess I shouldn’t be too surprised with this glitch. I contacted my broker. We’ll see how quickly they can resolve this.

Since not even CalPERS had announced votes at Cisco, I was on my own. I voted abstain on all the director nominees and other measures except that I voted in favor of the shareowner resolution on environmental sustainability reporting and steps to reduce possible human rights violations. Just as an experiment, I left one field blank to see if Broadridge had addressed the blank vote issue. They had not. After voting, a second page comes up asking to confirm my vote. At the top of that page, in very small print obscured by the gray background the following note appeared.  “*No vote entered.  Your vote will be cast as recommended by the soliciting committee.” And there was a small asterisk next to the vote I left blank.

Obviously, there is much work to be done to improve proxy voting. Here in voting three stocks, I was only able to obtain voting advice on two. On one of the stocks I ran into a proxy plumbing issue. I also confirmed that blank votes are still being turned over to management with only the most obscure warning. For more about that issue, see Don’t Let Companies Change Shareholders’ Blank Votes, HLS Forum on Corporate Governance and Financial Regulation.

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E-Mail from Lynn Turner on Proxy Access

An email from Lynn Turner below and frequent emails this morning from Tracey Rembert highlight key provisions we are in danger of losing, in the broader fight for shareowner rights and corporate governance. Elected officials need to hear from all of us about how important these provisions are, especially proxy access. Corporations are lobbying hard in an 11th hour push. Proxy access is in DIRE danger, as are many reform provisions. Please take five minutes and pick up the phone or draft an email (see posts below for who to contact). If we lose these key fights, we lose years of momentum. See also, Senate Conferees Vote to Restrict Proxy Access, RiskMetrics, 6/17/10.

Here’s the email from former SEC Chief Account, Lynn E. Turner:

Today was a very, very good day for Wall Street and Big Business in the halls of congress and a very, very poor day for Main Street and Investors.  Developments in the House/Senate Conference that occurred today include:

Investors Ability to Hold Corporate Executives and Boards Accountable are eliminated or seriously watered down by Senators and White House


The bills adopted previously by both the House and Senate would give the SEC the authority to adopt rules that would give investors equal access to the annual proxy with management for purposes of nominating directors.  The SEC has proposed rules that would give investors that had a threshold of the company’s stock the ability to nominate directors.  It was generally expected that threshold would end up a 3%.  Even at that threshold, it would be difficult for enough investors to pool their holdings together to nominate as a group, a director.  Also the SEC would likely limit how many directors in a year could be nominated.

However, today Senator Dodd has proposed language that would effectively prohibit shareholders from having proxy access in a tremendous blow to any attempts to hold corporate boards accountable for their actions.  I understand that in reviewing the Dodd language more carefully, there appears to be an even more pernicious aspect:  the amendment strikes the reference in the current language to “shareholders” in the plural and substitutes “shareholder” in the singular and then goes on to impose the 5% ownership requirement on any SHAREHOLDER who seeks access to the proxy.  This seems to require that a group of shareholders seeking access to the proxy would have to EACH be a 5 percent shareholder.

This would completely gut the proxy access provision because there would be no single 5 percent shareholder for most corporations of any significant size, and thus the 5% ownership threshold would never be satisfied.  The SEC has always envisioned permitting a group of shareholders, such a public pension plans to aggregate their holdings in order to satisfy the minimum ownership threshold for proxy access.  The Dodd language appears to completely reverse that and would mean that for most large corporations proxy access would not be available to shareholders.

Just as an example, GE has no single shareholder with 5% or more in stock.  The top three shareholders, BlackRock, Vanguard and State Street each hold approx 3.4%.  There are three instititional investors that hold 1.1 to 1.2% of the stock.  After that, all shareholders own less than 1%.  In fact, the top 50 shareholders only own 32.8%.  That ensures no single shareholder could in fact “commandeer” and election as many in the business community have falsely argued.  And getting 50% of the vote for any single director candidate still requires substantial and WIDESPREAD support among investors.

Senator Schumer from NY and Representative Waters from California have been fighting very hard for investors on this issue and working to keep in the original proposal.  At the same time, I understand from a number of sources, that the White House and Treasury department are “carrying the water” for the business community, including the Business Round Table or its members on this issue.


In the Bill passed by the Senate,  there was language that required any candidate up for election to the board of a public company, to receive a majority of the votes cast, in order to win election (The same rules as apply to congressional elections and members of congress).  That is because today, investors can only vote for a director or withhold their vote, which is the equivalent of not voting, as the vote does not count in determining whether a director is elected.  In fact, a director receiving just one vote (even if their own vote) is elected according to what can only be considered very ridiculous and insane law.

I understand the Senate has now agreed to strip this language on majority voting which would have established democracy in the board room, out of any final bill.

Democrats (DURBIN, Inouye) Prevailing in Limiting SEC Necessary Resources.

For years, the SEC has had Congress put severe limitations on the resources made available to it.  To resolve this shortcoming contributing to a failure in regulation, the US Senate voted in its legislation to provide the SEC with Self Funding, Just as all the banking regulators have, as the new proposed consumer protection bureau has, as the regulator for credit unions and Freddie Mac and Fannie Mae have.

The members of the House agreed to self funding.  However, now in a bizarre twist of fate, two key Democrats, Senator Durbin and Inouye are once again attempting to strip this language from the bill, once again handcuffing the agency in a most serious fashion, and just as Congress is asking the SEC to do much, much more.  As a result, Senator Dodd has told Senator Schumer, who once again has been a tremendous champion for the SEC and investors on this issue, that he must strike some deal or accord with Durbin and Inouye and amend the language that these two senators previously voted for when they voted to approve the senate bill at the end of May. In the future, when the SEC comes up short of funds again as it most certainly will, and cannot carry out regulation as it should, one can only label it the “Durbin/Inouye” folly.

Congress considers Limiting SEC Regulation of Securities as it Limited Regulation of Derivatives

Some congressional members of the conference, such as Senator Harkin from Iowa and Senator Johnson from South Dakota, a home for Insurance companies, appear to be giving difference to members of the insurance industry who continue to press for inclusion in the conference report of anti-consumer legislation to exempt equity-indexed annuities from securities regulation.

Equity-indexed annuities are hybrid products that combine elements of both insurance and securities, but they are sold primarily as investments. Indeed, as documented in a seven-part Dateline NBC hidden camera expose, they are among the most abusively sold products on the market today. Responding to a rising level of complaints, the Securities and Exchange Commission voted in late 2008 to adopt rules regulating equity-indexed annuities as securities, a move that was immediately challenged in court by the insurance industry. In deciding the case, a U.S. Court of Appeals sided with the agency on the basic issue of whether equity-indexed annuities should be regulated as securities while remanding the rule with respect to procedural issues. Having failed to prevail in court, the insurance industry has turned to Congress to preempt legitimate securities regulation of this product and do their bidding.  The reasons this is so anti investor, anti consumer and anti Main Street includes:

Equity-indexed annuities are complex products whose returns fluctuate with performance of the securities markets. Absent regulation under securities laws, they can be sold by salespeople with no more understanding of the markets than the customer.

Although the National Association of Insurance Commissioners has developed a model suitability rule for annuity sales, it has not been adopted in all states. Regulation under securities laws would provide national uniformity, would bring to bear the added regulatory resources of the SEC, state securities regulators, and FINRA, and would provide additional investor protections in the form of improved disclosures and limits on excessive compensation.

Exempting equity-indexed annuities from securities regulation would set a dangerous precedent and encourage the development of additional hybrid products designed specifically to evade a more rigorous form of regulation.

This highly controversial measure which is opposed by consumer advocates as well as state and federal securities regulators was not included in either the House or the Senate bill and is not germane to the underlying legislation. To include it in the conference report would be a gross violation of the integrity of the legislative process.

Congress Exempts a large Group of Public Companies From Having to Ensure their Internal Controls will Produce Financial Statements Without Errors

In 2002, in light of hundreds of billions of dollars lost from corporate scandals such as Enron and Worldcom, resulting from false and misleading financial statements, members of congress passed a law that required ALL public companies to have their internal controls inspected by their independent auditors to ensure against misleading financial statements. That bill passed in the Senate by a 97-0 margin and in the House with all but three votes.

The House had passed a bill last December that would have exempted all public companies with under $75 million in market value, which includes companies such as Blockbuster and Zales, from having those inspections done. This despite investors time and time again telling congress and the SEC they were willing to bear these costs in order to get accurate financial statements. And also despite the fact there were almost 750 of these companies over the last year and a half who had to restate their financial statements for errors, the single large group of companies with such errors reported.

