Tag Archives | ProxyDemocracy.org
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 →
In remarks before the National Press Club, the CEO of Broadridge, the nation’s largest shareholder communications company, called on all CEOs to encourage individual shareholders, including employee shareholders, to vote their proxies.
In 2010, just one in 20 individual retail investors voiced their opinions about the companies they invested in by exercising their fundamental shareholder right. That compares to recent historical levels four to five times as high. Public companies need to understand the seriousness of this issue and act to reverse this troubling decline to get each of their individual investors — and all individual investors generally — engaged with their companies.
Richard J. Daly went on to explain that as an initial step in an overall strategy to increase individual shareholder voting, he is calling on CEOs of American businesses to
join with us in launching a nationwide effort to encourage their employees — numbering in the tens of millions — to exercise a fundamental shareholder right — and need — to vote their proxy ballots, whether it be proxies relating to their employer or proxies relating to other companies in which they invest
As part of the effort, he is contacting the chief executives of America’s top 1,000 public companies to encourage them to motivate their employee shareholders to vote their shares. Broadridge will inform shareholders —- within the constraints of regulatory boundaries —- that they have the ability to take action online, eliminate the paper, have all information stored in any format they want, have access to it anywhere they want and vote at any time they want, even on such new devices as Android™ phones and the iPad®.
A relatively small increase in voting participation by employees could meaningfully increase individual investor voting participation from 5% per year to 20% or more per year. Companies that can distinguish their investors’ opinions from others’ will more easily have the strength and confidence to stay on course and create value. There is no greater show of support than the ballot, or in this case, the proxy.
While I certainly agree with Daly that steps need to be taken to ensure more retail shareowners vote, I didn’t like the thrust of his remarks, which appeared to assume that more retail votes would mean more votes for management… or am I reading too much in when he says:
Better to hear from actual owners — whose interests are likely aligned with the company — than from outsiders whose agendas may be in conflict with shareholders’ long-term interests.
Additionally, it would have been nice if he would have emphasized the usefulness of sites that help inform shareowners on the issues.
- Mutual funds & proxy voting: Proxy Democracy.
- ESG issues: Social Investment Forum.
- Vote proxies: MoxyVote.com.
- Rate information providers: VoterMedia.org.
- Network & Lobby: Shareowners.org & US Proxy Exchange (USPX).
- Keep up on the latest issues: CorpGov.net.
If it is a public relations move that Daly is after, he might recommend that companies take a page from Prudential Financial. They’re rewarding their voting shareowners with totebags or by planting a tree. Last year, the company got an additional 68,000 shareowners to vote, mailed 120,000 bags and planted more than 112,000 trees.
This year, Prudential added information in its proxy materials on sustainability, corporate citizenship and shareowner engagement. Shareowners who cast their proxies online can view the directors’ bios and the supporting statements for shareowner proposals. More importantly, Prudential’s board supported a shareowner proposal from John Chevedden to eliminate the company’s supermajority voting provision.
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.
Schlumberger, one of the stocks in my portfolio of about 50 companies, has an Apr 06, 2011 Annual Meeting coming up. I’ve decided to vote early this time, since I’m in New Orleans and may be too busy to research much while there. I checked in with MoxyVote.com, ProxyDemocracy and OTPP.
MoxyVote had no recommendations as of 3/29, as I post this, but I expect they will soon. OTPP voted against the proposal to increase authorized common share capital. I voted with them on that issue. At ProxyDemocracy I see that Trillium voted against all directors. Maybe they’re doing it because Schlumberger is second only to Halliburton in providing fracturing services to natural gas companies? I don’t know.
Florida SBA voted against Tony Isaac and K. Vaman Kamath. AFSCME voted against Chairman and CEO Andrew Gould. I went with these recommendations. Maybe it is just me but $9 million in options awarded to Gould last year on top of the rest of his pay for a total of about $15 million just seems over the top.
For say when on pay, I went with annual, along with disclosed votes by CBIS, Florida, Trillium and AFSCME. When I checked on 3/27 ProxyDemocracy was showing that CalPERS voted with management for a frequency of every two years. However, after contacting CalPERS I learned they actually voted for annual voting on SWOP. Both parties looked into the glitch and as of 3/28 it was fixed.
I also voted against the officers compensation proposal. As I said before, $15 million for Gould seems over the top to me. I’m not sure where the cut-off point is for reasonable pay but as long as shareowners approve such packages the averages will keep ratcheting up and the disparity between the top 1% and the rest of us will continue to grow. We need to ratchet down the Lake Wobegon effect.
For all other proxy items, I voted with management using the MoxyVote platform.
I waited until almost the last minute hoping to get proxy advice from my usual sources, ProxyDemocracy.org and MoxyVote.com. However, little has been forthcoming… nothing from Proxy Democracy as I write this.
Based on Moxy Vote information and recommendations from As You Sow, I went ahead and voted against two directors: Howard Schultz and Javier G. Teruel. I voted along with the As You Sow recommendation at Moxy Vote in favor of the shareowner proposal to Adopt Comprehensive Recycling Strategy for Beverage Containers. Starbuck’s is doing more than many companies in this area but I want to stress the importance of going even further, both for the environment and to project the right image for companies in which I want to continue to be a long-term shareowner.
I was able to find how Florida SBA voted, so went with them and voted against amending the omnibus stock plan. I understand their advance votes will soon be recorded at MoxyVote, which may finally make that platform a one-stop-shop, since it will give them the depth and breadth of the 4th largest public pension fund.
All of my other votes were with management.
During the next several months, most corporations will be sending out their proxies (ballots) and holding their annual meetings. Individual shareholders own about 30% of the stock in US markets but few bother to participate, even though we often feel corporate managers have too much power and too little accountability.
When we fail to vote, we essentially turn our assets over to management. Most of us feel we should vote but we also think voting is too complicated and time consuming. Since we only hold a few shares, we often think that failing to vote won’t have any consequences.
Recent changes allowing corporations to e-mail and post proxy materials on the internet have dramatically reduced the proportion of shareholders voting to as little as 5%. (Apparently, it is easier to ignore a stack of e-mails on your computer than a stack of paper on the dining room table.) However, the internet also makes it much easier to vote in corporate elections and to vote intelligently.
There are literally thousands of sites for investors (here’s a few), ranging from brokers to associations to scam artists. Mostly, they focus on
- stock picking,
- allocating your investments, and
- when to sell.
While these are important issues, what’s new are sites on how to be an owner. Voting is how we hold corporate directors and managers accountable. Obviously, shareholders haven’t done a great job, especially at the banks. Voting is the cornerstone of good corporate governance. All the rules of Washington can’t save us from future Enrons and stock bubbles if shareholders don’t start acting like shareowners instead of gamblers.
Some say shareowners should leave everything to trusted financial advisors. What, like Bernie Madoff? Or we could just trust in the management of the companies we invest in… but their interests are often different from ours. We may not approve of the $6,000 shower curtain at Tyco or the unprotected derivative bets at AIG.
Institutional investors own about 2/3 of the market. Should we just leave voting up to them? After all, they have a fiduciary duty to vote and they have the resources to investigate the issues. Unfortunately, many also have potential conflicts of interests. For example, mutual funds don’t want to vote against corporate managers who may decide who will run the company’s 401(k) plan. That’s potential business a mutual fund doesn’t want to lose.
Additionally, the average turnover of stock, mostly by institutional investors, is huge. For NYSE listings it was 130% in 2008 and 250% in 2009, meaning the average stock was bought and sold 2 ½ times in 2009. Owning Intel 30 times in 10 years isn’t really being what I’d call a long-term owner. Most of us hold our stocks longer.
We’re usually in for the long term but since we generally only hold a small portion of the stock in any one company, we lack the economic incentive to buy expert advice or spend the time ourselves analyzing complicated proxy issues like shareowner proposals, board elections, executive compensation, mergers etc.
Until recently, being an actively involved shareowner was impractical for most of us but just like social media sites like Facebook are bringing people together, several new internet sites are making proxy advice obtainable for free. Here are five sites worth exploring:
1. Corpgov.net is my blog. For over 15 years I’ve discussed major trends and have provided links to dozens of activist or aggregator sites so that investors can join forces or research what other shareowners are doing.