But in a reversal, the House told the Senate today they would not require that in the final legislation. In once again a bizarre twist, the Senate who did not have any such exemption or provision in its bill, voted to put it in. Led by Senator Crapo who introduced the language, and joined by two democratic senators, Senator Johnson from South Dakota and Lincoln from Arkansas, these senators got a permanent exemption put into what will be the final bill, giving an exemption to all these companies, which represent approximately half the public companies, and with over $375 billion in market value. And Senator Dodd today noted that the White House was once again behind this move as well.

Senators To Let Wall Street Get Away Car Drivers Get off

And finally, a couple of years ago, the Supreme Court Ruled that Securities Laws today, prohibit investors from suing someone who knowingly provides substantial assistance to someone who is committing a securities fraud, unless that person tells the investor they are doing so (as if anyone would do such a stupid thing). The court also said in their opinion that if congress wanted to change the law, it was up to congress to do so. At the time, both Representative Frank and Senator Dodd wrote letters vehemently condemning the ultimate decision the court reached.

The House, included language in their bill last December that would allow investors to recover from those who negligently or fraudulently assist others in the commission of securities fraud. In the Senate, Senators Specter and Reed and others proposed language that would all recover when it could be proven some knowingly or recklessly provided substantial assistance in the commission of a securities fraud.

Once again, the Senate, and I am told with Senators Dodd concurrence, are opposing the House on this issue and insisting that consistent with current law and the Supreme Court ruling, one can still knowingly provide substantial assistance to others in the commission of a securities fraud and avoid a shareholder lawsuit. One can only ask how condoning such behavior today, when over 100 million Americans have their savings invested in the markets, is REFORM.

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Q&A on Client Directed Voting

Historically, most retail shareowners have tossed their proxies. During the first year under the “notice and access” method for Internet delivery of proxy materials, less than 6% voted. This contrasts with almost all institutional investors voting, since they have a fiduciary duty to do so. “Client directed voting” (CDV), a term coined by Stephen Norman is seen by many as a solution for getting more retail shareowners to vote, ensuring companies get a quorum, and helping management recapture much of the broker-votes cast in their favor that evaporated with recent reforms.

The SEC has indicated that CDV will, among other “proxy plumbing” matters, be the subject of a forthcoming concept release. Therefore, it is critical that shareowners become familiar with this term. The SEC can shape their concept release to facilitate management entrenchment or their framework can further the interests of shareowners. My intention with this Q&A is to help readers understand some of the surrounding issues and be better prepared to judge proposals.

Since Stephen Norman coined the phrase in 2006, the concept of CDV is generally attributed to him and his work with NYSE’s Proxy Working Group.  On October 24, 2006, the NYSE filed a proposed rule change with the SEC to eliminate all broker voting on the election of directors. Two months later in December 2006, Steve Norman presented a proposal called Client Directed Voting at an investor communications conference.  The main feature of CDV is that it allows  shareowners to instruct their broker how to vote in the event they fail to return a proxy and it severely limits their default voting options.

Recent posts on the Harvard Law School Forum on Corporate Governance and Financial Regulation by John Wilcox (Fixing the Problems with Client Directed Voting, March 5, 2010) and Frank G. Zarb, Jr. and John Endean (Restoring Balance in Proxy Voting: The Case For “Client Directed Voting,” February 14, 2010) have helped to expand and popularize the concept beyond Norman’s initial concept. See also: CDV vs FAVE: More Proxy Voting Options,  2/17/2010 and Comparison of “Proxy Plumbing” Recommendations, 11/8/09.

Mark Latham, a member or the SEC’s Investor Advisory Committee (SECIAC), actually proposed something similar at least as far back as 2000 (see The Internet Will Drive Corporate Monitoring and other papers at http://www.votermedia.org/publications) and his system provides more of an open framework, instead of leaning to management. Tbis post builds on his work, especially the Q&A he recently posted on the subject. My main contribution is to simply highlight some relatively small differences and to call out some additional concerns.

See Latham’s recent post Client Directed Voting Q&A on the VoterMedia.org Publications page at http://www.votermedia.org/publications. His post provides more online references as well as an interesting introduction to frame the topic. Here, I simply dive into frequently asked questions. The questions and Mark Latham’s responses are in black. My responses are in dark red. Caution: Where my response significantly differs from his, you won’t necessarily know, without comparing this post to Latham’s paper.

1. What do you view as the most significant merits and drawbacks of CDV?

Merits of the Open Proposal:

Quality of voting is more important than quantity of voting (voter turnout). The Open Proposal will increase both the quality and the quantity of voting by both retail and institutional investors. But I think its most significant impact will be to increase the quality of voting by both individuals and institutions. This will happen because of the implicit competition among various voting opinion sources, and their evolving reputations in the eyes of retail investors. Opinion sources will include institutional investors, retail investors, bloggers, activists and professional proxy voting advisors funded by possible new mechanisms discussed later in this questionnaire.

Retail investors are the principals in the principal-agent system of corporate governance. We are the beneficial owners of all equities – in the U.S., 25 to 30 percent via direct purchases, and 70 to 75 percent via our ownership of shares in mutual funds, pension funds and other intermediaries. (By “share” of a pension fund, I mean the fraction of the fund’s assets that funds a person’s expected future benefits.) The agents in our corporate governance system include CEOs, boards of directors, institutional investors, proxy advisory firms, compensation consultants etc. The Open Proposal will improve the accountability of all these agents to the principals, by empowering retail investors with better information and voting tools.

Drawbacks: The Limited Proposal has the substantial drawback of severely limiting retail investors’ choices for standing instructions on voting. The Centralized Proposal likewise has the drawback of limiting our choices to only the decisions shared by institutional investors. The Open Proposal has no drawbacks that I can think of.

The key issue is to let shareowners control where their electronic ballots are delivered, just as there is no question they can control where hardcopy ballots are delivered. This simple requirement would give third party content providers an opportunity to compete and improve content.

2. In your view, how viable a solution is CDV to increase retail participation in proxy voting in the short term? How long do you think it would take before CDV materially increased retail participation rates?

Once the Open Proposal is implemented by more and more retail brokers, I expect the quality of all voting and the quantity of retail voting to increase materially within 2 years. The increase in quality is more important, but I expect our retail voting rate to increase steadily and substantially in the long term, eventually surpassing 70%.

Any implementation schedule would be heavily influenced the need for fees to be delivered to third-party providers and the need for a requirement that brokers must follow client instructions to deliver ballots electronically to third-party platforms. I’ve had personal experience with a broker reluctant to deliver proxies according to my instructions.

3. What other complementary reforms would you view as essential to ensure the success of any CDV approach that were to be implemented?

We should fund various competing sources of proxy voting advice that would be available free to all investors. We should also fund some infrastructure for sharing voting opinions. Funds should be allocated among competing providers by retail investor vote. Sources of funds are discussed in my responses to later questions below.

Retail Shareholder Participation

1. In your view, would CDV be more likely to cause retail shareholders to engage with or disengage from proxy voting? Why? Do you think that either of the Limited Proposal or Centralized Proposal would be more likely to engage retail shareholder participation? Why?

I don’t think the Limited Proposal would engage retail participation significantly. A wider range of voting choices is needed for that, so the Centralized Proposal would engage more retail participation, and the Open Proposal would engage the most retail participation.

The Open Proposal will cause retail shareowners to engage with proxy voting because it offers several new and powerful ways for us to do so. Most will just choose a voting feed and instruct our brokers to implement it for our shares. That is powerful because it takes little time, yet can implement intelligent voting based on reputations of the voting feeds – reputations that will become conveniently available in the financial media, just as the reputations of car makers and computer makers are widely available.

Many third-party platforms or voting feeds will be designed around “issues,” rather than harder to understand policies and procedures. That will naturally appeal to a broader base of retail shareowners.

A small but important percentage of retail shareowners will get more involved in helping to determine those reputations of voting feeds. They will compare feed quality by such means as creating focus lists at ProxyDemocracy – see for example http://proxydemocracy.org/fund_owners/focus_lists/25.

Additionally, institutional investors will begin to discuss their votes with each other more frequently, as well as with beneficial owners. Both are already happening, mostly as a result of votes disclosed at ProxyDemocracy. I’ve personally initiated such dialogues with several funds and have increasingly been met with a favorable response.

2. Assume there are three groups of retail shareholders: (i) those who participate in proxy voting currently, (ii) those who would participate but find the process too time consuming and onerous and (iii) those who are unlikely to ever participate in proxy voting. (a) In your view, how many retail shareholders would switch from category (ii) to category (i) if CDV were implemented? Would it make a difference in your view if the Limited Proposal or Centralized Proposal were implemented?