2. ProxyDemocracy.org aggregates, displays and automatically e-mails to subscribers proxy votes announced in advance by respected activist funds like CalPERS, CalSTRS, Calvert, CBIS, Domini, Florida SBA, AFSCME, Trillium and others. Using ProxyDemocracy.org, you can copy the voting behavior of these trusted “brands.” The site also rates funds on how they vote on issues involving: director elections, executive compensation, corporate governance and corporate impact. So, if you know what issues concern you, you can use that information to help you decide whose votes to copy and which mutual funds to buy.
Another feature of ProxyDemocracy.org is that they will tell you when they have collected votes for upcoming proxies on the stocks in your portfolio (if you give them your e-mail address and name the stocks). Because of the breath and depth of the activists funds it follows, you’ll almost always be able to see how at least some funds are voting. Unfortunately, you can’t vote your shares directly on ProxyDemocracy.
3. Moxyvote.com has dozens of “advisors,” mostly socially responsible mutual funds, unions, environmental groups and public interests groups who take a stand on various proxy issues. At Moxy Vote you can actually get voting advice and vote on the same site, using the pin number you get from your broker. Easier yet, you can also have your broker deliver your proxies directly to Moxy Vote.
If you choose that route, you can even set up voting defaults based on the recommendations of your chosen advocates. That way if you don’t vote your proxy or override your defaults, the system will automatically vote with your advocates. For example, mine are set up to look first to the Investor Environmental Health Network, if they haven’t taken a position on the proxy item, my vote will be cast per the Center for Political Accountability. If they don’t have a position it moves to my third choice and on down the line. Unfortunately, many of the advisors on Moxy Vote are focused narrowly and hold few stocks. They won’t give you advice on every stock you hold or on every issue at the companies where advocates have taken positions.
4. Shareowners.org is an advocacy site aimed at getting shareownrs to lobby Congress on various issues. Advice on voting at specific companies is limited but like Facebook, it is a great place to share announcements and commentaries with others.
5. The United States Proxy Exchange (proxyexchange.org or USPX), like Shareowners.org, is an advocacy site. However, USPX not only involves members in lobbying efforts, it also involves them in analyzing developing policies. Want to learn how to file resolutions? Present resolutions at local companies? Put your expert skills to good use? USPX provides training and multiple points of entry to baby-boomers and young people alike who would like to see their ideals put into action.
Maybe the app will be renamed iVote.
Companies who want to encourage shareholders to vote on corporate resolutions publicized in proxy statements can do so next year, by allowing them to cast votes on their iPads, iPhones, Blackberries, Android or other smart handheld devices.
Broadridge Financial Solutions said that it will make its ProxyVote.com software available early next year on mobile data devices such as smartphones and tablets.
The software is already available for use on personal computers. The move to mobile devices is “to improve and encourage more shareholder voting and enhanced shareholder communications,” said Joseph Vicari, Vice President, Business Strategy and Development, Broadridge. via Voting by Phone, in Corporate Elections. Thanks to Gary Lutin for heads up on this article.
Attention: Anyone out there building the iVote app, please build in automatic interfaces with ProxyDemocracy.org and MoxyVote.com. Great to enable voting by phone but even better to enable intelligent voting. Shareowners need information on the people and the issues before they vote.
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.
Before voting American Capital Ltd. (ACAS) I checked at ProxyDemocracy.org and saw how CalSTRS is voting. I voted with them against Harper, Lundine, Peterson, Puryer, stock option plan and against the issuance of convertible securities. CalPERS did not post how they are voting. I found no “advocates” at MoxyVote.com. Although I would be happier knowing how others are voting or why CalSTRS is voting the way they are, I still trust their judgment with respect to how to vote than I do the soliciting committee at ACAS.
I also checked to see if the blank vote problem with respect to director elections had been modified at Broadridge’s ProxyVote. It hasn’t. Dodd-Frank requires the rules of the exchange to “prohibit any member that is not the beneficial owner of a security… to vote the security in connection with a shareholder vote…(with respect to the election of directors)… unless the beneficial owner of the security has instructed the member to vote the proxy…” I don’t know if this lapse is because this provision of Dodd-Frank only takes effect when the Exchange changes its rules and they are approved by the SEC or what. (see Open eMail to NYSE Re Blank Votes)
When using Broadridge’s ProxyVote system, if I vote but fail to indicate how I’m voting on a director (or any other issue), the next screen shows that I’m voting for the director with a little asterisk next to my new vote and a note elsewhere on the screen indicating votes left blank are voted per the “soliciting committee.”
Voting on MoxyVote.com is slightly different, even though my understanding is that Broadridge still process the votes. At MoxyVote.com my ballot was pre-marked, all in favor of management. (I presume if one of my selected “advocates” recommended how to vote on the proxy that would override the default.). At least on the MoxyVote.com system you can clearly see how your vote will be recorded on both the first and second screens and that there will be no blank votes, since if you don’t change the vote, it will be voted for management (per the soliciting committee).
I wonder if MoxyVote.com could legally set the default at Abstain, even though SEC Rule 14a-4(b)(1) says that “a proxy may confer discretionary authority with respect to matters as to which a choice is not specified by the beneficial owner or security holder”? It seems to me that MoxyVote.com could consider that a “choice” specified by the beneficial owner, since they are warned and must check a box before finally approving their correctness of their vote before it is recorded.
Before going live with this post, I contacted MoxyVote.com and learned what I had forgotten when I set my preferences. Actually, their system does allow users to set defaults to vote with or against management or to abstain. I went back in and set mine to “abstain.”
How to: Login and go to “preferences.” At your preferences page, look down the left hand side at the bottom under your priority cue – it says “Prioritize and manage” in a big red button – hit that button. Then at the bottom of that page you will see a drop down menu; select always vote with, against or abstain. You get to choose.
While I wouldn’t want to set these limited preferences and forget them, I like this option much better than what Broadridge offers on ProxyVote. At MoxyVote.com is is harder to space out because on the first screen I see everything filled out. If I do space out, my “blank” votes no longer go to management, since I set my default to abstain.
According to the SEC, “client directed voting” will be included in a forthcoming concept release on “proxy plumbing” issues and SEC Chairman Mary L. Schapiro now indicates review by the Commission is forthcoming (see this post on the Forum). It is critical that shareowners become familiar with this term. The SEC can shape their concept release to facilitate entrenchment, by essentially reestablishing a limited form of broker voting, or their framework can further the interests of shareowners and the larger society through an open and competitive system.
Historically, most retail shareowners toss 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 a good portion of the broker-votes cast in their favor that evaporated with recent reforms. An open form of CDV, could result in similar impacts but would also create much more thoughtful and robust corporate elections.
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. The agents in our corporate governance system include CEOs, boards of directors, institutional investors, proxy advisory firms, compensation consultants, etc. An “Open Proposal” on CDV will improve the accountability of all these agents to the principals by empowering retail investors with better information and voting tools.
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. Looking back at the origins of the concept, on October 24, 2006, the NYSE filed a proposed rule change with the SEC to eliminate all broker voting in the election of directors. Two months later in December 2006, Steve Norman presented a proposal called Client Directed Voting to an investor communications conference.
The case for CDV was again made on the Harvard Law School Forum on Corporate Governance and Financial Regulation by Frank G. Zarb, Jr. and John Endean (available here). Similar to Norman, the voting options presented were severely restricted to the following: (1) in proportion to other retail shareholders; (2) in a manner consistent with the board’s recommendation; or (3) in a manner that is contrary to the board’s recommendation.
John Wilcox’s post several weeks later, Fixing the Problems with Client Directed Voting, helped to expand and popularize the concept beyond Norman’s initial concept with a much more open proposal.
Shareowners and the SEC would be well served to review the work of Mark Latham, a member or the SEC’s Investor Advisory Committee, who proposed something similar to CDV at least as far back as the year 2000. See The Internet Will Drive Corporate Monitoring and other papers on the VoterMedia.org Publications page). In stark contrast to Norman, Latham’s proposed system is open and competitive, using a market-driven framework. This post builds on his work, especially Latham’s recent post, Client Directed Voting Q&A, also found on the VoterMedia.org site.