My rough guesses for long term participation rates: Limited Proposal: 25% increase, with most votes going automatically to management. Centralized Proposal: 50% participation. Open Proposal: 70% participation. Of course, these numbers depend on the promotion, regulation and disclosure of whatever CDV system is implemented. Engagement requires either a fiduciary obligation, which we won’t have for retail shareowners, the perception of value in the process (which may take a while) or passion around relevant issues. Of the three, passion around relevant issues will be the easiest to ignite.

(b) In your view, would CDV have a meaningful impact on the level of category (iii) investors?

Yes – the Open Proposal in particular will significantly reduce category (iii). Most shareowners are passionate about at least some specific issues. Once engaged, they are likely to engage further.

3. In your view, would implementation of CDV increase retail shareholder engagement with the annual meeting process? Why or why not?

Yes. The most important part of the AGM is voting, so in my view engagement with voting is one type of engagement with the annual meeting process, even if the shareowner doesn’t physically attend the meeting. (See answer under #1 above). Director elections will be more closely watched, once shareowners gain a sense of empowerment.

If brokers are required to deliver proxies as directed by their clients, another whole model could emerge around proxy assignments. Proxies assigned to organizations or individuals, for example, could give AGMs a new meaning. See http://contingencyanalysis.com/home/papers/suffrage.pdf.

In the 1940s and 1950s thousands of shareowners frequently showed up for shareowner meetings because they sometimes actually deliberated issues and some of those in attendance held proxies from others. Lewis Gilbert, for example, was often given unsolicited proxies, which he used to negotiate motions at meetings.

We are a long way removed from those days. Voting is important, but having a say in setting the agenda on what will be voted on is even better. If a significant number of proxies are assigned or even if shareowners routinely follow specific voting advisors or institutions, leading voices can actually begin to influence how agendas for annual meetings are set.

4. Do you think a CDV arrangement that called for individualized marked proxy cards, as contemplated under the Limited Proposal, would encourage or discourage retail shareholder engagement in the proxy process?

The Limited Proposal would take us at least part way back to broker votes. In the absence of meaningful choices, most shareowners will defer to management. Although that would result in votes, I don’t see it resulting in “engagement.” It might be a plus for shareowners to be able to pull up a pre-filled ballot to show them this is how they are about to vote, according to registered preferences.

However, I wouldn’t ask them to affirm every single pre-filled ballot. That could be a deal breaker for people with stock in lots of different companies or who would just rather spend their time on other activities. Under an Open Proposal, feeds will offer the ability for retail shareowners to essentially build a “voting policy” just as institutional voters are able to do. That model will increase participation and the quality of the vote.

5. In your view, would CDV encourage sufficiently informed retail shareholder voting or would it effectively discourage retail investors from reading the proxy statement and understanding the particular proposals in the context of a company’s particular circumstances? What criteria do you use in determining whether retail shareholder voting is sufficiently informed? Does your answer differ as between the Limited Proposal and Centralized Proposal?

In my view, the Open Proposal will encourage sufficiently informed retail shareowner voting. In order for retail voting to be sufficiently informed, it is not necessary for all retail shareowners to read the proxy statement and understand the particular proposals in the context of a company’s particular circumstances. Most retail shareowners won’t read proxy statements.

Open Proposal CDV enables retail shareowners to implement a specialization strategy similar to that of institutional investors. Most fund managers do not read the proxy statement and understand the particular proposals in the context of a company’s particular circumstances. They have specialized staff for that, some in-house, some out-sourced. Likewise a few of us retail shareowners will read proxies, but most will not. Those who do not read them will be informed by those who do, and by the many other sources of voting opinions who read the proxies.

The criteria for determining sufficient information are in general too complex and subjective to describe concisely. But some features I would look for in an effective retail shareowner information system include:

(a) a wide range of voting opinion sources;

(b) open access for any new opinion sources to publish their opinions;

(c) open access for shareowners to choose any opinion source for our standing instructions on voting;

(d) sufficient funding for professional voting opinion sources that compete for funding allocated by retail shareowner vote.

Thus the Limited Proposal would not inform shareowners sufficiently; the Centralized Proposal would be better; and the Open Proposal would be best in facilitating the ability of retail shareowners to align with groups they trust and that share their values.

6. What investor education measures would you recommend to ensure investors were sufficiently informed about CDV? Who should undertake those and bear the cost?

I would recommend an ongoing competition open to any providers of investor education, who would compete for funding allocated by retail investor vote. This could be limited to education about voting issues (informing about CDV, providing voting opinions, organizing voting opinion data feeds, discussing reputations etc.), or voting could be included in a broader retail investor education competition. For more explanation, please see http://votermedia.wordpress.com/2010/01/23/voter-funded-investor-education-proposal/ .

This would benefit us retail investors, so we should pay for it. Since the benefit is shared broadly, it should not be paid by retail investors one at a time, but rather by funds that we own collectively – corporate funds. (See my answer to General question #1 above – “Retail investors are the beneficial owners of all equities.”) There are several possible ways of arranging this. One example is the “Proxy Advisor” proposal at votermedia.org/proposals. In the near term, the agents in our corporate governance system may try to prevent us from using our funds to empower ourselves this way, so a helping hand from regulators may be needed to get it started. Public funds earmarked for retail investor education and advocacy could be used for the first such initiatives.

Implementation and Ongoing Administration

1. Should retail shareholders have to renew their agreement with their brokers with respect to standing voting instructions annually or on some other basis? Why? Is your conclusion affected by the lower incidence of retail voting following the introduction of “notice and access” (i.e., even asking shareholders to take the time to access the proxy statement online resulted in a significant drop in participation)?

Yes, it’s reasonable to require retail shareowners to renew their standing instructions annually. This renewal should only require a simple mouse-click, once the investor has logged in to the broker’s website and gone to the standing instructions page. The renewal could be done at any time, and be valid for one year from the last time the investor clicked to renew. It also affirms the channel of communication… the e-mail address is still valid.

The quality and reputation of voting feeds will change over time, so retail investors should review their choice of feed at least annually.

No, the “notice and access” participation dropoff may not be relevant here, since it occurred in a system without CDV. CDV is likely to fundamentally change retail investor attitudes and behavior regarding proxy voting.

2. Should the renewal process be an affirmative one – that is, the arrangement would drop away, absent shareholder action to renew his / her voting preferences? Does the fact of a rapidly changing governance landscape affect your decision? Why or why not?

My answer to the previous question covers this question also.

3. How should CDV address director slates, in contested and uncontested elections?

I don’t think director slates in contested and uncontested elections would make any difference to the implementation of CDV. All such cases can be handled the same way, with the retail shareowner voting as per standing instructions to use a specified voting feed.

4. Which matters should be eligible for inclusion in a CDV arrangement (e.g., only uncontested matters)? How would those matters be defined (e.g., shareholder proposals are almost always “contested” by management and the board)? How should the fact of significant variation among proposals on a given matter, particularly in light of a company’s particular circumstances, affect the decision about whether a matter is appropriate for treatment within a CDV arrangement?

Like my answer to #3 above: All matters should be eligible for inclusion in a CDV arrangement. All can be handled the same way, with the retail shareowner voting as per standing instructions to use a specified voting feed. Competition among voting feeds will encourage those who create them to constantly try to improve their voting quality and reputation. One improvement is to adapt their analysis and voting decisions to the significant variation among proposals on a given matter.

5. If only selected matters are eligible for inclusion in a CDV arrangement, will CDV materially improve the retail investor’s engagement in the annual meeting process or the administration of proxy voting, given that there could be other matters on the proxy card as to which the shareholder would have to vote?

Limiting CDV to selected matters only would lessen the benefits of CDV, so I don’t recommend such limits. It would be better not to implement any CDV that severely limits voting options, since once such a system is enacted it would be difficult to amend, given that those who would benefit from such limitations will be in an even stronger position to fight opening up the process.

6. Should preferences be indicated on a portfolio or per stock basis?

Preferences should be indicated on a portfolio basis. That is simplest for retail investors and for brokers when they offer CDV to clients. Changing preferences stock-by-stock can be handled by those who create the voting feeds. So brokers need not build systems for stock-by-stock customization of standing instructions.

With the Open Proposal, anyone can create a voting feed, just as anyone now can create a blog. One way to create a feed is to remix other feeds, just as blogs often post or link to material from other blogs. A remixed feed can select different source feeds for different stocks or different industries or different categories of voting matters (director elections vs shareowner proposals etc.). In the article “The Internet Will Drive Corporate Monitoring” I called remixed feeds “meta- advisors”.

7. The Limited Proposal is constructed such that retail investors could provide standing voting instructions to their brokers in their brokerage agreements. If standing voting instructions were indicated on a portfolio basis, should the instructions cover only those companies in which a retail investor owns shares at the time the brokerage agreement is signed or all subsequent purchases of stock as well? If instead preferences were indicated on a per stock basis, when would retail investors indicate their preferences with respect to stocks purchased after the investor’s brokerage agreement was signed? At the time of purchase or some other time?