How Open CDV Would Work
Open 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 proposals in the context of a company’s particular circumstances. They have specialized staff for that review, some in-house, some out-sourced. Likewise a few retail shareowners will read proxies, but most will not. Those who do not read them can increasingly be informed by those who do and by voting announcements posted on the Internet.
With an Open Proposal, anyone can create a voting feed, just as anyone can now 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 his article The Internet Will Drive Corporate Monitoring, Latham called remixed feeds “meta-advisors.”
Engagement requires either a fiduciary obligation, which we won’t have for retail shareowners, the perception of value in the process (which may take years to establish) or passion around relevant issues. Of the three, passion around relevant issues will be the easiest to ignite.
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. More people will choose voting advice around policy concerns, like global climate change, than around procedural concerns, like whether or not the roles of board chair and CEO should be split.
A small but important percentage of retail shareowners will get more involved in helping to determine voting feed reputations. They will compare feed quality and issue/value identification by such means as creating focus lists at ProxyDemocracy.org. See, for example, this page.
Most retail investors will only pay attention to the best-known voting feeds. A small minority of institutional and retail investors, along with writers in the financial media, are likely to become the most influential opinion leaders helping to determine public reputations, and thus which of potentially hundreds of voting feeds deserve to be followed.
Investors should be able to choose voting feeds and instruct our brokers to implement them for our shares. That is powerful because it takes little time, yet can implement intelligent voting based on reputation – just as the reputations of carmakers and computer makers are widely available and influence our purchases.
There is already a healthy base of “brands” developing with Domini, Calvert, Florida SBA, CalSTRS, CalPERS and others announcing a growing number of their votes in advance of annual meetings. In addition, there are plenty of other sources of voting advice besides institutional investors, many of which focus on a limited number of issues and many can already be seen at MoxyVote.com.
Moxy Vote has already built an open CDV platform on a relatively low budget. Proxy Democracy and Transparent Democracy can be readily enhanced to include voting capability if the SEC adopts additional data standardization and if cost reimbursement is forthcoming from issuers. See comments submitted by MoxyVote.com to the SEC here.
Essential Elements of Open CDV
The key issue in any open CDV system is to let shareowners control where their electronic ballots are delivered. Just as there is no question shareowners can control where hardcopy ballots are delivered, there should be no question they can direct where their electronic ballots are delivered. This simple requirement would insure third-party content providers an opportunity to compete and improve the quality of voting advice.
Additional elements for a more effective CDV system include:
- A wide range of voting opinion sources that will eventually cover all issues;
- Open access for any new opinion sources to publish their opinions;
- Open access for shareowners to choose any opinion source for our standing instructions on voting;
- Sufficient funding for professional voting opinion sources that compete for funding allocated by retail shareowner vote (or by beneficial owners of funds that may choose to “pass through” their votes).
Under an Open Proposal, feeds will offer the ability for retail shareowners to essentially build a “voting policy,” just as institutional voters are now able to do. That model will increase participation and voting quality. We shouldn’t ask shareowners to affirm every single pre-filled ballot. That could be a deal breaker for people with stock in many different companies who would rather spend their time on other activities.
Third-party CDV systems, like Moxy Vote, will allow investors to create hierarchies of voting instructions. (Vote like X. If X hasn’t voted the item, vote per Y. If Y hasn’t voted, vote per Z, etc. Eventually, these systems could become very complex. Vote like X on issue A; vote like Y on issue B, also specifying defaults if either X or Y don’t have votes recorded.)
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 annual meetings a new meaning. See Investor Suffrage Movement by Glyn A. Holton.
In the 1940s and 1950s thousands of shareowners frequently showed up for shareowner meetings because they frequently deliberated issues and some of those in attendance held substantial proxies from others. Lewis Gilbert, for example, was often given unsolicited proxies, which he used to negotiate motions at meetings.
Impact of Open CDV
We are a long way removed from those days and advance notice requirements would preclude much of the activities Gilbert made famous. Voting at meetings is important, but having a say in setting the agenda on what will be voted on is even more powerful. If a significant number of proxies are assigned to others or thousands of shareowners routinely follow specific voting advisors or institutions, leading voices can actually begin to influence how agendas for annual meetings are set.