Standing voting instructions on a portfolio basis should cover all subsequent purchases of stock in that portfolio.

8. What choices should a retail shareholder have when deciding its standing voting instructions? (a) Only those from the Limited Proposal, namely (i) vote against management, (ii) vote for management, (iii) abstain on all matters, and (iv) vote proportionally with the firm’s other clients’ instructed votes? (b) Vote in accordance with the brokerage firm’s published guidelines? (c) Various institutional investor voting guidelines? (d) Proxy advisory firm guidelines? What do you see as the pros and cons in providing each of these choices to shareholders (e.g., insufficient number of choices, information overload, likely absence of action when too many choices)? Are there other choices that are appropriate?

Because we retail investors are principals not agents, there are few reasons to regulate how we vote our stock. One valid reason is to prevent vote-selling. The tried-and-true way to prevent vote- selling is to keep voting decisions confidential, as we do in democracies. Only when an agent is voting other people’s stock do we require vote disclosure, even though that opens the door to vote-selling.

Therefore retail shareowners should be able to vote any way we choose, subject only to a prohibition on selling our votes. So I recommend the Open Proposal, where we can choose any voting feed. The potential information overload problem can be handled well enough by the market for public reputation. Most retail investors will only pay attention to perhaps the top ten best known voting feeds. A small minority of retail investors, along with writers in the financial media, will be the opinion leaders helping to determine public reputations, and thus which of the hundreds of voting feeds deserve to become the best known.

9. The Limited Proposal, as originally conceived, calls for the default choice to be proportional voting with the brokerage firm’s other instructed votes. Do you agree or disagree with this default choice and, if the latter, what should the default choice be (e.g., no vote)?

This question arises for all three CDV proposals discussed here: what about investors who don’t give standing instructions, or whose instructions have lapsed after one year with no renewal? The default choice should either be whatever the shareowner selects or it should be a “no” vote, just like if a voter fails to mark an item on the proxy, that item should be left blank.

Counting a blank vote as anything else would make mounting campaigns to deny companies a quorum much more difficult. Neither brokers nor anyone else should be permitted to vote on any ballot item in the absence of voter instructions (i.e., all items should be considered non-routine matters in NYSE rules). This is one reason why the Limited Proposal is such a poor choice. It would be better not to have CDV at all than it would be to go with the Limited Proposal. Again, once adopted, it will be hard to change because those who benefit from severely limiting options will have a vested interested in continuing to limit the voice of shareowners.

10. What administrative steps would brokers have to take to implement CDV? What step is most likely to provide an obstacle for CDV (e.g., individualized marked proxy cards, having information from companies about proposals to be voted on a timely basis)? How would broker obligations affect the company’s own obligations under Rule 14a-8 (e.g., would those obligations have to be accelerated)?

Brokers would have to create a page on their website for retail investors to indicate which voting feed they want to use for standing instructions. Brokers would have to store their clients’ instructions and transmit them to Broadridge (or other service provider). I don’t think individualized marked proxy cards are necessary, but could be provided if an investor requests them. Broadridge could handle the details of getting the voting decisions from the selected voting feeds, matching them with client shareholdings, and offering electronic and paper-based ways for investors to override their feed-based instructions if desired. I don’t think broker obligations would affect the company’s own obligations under Rule 14a-8.

Brokers/banks, transfer agents should be capable of passing through or delivering proxy votes to all valid electronic platforms. If that is the case, they don’t need to do much more than be aware and make their clients aware of the options.

11. In your view, would brokers in fact increase their engagement with retail investors about matters subject to a vote at a company’s next annual meeting? Would liability considerations affect your conclusion? Should brokers who do engage be exempt from the solicitation rules?

I don’t think it would be the brokers’ role to increase engagement with retail investors on voting matters, unless a broker wants to develop a reputation as a voting “brand.” (see Proxy Voting Brand Competition at http://votermedia.org/publications) There will be plenty of engagement in the public shared realm, for example via sites like moxyvote.com. Brokers could just link to such sites from their client web interface.

12. Should brokers be able to delegate responsibility for fulfilling their obligations under a CDV approach such as that contemplated by the Limited Proposal (i.e., filling out individualized proxy cards, maintaining lists of customer standing voting instructions, etc.) to a third party agent? Are there any obligations brokers should not be able to delegate to an agent?

I’ve addressed most of these issues in my response to question #10 above. Brokers should not be forced to take on CDV responsibilities. Other third-party firms will do a better job. The key is to ensure that brokers or their agents deliver ballots to wherever the shareowner directs.

13. What level of responsibility and liability should be attached to intermediaries for properly completing a proxy card for CDV, if that feature were adopted as part of a CDV arrangement? If brokers are able to delegate such responsibilities to a third party agent, what liability, if any, should attach to the agent?

I have no particular view on this, beyond the obvious general principle that there must be enough responsibility to make the overall CDV system work. I’m not sure which design will best balance cost, integrity and ease of use.

14. Should a clear audit trail and related reporting be required elements of CDV? Who would bear responsibility for assuring the quality of the audit trail and producing related reports? Who should receive the reports in the first instance (e.g., only the company and the tabulation agent)?

Same answer as for #13 above.

15. What costs would you foresee in implementation of CDV? Who should bear those costs? If the costs should be shared, how should that decision be made? Why should companies wish to pay for CDV, given that they may view CDV as a reductionist approach to complex issues of governance (i.e., indirect subsidies by smaller companies with fewer issues or larger institutional ownership, as compared to larger companies that attract greater attention and have potentially larger retail ownership)?

Cost categories include: (a) creating voting opinion feeds; (b) system development for brokers; (c) vote processing by Broadridge and similar service providers.

If the SEC publicly encourages the development of CDV, many organizations are likely to build the necessary systems voluntarily at their own cost. Voting opinion websites have already started appearing (ProxyDemocracy.org, TransparentDemocracy.org, MoxyVote.com). These can easily start sharing voting opinion feeds. To enhance their quality, public funds earmarked for retail investor education and advocacy could be allocated by investor vote among such competing providers of tools for CDV.

Once we have a broad choice of publicly available voting feeds, it will not be expensive for brokers and Broadridge to adapt their existing proxy vote systems to use the feeds. Some adjustment to the existing system of issuer fees for vote processing will help shift payments from paper mailings to electronic submission via CDV standing instructions.

CDV will increase the quality of voting and decrease the quantity and costs of paper mailings. These benefits will outweigh the costs of building CDV systems. Standardized data tagging will likewise streamline the system and reduce costs in the long run, although it will require some up- front investment.

In your question “Why should companies wish to pay…?”, I’m not sure if you mean “Why should the owners of companies wish to pay…?” or “Why should senior employees of companies (e.g. CEOs) want companies to pay…?” So I’ll answer both questions: We owners of companies should wish to pay (with our companies’ funds) because for us, the benefits of better voting, increased accountability, better corporate governance, and resulting higher investment returns will outweigh the costs. Some employees (e.g. some CEOs) may not want companies to pay, because the increased accountability would reduce their power and influence over their own pay and tenure as CEOs.

NYSE rules require payment by issuers for the cost of voting electronically but issuers may not always be doing so. See NYSE Rules 450-460 pertaining to proxy distribution.  The Rules are actually written for “member organizations” (i.e., brokers) and specify what brokers or their agents (e.g., Broadridge) can charge for distribution and collection of proxy-related items.  The rules are very clear that Issuers are supposed to pay for all of the distribution (and collection) costs and that brokers can expect to collect from them. These rules should also apply to Issuers when shareowners choose to take delivery of proxies or to vote through sites like RiskMetrics, ProxyGovernance and MoxyVote.

The fees that Broadridge is charging to electronic voting platforms (RiskMetrics, ProxyGovernance, MoxyVote, etc.) should be paid by the issuers as part of the overall collection costs (like postage).  The electronic platforms, in this function, are merely an extension of the proxy distribution agent and it’s odd that fees are payable to Broadridge (beyond a nominal fee covering their costs).  It’s also notable that Broadridge charges on the order of 10X for electronic vote collection from these platforms than it is permitted to charge the issuers, from what I understand.

If Broadridge is offering a “value-added” service to these electronic platforms, where is the “baseline” service that costs less?  The answer is that one does not exist. Perhaps the value-added services revolve around the ability to turn blank vote into votes for management without following the rules that apply to proxies. (See my blog post, Jim Crow “Protections” for Retail Shareowners at https://www.corpgov.net/wordpress/?p=1459 and the petition I filed with the SEC for a rulemaking on “blank votes” at https://www.corpgov.net/wp-content/uploads/2010/04/SECpetitonOnBlankVotes.pdf)

A key point here is also that fees are charged to electronic platforms on a “per ballot” basis (generally one fee per position per year).  Electronic platforms are generally passing along these costs to voters.  That becomes much more difficult, perhaps impossible, when trying to service retail shareowners with small position sizes.