An Open Proposal will increase both the quantity and the quality of voting by both retail and institutional investors. Ease of voting and the ability to align with valued brands will drive quantity. Increased quality will result from competition between voting opinion sources for reputation in the eyes of investors. Opinion sources will include institutional investors, retail investors, bloggers, activists and professional proxy voting advisors funded by new mechanisms discussed later in this article.
An Open Proposal will cause retail shareowners to engage in proxy voting because it offers several new and powerful ways for us to do so, while respecting our other interests and time constraints.
Additionally, institutional investors will begin to discuss their votes with each other more frequently, as well as with beneficial owners and funds. This is already happening. I have personally initiated such dialogues with several funds and have increasingly been met with a favorable response. As funds learn how and why other funds are voting, many are open to reexamining their own position.
Director elections in particular will be more closely watched, once shareowners gain a sense of empowerment. Prior to nascent CDV sites, we had little or no basis for voting against or withholding votes from individual directors. Soon we will be able to drill down through recommendations to discover which directors are over-boarded, miss meetings, have potential conflicts of interest, were on compensation committees that overpaid executives, etc. Funds will increasingly provide the reason for their votes, since that will drive more investors to vote with them. When a fund discloses not only their vote, but also the reason for their vote, investors get a better picture of their values and we begin to trust given “brands” as consistent with our own values.
Limiting CDV to only selected situations, like uncontested elections, would only lessen the benefits of CDV, so I don’t recommend imposing any such limits. It would be better not to establish any CDV through regulations that severely limits voting options, since once such systems are enacted they will be difficult to amend, given that those who benefit from such limitations will be in an even stronger position to fight opening up the process.
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 specified voting feeds. Preferably, systems should allow users the ability to override standing instructions in any given situation. Competition among voting feeds will encourage those who create them to constantly improve their voting quality and reputation. One improvement is to adapt their analysis and voting decisions to the significant variation among proposals on any given matter. Another is to create industry specific analysis. Analysis could also vary by a company’s maturation and/or a great many other factors. Deeper levels of analysis are more likely with open CDV systems that enhance competition.
The default choice should either be whatever the shareowner selects or it should be a “not voted” vote, just like if a voter fails to mark an item on the proxy, that item should be left blank, although it is now often counted in favor of management. (See my petition to the SEC for a rulemaking on “blank votes” here)
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).
Brokers/banks should not be forced to take on CDV design responsibilities. Other third-party specialist firms will probably do a better job. The key is to ensure that brokers or their agents deliver ballots to whomever the shareowner directs. Of course, it would also be a plus if brokers and banks would make their clients aware of the available options.
Competition for Funds Would Enhance CDV
I would recommend an ongoing competition open to providers of investor education, which would compete for funding allocated by retail investor vote. This could be limited to education about voting issues (informing 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, see Mark Latham’s Voter Funded Investor Education Proposal (November 30, 2009).
This would benefit all retail investors. Since the benefit is shared broadly, it should not be paid by individual retail investors, but rather through funds that we own collectively – corporate funds. There are several possible ways of arranging this. One example is Mark Latham’s Ultimate Proxy Advisor Proposal (June 1, 2010).
Under that proposal, companies pay voting advisors selected by their shareowners. Since there are no “free riders” and the advice is essentially paid for by all shareowners, we can pay much more for proxy research on our companies than current proxy advisors typically allocate. Additionally, the advice we get is less likely to be of a “box ticking” nature, more likely to be industry and company specific.
The SEC should encourage the development of shareowner selected proxy advisors by amending rule 14a-8(i)8 to allow shareowner proposals that would allocate corporate funds to those who undertake to offer proxy voting advice, including advice on director nominees, that is made freely available to all of a company’s shareowners.
In the near term, the entrenched agents in our corporate governance system may try to prevent investors from using our funds to empower ourselves this way, so enabling regulations from the SEC and public funds may be helpful to get started. Public funds earmarked for retail investor education and advocacy could be used for the first such initiatives.
Cost categories for CDV 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. As previously mentioned, voting opinion websites have already started appearing (ProxyDemocracy.org, TransparentDemocracy.org, MoxyVote.com). 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.
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.