This is, in effect, a system where the voter is paying to vote, like the old Jim Crow poll tax.  It also inhibits progress (i.e., the development of electronic platforms for retail shareowners) because voting through the mail and through the phone is free. Why should retail shareowners have to pay when voting online, which is inherently the least expensive method of voting? Why should services like MoxyVote have to front such expenses? Without a change, it is hard to see how they can ever turn a profit and it seems even less likely that nonprofits, such as ProxyDemocracy, would ever be able to offer users the option of voting on a ProxyDemocracy platform.

16. What ongoing costs would there be in the use of CDV? Who should bear those costs?

My answer to the previous question applies to this question also. The NYSE should consider forcing Broadridge to direct some of its “paper suppression fees” to firms like MoxyVote.com that should be sharing in this incentive, since shifting to electronic from paper voting saves money.

17. Do websites such as ProxyDemocracy.org, TransparentDemocracy.org or MoxyVote.com (or even a new database of institutional decisions) make CDV, or at least the need for tailored proxy cards, less necessary as a method?

These websites are the first steps toward Open CDV. For the sake of improved accountability, corporate governance and investment returns, we should build on these pioneering initiatives and develop a complete Open CDV system to empower all retail shareowners. I don’t think hard-copy proxy cards are important, but could be offered to those investors who request them. We should have online systems that let investors manually override their standing instructions. All CDV proposals include this feature. We can preserve the manual online voting systems we already have, as an option that each investor could use if and when desired. Ballots can land in electronic mailboxes of choice blank and can then be pre-filled based on the “voting policy” or “brand” loyalty program created by the user (i.e., just as institutional voters have been doing for years).

Centralized Proposal

In this section, I try to answer the questions in two contexts – for the Centralized Proposal and for the Open Proposal (which I also call Open CDV).

1. In your view, would institutional investors be willing to provide their voting decisions in advance of a meeting? Are there obstacles to institutional investors’ providing this information (e.g., confidentiality considerations, considerations relating to proprietary investing strategies or investments)? (Note that some mutual funds do this now.)

If predisclosing their voting decisions is voluntary, then some institutional investors would do so and some would not. One reason could be to maintain confidentiality of their voting decisions, for example to avoid improper influence on them from corporate management. Another may be to avoid revealing their holdings (and thus proprietary investing strategies) at that moment.

In the Open Proposal which I favor, it’s not a problem if many institutional investors don’t predisclose their votes.

There is already a healthy base with Florida SBA, CalSTRS and CalPERS  covering most companies. In addition, there will be plenty of other sources of voting advice besides institutional investors, many of which will be focused on a limited number of issues. Some can already be seen at MoxyVote.com.

2. In your view, is it feasible to receive institutional investor voting decisions sufficiently in advance of an annual meeting to input into a database as contemplated in the Centralized Proposal? What operational concerns might you have?

Yes, with automated networked systems, timeliness should not be a problem. This would be less of a concern with the Open Proposal, since its numerous sources of voting advice can be used as fallbacks in case some voting decision sources are too late or missing. MoxyVote.com has already built its system that way, where users specify a priority list of decision sources, and the highest priority one with a decision available is used.

A fundamental operational issue is data standardization across all users in this shared networked system. The SEC Investor Advisory Committee’s Proxy Voting Transparency proposal, passed unanimously on February 22, 2010, advocated standardized data tagging that should resolve this issue. Additionally, I understand that on electronic voting platforms, the vote doesn’t necessarily get submitted until very near the final deadline. However, if votes are simply being filled out according to the guidance of third-parties, votes can be compiled and cast very quickly.

3. Should retail investors be given notice when new institutional investors add their voting decisions to the database after a retail investor has provided its standing voting instructions? What sort of notice should be provided? Who should be responsible for providing the notice?

CDV will induce an active public discussion in the financial media about the reputation of various sources of voting opinions. Most of us retail investors will not need to pay attention to every new source of opinions. Most of us will pay attention to the opinion leaders in this public discussion, who will let us know, for example, their top ten recommended and/or popular opinion sources, and their general characteristics – e.g. degree of emphasis on financial vs environmental vs social/political considerations. It will be like brand reputation for makers of complex products like cars or computers.

So no, there is no need for notice to be sent to retail investors when new institutional investors add their voting decisions but investors should be able to seek and find such information easily and should be able to subscribe to a news feed like google, alerting them to new participants. The new providers have every incentive to get the word out. Again, this issue is less of a concern in the Open Proposal, with its greater breadth of available voting opinion sources. Annual review and/or confirmation will help those who do not pay attention to keep up more than they otherwise might.

4. Would you allow any institutional investor who wanted its voting decisions to be in the database to be included? Why or why not? If not, what criteria should be used to decide which voting decisions would be available? Should there be an ownership threshold? If so, what threshold would you recommend? Should they be paid a license fee?

Likewise, these kinds of concerns are a good illustration of why the Open Proposal is better than the Centralized Proposal. In the Open Proposal, anyone can publish a voting feed for free, just as anyone can now publish a blog for free. There is no centralized database of blogs; there is just a data standard, which we should soon have for proxy votes.

5. Should a CDV database of voting decisions provide background about the nature of the contributing institutional investors, so that retail investors could place the voting decisions in context (e.g., determine whether the institutional investor likely has a bias)? If an institutional investor’s voting guidelines or decisions are reported, should it be required to provide context for the guidelines or decisions (e.g., conflict of interest disclosure)? If so, what contextual information would be appropriate? Should liability attach to that information?

An unregulated public market for reputation of voting opinion sources can probably handle most of these issues well enough, especially in the Open Proposal where it is easy for new entrants to compete by building better reputations for serving retail investor interests. Additional disclosures, especially regarding potential conflicts of interest, should be encouraged but not required until we see abuses that may make such requirements advantageous. Normal contract law should cover liability requirements.

6. In your view, should a proxy advisory firm’s guidelines on voting various measures be included in a database of voting decisions? Why or why not? Would your view change if the SEC regulated proxy advisory firms?

If I answer in the context of the Centralized Proposal, I would favor making it as much like the Open Proposal as possible: free voluntary access by all who want to participate, as providers of voting decisions and receivers of voting decisions. If a proxy advisory firm wants to publish its guidelines and/or its specific voting recommendations, they should be allowed to do so, as at least some do now. The Open Proposal does not depend on a centralized database, so the inclusion question does not arise. My views here do not depend on SEC regulation of advisory firms.

7. How easy or difficult would it be to develop the technology for the voting decision database and proxy-voting platform contemplated in the Centralized Proposal?

Not difficult. ProxyDemocracy and Moxy Vote have already built much of this, on a very low budget. Both systems can be readily enhanced if additional data standardization is adopted by the SEC and if cost reimbursement is forthcoming from issuers. See discussion by MoxyVote.com at http://www.sec.gov/comments/s7-22-09/s72209-8.pdf.

8. Who should bear the costs of maintaining any database of voting decisions? Who would determine what fees could be charged for use of the database? Should CDV be premised on retail investor willingness to pay for access to the database (as is the case for existing proxy advisory firms)?

Voting systems are a collective benefit to all shareowners of a company. So it does not make sense to make each individual voter pay to be able to vote. That’s why democracies don’t charge their citizens a fee to use a polling booth when there is an election. Citizens pay for election administration costs as a group, not one by one.

Likewise the information systems to enable intelligent voting are a collective benefit, and should be paid collectively, not one user at a time. To encourage competition among information providers, collective funds (i.e. corporate funds) should be allocated among them by the voters. Thus retail shareowners should allocate at least some of the CDV infrastructure funds by vote. This could pay for professional proxy voting advice that could then be shared freely. It could also pay for some infrastructure, such as free shared databases if they are needed. There is a large cost differential between delivering proxies by U.S. mail and through the internet. This cost savings should be used to pay the costs of Open CDV.

Institutional Investor Perspective

1. Why should institutional investors care about CDV? Isn’t this a retail shareholder issue?

Building reputations will build followers; institutions successful in creating “brands” will gain following and influence. As mentioned above, CDV will create a new public debate about the quality of institutional investor voting. Institutions are voting on behalf of retail shareowners now. So this retail issue is also an institutional issue.

2. If a database of institutional investor voting decisions were made available as contemplated under the Centralized Proposal, would other, smaller, institutional investors make use of this database?

Under either the Centralized Proposal or the Open Proposal, I expect that many smaller institutional investors would make use of the voting opinions available. Proxy advisory services may try to curtail disclosure by larger institutional investors in order to maintain their business and avoid disseminating research for free to smaller institutional investors but I expect they will have a difficult case, since many of these larger institutions subscribe to multiple services and have their own staff. They will be able to argue and show that disclosure of their votes is not giving the proxy advisory services they paid for directly to smaller institutions, since their final votes will often differ.

Management Perspective

1. In your view, would corporate managements generally be willing to support CDV as a means to increase retail shareholder participation or does the diversity of issues facing public companies in light of their particular circumstances make it less likely that they would favor participation over informed participation? Do you think CDV would be more or less likely to promote a “one size fits all” approach to governance and other issues?

Some corporate managements would be willing to support CDV as a means to increase retail shareholder participation. Other corporate managements may oppose CDV (especially the Open Proposal) because it will reduce their power while empowering the firm’s beneficial owners.

Some managers and entrenched directors may prefer participation by “sheep” in a relatively constrained environment where a few sizes fit all. However, an Open CDV system would encourage management to participate in these platforms as well. Management and existing boards want the ability to communicate with shareowners. Open CDV systems could provide the platform in a space of higher trust.

It will enable more informed voting by networking and sharing the information available. This is similar to the way institutional investors vote stock, where typically a staff of specialists make the voting decisions on behalf of fund managers and beneficial owners.

One key difference with CDV however, especially under the Open Proposal, will be that we beneficial owners will have the power to choose among competing sources of voting opinions. We will also have more opportunity to contribute to the voting opinions and the reputation assessment of opinion sources. Open CDV will increase informed participation by retail investors in the voting decisions of stock we beneficially own through institutional investors. At a minimum, we will be able to express more informed opinions about how institutions are voting our stock.

Open CDV would be less likely to promote a “one size fits all” approach to governance and other issues, since it offers maximum competition among sources of voting opinions. Competition will enhance voting quality, and “one size fits all” is a low quality approach which will thus be used less and less.

For example, when I find conflicting votes between CalPERS and another advance discloser, I often go with CalPERS because they most frequently provide a reason for their vote. As this becomes more popular, more care will be put into the reasons disclosed.  Canned votes and reasons will sway fewer votes as disclosures become more sophisticated and value their brand following.

2. In your view, would you expect that solicitation expenditures would decline, increase or stay the same if CDV were implemented? Why?

I expect that that solicitation expenditures will decline under Open CDV, especially in terms of just getting participation. Solicitation will be replaced by and/or migrate to elements of the CDV system, which will be supported by collective funds, becoming free or low cost to all users. Solicitation will focus on convincing the CDV opinion leaders and large funds of the relative merits of each possible voting decision, just as solicitation now gives emphasis to convincing proxy advisory firms.


1. Are other approaches that are comparable to CDV more desirable?

a. Creating a system of “public” proxy advisory firms to increase public availability of professional voting advice?

This would be a valuable adjunct to CDV. Even under the Open Proposal where anyone can contribute voting opinions to the public, I expect we will still need professional voting advice. Widespread sharing of free advice via the internet is likely to undermine the business model of existing proxy advisory firms (PAFs), just as free sharing of news is now undermining business models of the mainstream media. So to raise the overall quality of voting, a system of “public” PAFs makes sense. That was the reason for the title of my article “The Internet Will Drive Corporate Monitoring”. “The Internet” was a reference to internet-based CDV, and “Corporate Monitoring” was a reference to public PAFs and enhancements thereof.

For such a system to work, it is important for the public PAFs to be chosen by shareowner vote, to give PAFs a strong incentive to serve the owners’ interests. They should be paid from the shareowners’ corporate funds. The SEC should encourage the development of PAFs by amending rule 14a-8(i)8 to allow shareowner proposals that would allocate corporate funds to PAFs that undertake to offer proxy voting advice, including advice on director nominees, that is made freely available to all of a companies shareowners. See examples at http://www.corpmon.com/corporations/proposals.html that could be substantially modified based on more recent experience with university and municipal governance to make them more easily implemented.

b. Changing the pop-up on proxyvote.com to allow for other choices besides voting for management?

This too would work best as an adjunct to CDV. A potential difficulty with the pop-up approach is, which choices should be offered? With Open CDV, there will be potentially hundreds of choices – too many for a pop-up. But the proxyvote.com pop-up could show the choices being selected by those retail investors who are using the full CDV system by rank and another alphabetically.

c. Allowing shareholders to “plug in” to a voting feed or electronic voting platform (e.g., by requiring companies to permit shareholders to direct the proxy card or VIF to the desired platform)?

Voting feeds and electronic voting platforms like Moxy Vote are not “comparable” to CDV. They are CDV – ways for clients to direct voting by giving standing instructions. I think the best design for CDV is the Open Proposal with voting feeds. It is scary to me that CDV systems that don’t allow shareowners to dictate where their electronic proxy ballots are to be delivered are actually being contemplated. NYSE rules already allow the shareowner to control delivery to a physical address, why would this not extend to electronic mailboxes?

2. Would you be in favor of additional regulation to facilitate the creation of public voting databases, such as data-tagging of proxy and vote filings and further relaxation of solicitation rules?

I would be in favor of data tagging mandates. They are a mild and inexpensive form of regulation, just a transparency requirement. In the long run, Open CDV will make it feasible to reduce many other more expensive and intrusive forms of regulation, that try to limit abuses by the agents in our corporate governance system. It is cheaper and more effective to empower the principals with a better information system.

I also favor relaxation of solicitation rules. That would be less regulation, not “additional regulation”. Certainly, it would be good to have clarification that making voting decisions known in advance of AGMs does not constitute solicitation.

Further Comments

The development and implementation of Open CDV seem to me both desirable and inevitable. The SEC Investor Advisory Committee has created momentum toward data standards (like XBRL) for proxy votes. General principles of free speech would support allowing anyone with an opinion on any proxy voting issue to share that opinion with others, such as in a voting feed published on the internet. When a range of well informed voting feeds become available, some brokers will start offering CDV, and retail clients at other brokers will start demanding it too. In “The Internet Will Drive Corporate Monitoring”, I described the inevitability this way: “Would you outlaw software that makes voting easy? Would you outlaw advice?”

Not only will CDV improve our corporate governance system, but “public” voting advisors will make agents more accountable to principals in corporations and in democracies. We will have competitive markets for shared information. Voting advisors that compete for public funds allocated by citizen vote in democracies are called “Voter Funded Media” or VFM. They make political leaders and bureaucrats more accountable to citizens.

The VFM system has been developed and tested at the University of British Columbia for the past four years – see “Global Voter Media Platform” at votermedia.org/publications. Its success provides a live illustration of how a new competitive voter information system can influence the older less competitive system, even when the older system has far more funding. If the new system is more closely aligned with the principals’ interests, it will put competitive pressure on the old system.

The established campus newspaper, The Ubyssey, receives an annual fee of $5 from each student, totalling over $200,000 per year. In the new VFM system, blogs compete for slices of an award pool averaging less than $10,000 per year for the past four years. Not surprisingly, the bloggers appreciate this support, even though they have to compete hard for a piece of it. The voting system does not guarantee positive shares for all; many receive nothing – see votermedia.org/communities/82-ubc-ams. Perhaps more surprising however, is the reaction of The Ubyssey’s Coordinating Editor Justin McElroy [Video interview, 2010-04-30]:

…the established media, the one that students are giving their money to, and are more or less bound to giving, you know, that media wasn’t doing its job, and so competition is always good. It ensures that people do their best, and try to break the stories first, and get that information out there. And from a simple standpoint of, does it ensure that The Ubyssey does a better job meeting the needs of students and getting stories out there, VFMs ensure that, because it provides accountability to us, simply because if a story’s out there by a VFM that’s better than ours before us, you know, we have egg on our face. So, we’re paid way more money, we have way more resources…

…the fundamental questions of whether, does VFM work for students? I think yes. Does it increase campus discussion and student engagement? I think absolutely. Does it ensure that established media, you know, does a better job? Yeah. Are students and is this campus better off because of that? Well, absolutely.

The new equilibrium is one of cooperative competition. The Ubyssey now cooperates with VFMs on joint news media productions. These media competitors often link to each other. Student journalists comment on their competitors’ news stories, and sometimes leave one media group to join a competing media group.

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How I Voted: SunOpta, Ballard, Sirius, RiskMetrics

Sorry to say my usual sources for voting advice had very little to say on several of my smaller companies. I found no advice on SunOpta or Ballard Power Systems, so voted with management on both. For Sirius Satellite Radio, I voted with Trillium… the only fund with votes posted to ProxyDemocracy.org. For RiskMetrics, I went with CBIS, again the only fund with votes posted to ProxyDemocracy.org. Unfortunately, it is at smaller companies where we really need “brands” to follow, since there is even less press coverage of their proxy issues. Better luck next year.

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How I Voted: Home Depot, Interface & Talbots

Home Depot: Since I’m only getting around to voting the day before the meeting I knew I couldn’t vote at MoxyVote.com but I went there anyway because it is very easy to pull up the proxy there. I also went to CalPERS but they had no voting advice on HD. I then went to ProxyDemocracy.org, which had collected the votes of five institutional investors.  Most voted for the directors and most of the shareowner resolutions, except the resolution from John Chevedden to reincorporate in North Dakota. Only AFSCME voted for that one. I went with their recommendations. I like the North Dakota resolution and have submitted it to several companies. I’d love to see a race to the top, instead of the current race to the bottom by states that pander to management, rather than shareowners. The North Dakota incorporation code facilitates proxy access, favors director term limits, restricts poison pills, requires separating the role of chairman and chief executive officer, permits votes on compensation, requires majority voting when electing directors, etc. Frankly I can’t understand why CBIS, Calvert and MMA Praxis voted against it. Likewise, the proposal to allow cumulative voting from Evelyn Davis got support from AFSCME, Calvert and MMA, but CBIS voted against it and Trillium and Domni abstained. AFSCME appeared to make the right choices down the line.

Interface, Inc.: Likewise, I’m voting late at Interface as well. I went through the same drill. Not surprisingly, CalPERS had nothing (so far, they are announcing in advance on only 300 companies). There weren’t any shareowner proposals. I’m fairly comfortable with the company. It has been hit hard by the building downturn. Domini and Trillium withheld votes from some directors. Along with Florida SBA, they also voted against amending the omnibus stock plan. I voted with Florida SBA. I wish we were able to drill down to see why funds are voting against various directors. If I could see their reasons, I might be more inclined to follow their lead… perhaps in the future.

Talbots: Third company of mine that is meeting tomorrow. I didn’t even bother checking CalPERS or looking up the proxy. There aren’t any shareowner resolutions. CBIS voted against the auditors but, of course, I don’t know why. The company appears to be turning around during the past year. So, I went with management and Florida SBA.

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How I Voted at EW Scripps, Dreamworks & Valeant

I procrastinated too long to vote at MoxyVote.com on these issues. They close voting three days in advance, since they are in beta and are want to be able to ensure against last minute glitches. I checked for votes at ProxyDemocracy.org and voted with Florida SBA at EW Scripps and Dreamworks. At Valeant, I voted with CalSTRS. I’ve got additional votes coming us at Home Depot and Interface. I hope to be getting more voting advice from MoxyVote.com and ProxyDemocracy.org by the end of the week or so.

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How Votes are Counted: More Important Than Who Votes at Plum Creek

Newground Social Investment won a first-of-its-kind vote at Plum Creek Timber, the nation’s largest private landholder. Their resolution, which got an 18% FOR vote asked the company to change its vote-counting practices. Plum Creek agreed to revise its vote-counting formula to remove Broker Non-Votes. The resolved portion of their resolution read as follows:

RESOLVED: The shareholders of Plum Creek Timber Company, Inc. (the “Company” or “Plum Creek”) hereby ask the Board of Directors to take the steps necessary to amend the Company’s governing documents to provide that all matters presented to shareholders for decision shall be decided by a majority of the shares voted FOR and AGAINST the item (or, as with director elections, shares voted for and withheld from voting for a given nominee). This policy shall apply to all matters unless shareholders have expressly approved the use of a higher threshold for specific types of items.

As the Soviet leader Stalin reportedly said: “I do not care who is allowed to vote, so long as I am the one who gets to count the votes.” While Plum Creek is no Joe Stalin, Stalin’s statement certainly highlights the importance of how votes are counted. The formula mandated by the SEC for determining resubmission eligibility is:


For decades Plum Creek counted votes this way:


Broker Non-Votes are all those shares held at brokerage firms for which the broker has not received any vote instructions from the shareowner. In many if not most instances where retail shareowners hold the majority of shares, Broker Non-Votes could represent the largest absolute number of shares in the equation. Until recently, if no voting instructions had been received by the broker by the 10th day preceding the stockholder meeting, brokers were permitted to exercise discretionary voting authority with respect to those “uninstructed shares” on matters considered “routine.” Several years ago that practice ended for shareowner proposals. This year it ended for uncontested director elections. Shareowner proposals and uncontested elections are considered important, not “routine” matters.

The rule change was intended to promote “better corporate governance and transparency of the election process.” After all, why should votes NOT cast be counted as cast in favor of the position of management and the current board? Although not allowing brokers to vote in place of shareowners who failed to vote, the Plum Creek formula in effect counted every one of these un-voted shares as having been cast in favor of management.

Though typically a much smaller category, Abstentions are also counted as having been voted in favor of management – though this is when the abstaining voter (who has marked, voted, and returned their ballot) has decided twice NOT to side with management.

As Larry Dohrs, Vice President of Newground Social Investment, puts it:

Counting abstentions in favor of management misrepresents voter intent.  This is because when a shareholder votes ABSTAIN they have already — on at least two occasions — chosen not to side with or to follow management’s recommendation.

Let’s step through the voting process. When logging on to vote, shareowners first see a prominent button to “Vote with the Board’s Recommendations” on all issues. (I discussed this and other issues that tip the voting scales in favor of entrenched management and boards in my post, Jim Crow “Protections” for Retail Shareowners, 4/19/2010.)

First, an abstaining shareholder declines that offer to vote with the Board, and moves instead to consider each matter independently.

Next, alongside every shareholder-sponsored proposal, the abstaining voter finds the Board’s unanimous recommendation to vote AGAINST the resolution.

The abstaining voter again decides to not follow management’s clear recommendation, and instead chooses the ABSTAIN box.

By including them in the denominator, Plum Creek lays claim to these abstaining votes, when in point-of-fact the abstaining voter has clearly not been swayed by nor agrees with management’s position on the matter — and has twice demonstrated this by how they voted their proxy.

Adds Herbert: “Plum Creek, counting abstentions as it does, directly thwarts the abstaining voter’s intent.”

Since the 1930s when Lewis Gilbert won the right for shareowners to present issues to a vote by their fellow shareowners, concerned investors have seen the positive effects that derive from shareowners having a fair opportunity to present new ideas and perspectives to management via the shareholder resolution process.

Plum Creek’s vote-counting procedures have for decades effectively de-railed this SEC-sanctioned process.  Though in response to this shareholder resolution the company offered a new vote-counting formula that removes Broker Non-Votes, it continues to count Abstentions in favor of management – which falls short of the SEC standard. Their new counting formula is: FOR / FOR + AGAINST + ABSTAIN 

Notes Herbert: “This new formula, while much better, is still not entirely fair – it is only less unfair than before.” While we congratulate Bruce Herbert, Larry Dohrs and others who worked on this effort at Newground, we hope they will come back with the same resolution next year and every year until Plum Creek takes its thumb off the voting scale. There is no reason for corporate elections to be counted unfairly. This is the United States of America. Votes should be counted as they are cast, not as an entrenched board or managements wishes they were cast.

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How I Voted at Goldman Sachs & 3M

At Goldman Sachs I voted down the line with AFSCME, with the help of ProxyDemocracy.org: withholding my vote from four directors, voting against the auditor and voting for all the shareowner resolutions, except one. You might think from its title that “Report on Global Warming Science” would be a something positive. It is not. Unfortunately, because I waited so long, hoping to get more voting advice from CalPERS and others, I couldn’t vote my shares using MoxyVote.com, so used the Broadridge platform, ProxyVote.com.

Thanks to Evelyn Y. Davis for the proposal on Cumulative Voting; the Maryknoll Sisters of St. Dominic for the proposal Regarding Collateral in Over-the-Counter Derivatives Trading; Christian Brothers Investment Services to Separate Chair & CEO; Domini Social Investments for their proposal Regarding a Report on Political Contributions; the Benedictine Sisters of Mt. Angel Regarding a Report on Pay Disparity; and John Harrington for his proposal Regarding Executive Compensation and Long-Term Performance. It is a difficult time to own Goldman Sachs. They aren’t used to be a public company. With shareowner input, I’m sure they can become an asset to our economy and still make money both for the forgotten shareowners and management.

For much more on these resolutions and quotes from proponents, read Goldman Sachs Faces the Music: Five Major Shareholder Resolutions From Religious, Socially Responsible Investors Reflect Main Street Values Amidst Concerns About Wall Street Abuses.

At 3M I couldn’t find any voting advice from my usual sources. I voted mostly with management except I voted against Buckley, Coffman, Farrell and Peters based on concerns raised by The Corporate Library. In addition, I voted in favor of Nick Rossi’s proposal to amend the bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call a special shareowner meeting. Working with John Chevedden, I’ve submitted similar proposals at other companies and view such provisions as essential to ensuring adequate shareowner voice, especially in case of emergency. I voted using MoxyVote.com.

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How I Voted at Winmark, Rovi, Under Armour, Fluor and Waste Connections

Busy week coming, so I used ProxyDemocracy.org on Sunday mostly to research how my favorite “brands” voted and  MoxyVote.com to vote. Here are the results:

  • Winmark – I got no voting advice from my usual sources, so voted with management’s recommendations.
  • Rovi – I voted with the recommendations of Florida SBA and management’s recommendations.
  • Under Armour – I voted with CalSTRS, withholding my vote from several director nominees.
  • Fluor – I voted with Florida SBA in favor of the proposal from the Central Laborers’ Pension, Welfare & Annuity Funds (Jacksonville, Illinois) resolution to adopt a policy that the board’s chairman be an independent director who has not previously served as an executive officer of Fluor.
  • Marriott International – I voted with Florida SBA, withholding from a couple of directors.
  • Waste Connections – I voted with management.

Upcoming are 3M, Goldman Sachs, Valeant, EW Scripps, Dreamworks, Interface, Home Depot, Sirius XM, among others. Any voting advice from readers on these issuers?

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Reform Indian Corporate Governance Practices

Shubi Arora begins a three part report on the Asian Corporate Governance Association (ACGA) White Paper on Corporate Governance in India. The need for improvement in Indian Corporate Governance Practices: Part I, 4/12/2010.

It concluded that while India has enacted numerous reforms in corporate governance, especially in the area of company boards, independent directors, and disclosure and accounting standards, certain critical areas, such as shareholder meeting and voting procedures, regulation of affiliate transactions, issuance of preferential warrants, and quality of corporate disclosures, are in need of further improvement.

Many Indian businesses family-based, hesitating to relinquish control.  Second, punitive tax rates encouraged widespread tax evasion and other practices that have taken years to reform and even longer to change culturally.  Additional regulatory reforms are needed to address shareowner meeting and voting procedures.

First, detailed agendas for shareholder meetings are often not easily available.  Many companies neither upload these documents to the websites of the two main Indian stock exchanges (the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE)), nor do they make them clearly available on their own websites.  Second, votes are customarily counted in India by a “show of hands” rather than by a “poll.”  This former method effectively gives each shareholder an equal voice regardless of the number of shares it owns.  But the inequity does not stop there.  Under Indian law, proxies are not allowed to speak at meetings or vote on a show of hands.  Even though they can vote on a poll, since voting by a show of hands is the norm, the proxy votes of shareholders who cannot attend meetings are seldom counted.  Third, the lack of voting by poll also means a lack of detailed information on the results of meetings.  Even if polls are called, the results are not always published on the company’s website because there is no legal requirement to do so.

These practices remind me of those in the US that existed widely in the mid nineteenth century when one shareowner, one vote often prevailed. While one-vote-per-share rules creates a democracy of shares, common law used to involve a democracy of shareowners, much like current practices in India involving votes by a “show of hands.”

Before adopting ACGA recommendations, India may want to take a closer look at practices among the Eurofirst 300 index. Some 20% of those companies have oligarchic voting rules that give more voting rights to a small group of shareowners, often family members. On the other side of the equation, 15% provide for voting rights ceilings, ranging from 2% to 30% of votes, which serves to disperse power among shareowners. See Social Conceptions of the Corporation: Insights from the History of Shareholder Voting Rights by Colleen A. Dunlavy.

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Proxy Preview 2010

Proxy Preview is an annual publication that focuses on upcoming social and environmental shareholder proposals. However, it also includes some information on governance proposals as well. It was initiated to help foundations and endowments better align investment and mission but it is useful for other organizations or individual shareholders. The Proxy Preview is published by As You Sow Foundation with support from Jessie Smith Noyes Foundation, Educational Foundation of America, Foundation Partnership for Corporate Responsibility and the Singing Field Foundation.

Michael Passoff, Sr. Program Director, Corporate Social Responsibility Program, As You Sow Foundation authored the review, with substantial input from a large number of institutional shareowner advocates. Passoff broadly covers the types of proposals, major players, reviews 2009, discusses trends, identifies the hot topics by category, provides a good discussion of aligning mission with values, a fairly comprehensive list of resources and concludes with a list of votes coming up in the Spring of 2010.

The average vote for social proposals has more than doubled over the last decade. At the same time, there has been an increase in constructive dialogue. In 2009 less than half of the social proposals filed actually made it on the proxy.  Most were withdrawn by proponents as a result of negotiations. For the fourth year in a row, Say on Pay is the dominant governance issue. Nearly 60 proposals were filed by the end of Marh on the topic of Political Donations, 47 came from the Center for Political Accountability. Sexual Orientation Non-Discrimination and Climate Change continue as strong issues, while new topics include the Troubled Asset Relief Program (TARP), Coal Ash, Hydraulic Fracturing, and Internet Privacy.

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AFL-CIO Key Votes

Since 1997, the AFL-CIO’s Key Votes Survey has helped pension fund trustees fulfill their fiduciary obligations to monitor their investment managers’ proxy voting performance. The proposals included in the Key Votes Survey are submitted by a variety of union-sponsored and public pension funds, employee shareholders and other investors and are consistent with the AFL-CIO Proxy Voting Guidelines. The Key Votes Survey is a record of how investment managers, mutual fund and proxy voting consultants voted the shares they manage on behalf of worker funds on key issues at annual meetings during the proxy season.

Those with low scores are unlikely to find labor-based funds lining up for services. See results from the 2009 AFL-CIO Key Votes Survey.

Updates to the 2010 scorecard will be distributed as data becomes available. I see that one of the proposals on this year’s scorecard has already been voted. Shareowners at Whole Foods approved a resolution from Amalgamated Bank’s LongView Funds to roll back a bylaw change that directors put in place a few months after the SEC closed an investigation into the online chat activities of  John Mackey in April 2008. The proposal would permit sharewners to remove a director either “with or without cause.”

When they lowered their standards to with cause only, the board redefined “cause” narrowly as covering only a criminal indictment or a judicial finding that a director had breached his or her fiduciary duties to the Company or was not capable of performing a director’s responsibility. The proposal won 53% support. Over the next several months, we will see how the other scorecard resolutions fare.

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0.3% of Directorships Voted Down in 2009: Will 2010 Be Different?

The Corporate Library announced a new enhancement to its Board Analyst® product:  the ability to visually flag specific areas of potential concern for individual directors. (‘Director Flags’ Zero In On Potential Areas of Concern for Individual Board Members, The Corporate Library Blog, 3/8/10)

With the end of “broker voting” for directors and the adoption by many firms of majority vote requirements, shareowners finally have an opportunity to make a difference. However, doing so is difficult because board activities still go on inside what amounts to a black box. In 2009, only 95 directors out of 30,000 positions covered by Board Analyst® failed to get a majority vote. Reviewing area of possible concern, they found the following:

  • 2,712 individuals who are over 70; 283 who are over age 80; and 10 who are over age 90.
  • 4,588 directorships whose tenure is greater than 15 years and 1,187 whose tenure is greater than 25 years.
  • 1,257 directorships where the individual director is over 70 AND his or her tenure is greater than 15 years.
  • 3,468 directorships where a director with more than one year of tenure holds no shares in the company, including 1,108 where a director with more than five years of tenure holds no shares.
  • 93 directors who sit on more than four corporate boards, and thus may be over-boarded.
  • 187 CEOs who sit on more than two corporate boards, and thus may be over-boarded.
  • 3,461 directorships categorized as “Outside Related”, indicating a possible conflict of interest.
  • 272 directorships where the individual has previously failed to meet minimum attendance standards.
  • 95 directors who did not receive support from a majority of shareholders at 2009 elections.
  • 1,070 directors who sit on two or more boards assigned a D or F rating by The Corporate Library.
  • 702 directors who have been flagged by The Corporate Library as having been involved in a previous corporate bankruptcy or other failure, including 21 who have been involved in more than one such failure.

No one is saying all these directors should be turned out of office but surely there must be more than 95 out of 30,000 director positions that don’t deserve an A or B and who wants mediocre directors representing shareowners? What excuse can any director have for not holding any shares in their company after five years on the board? Will 2010 be a turning point? The Corporate Library is offering tools that help, if only institutional shareowners would use them. Better yet, they should vote and announce their votes, and the reasons for their votes, two weeks before the annual meeting, so that retail shareowners can copy their brand.

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