NYSE rules currently require payment by issuers for the cost of voting electronically but issuers may not always be making such payments to CDV platforms like Moxy Vote. See NYSE Rules 450-460 pertaining to proxy distribution, available here. 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 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 be amended to apply to Issuers when shareowners choose to take delivery of proxies or to vote through sites like Moxy Vote, RiskMetrics, Glass Lewis and ProxyGovernance.
The fees that Broadridge is charging to electronic voting platforms (RiskMetrics, Glass Lewis, ProxyGovernance, Moxy Vote, 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. However, I understand that Broadridge charges on the order of 10X for electronic vote collection from these platforms than it is permitted to charge the issuers.
If Broadridge is offering a “value-added” service to these electronic platforms, where is the “baseline” service that costs less? 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)
My understanding is that fees are charged to electronic platforms on a “per ballot” basis (generally one fee per position per year) and that 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 and many more per ballot transactions, relative to shares voted.
This is, in effect, becomes 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 Moxy Vote 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 Proxy Democracy, would ever be able to offer users the option of voting on a Proxy Democracy platform. Such costs need to be eliminated or minimized if a robust open CDV system is to mature.
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. That would be a simple way of beginning to address the cost issue. The most fundamental point regarding costs is that issuers should bear the actual cost of voting, not shareowners or CDV systems.
An open CDV system improves corporate governance because voting advisors will make it easier for shareowners to meaningfully participate in voting, without having to read through proxies. Open CDV systems do this by allowing shareowners to informally build individualized proxy voting policies, much like formal policies maintained by many institutional investors. Unlike many institutional investors, who may ponder over their voting policies for months, retail shareowners will mostly build default policies based on brand identification. Voting advisors, chosen by shareowners through competitive markets for shared information, will help make agents more accountable and democracy in corporate elections an emerging reality.
(Note: this post is reprinted from Harvard Law School Forum on Corporate Governance and Financial Regulation, Wednesday July 14, 2010 at 9:08 am)
Calgary, of course, has more than oil and tar sands. The Calgary Herald recently carried an interesting article on investment clubs. (New breed of Investment club goes big, 7/4/10) Traditionally, investment clubs have up to about 12 people who meet over lunch or dinner for as much a social function as for investing. As those clubs have declined, we now see a new type rising.
Podium, a new club in Calgary, is seeking more than 5,000 members at an investment limit of $5,000 each. Vancouver’s Freedom Investment Club had 5,000 members and was valued at $110 million. Podium plans to reduce risk by focusing exclusively on local companies, or “Calgary businesses with global potential.”
Podium is currently evaluating three local companies for investment potential. What if Better Investing teamed up with Motley Fool, ShareOwners.org and/or ProxyDemocracy.org to create a new breed of investments all around the US where investments are focused locally for the long-term and the clubs spend at least as much time on corporate governance and strategy as they do on stock picking?
Such investment clubs could be seen as potential advisory boards and test markets for local companies. Community involvement would create a greater bond between companies and society. We could start getting away from the notion that holding Intel 14 times in 5 years is long-term investing. I’d be happy to help.
I followed the lead of Calvert and Florida SBA, as reported by ProxyDemocracy.org, and voted with management down the line. I voted through the MoxyVote.com platform but they had no “advocates” weighing in on this ADS.
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).
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.
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.
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.
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.
- 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?
ProxyDemocracy.org was very helpful, with several funds reporting their votes in advance. Also very helpful was CalPERS’ site, which provided reasons for their votes. I voted for most of the directors, along with most of the funds who reported voting in advance on ProxyDemocracy. However, I joined with CalPERS in withholding my vote from the following two, since I found CalPERS’ reasons compelling:
Director Andrew N. Liveris – I joined with CalPERS in voting against Liveris, since he served as members of the audit and risk committee prior to the financial crisis when there was a failure to ensure appropriate corporate governance practices pertaining to risk management were in place. Additionally, Mr. Liveris is a current CEO while serving on an excessive number of public company boards.
Director Judith Rodin – Like Liveris, he served as members of the audit and risk committee prior to the financial crisis when there was a failure to ensure appropriate corporate governance practices pertaining to risk management were in place.
Along with most of the funds, I voted to ratify the auditors, support the omnibus stock plan, and approve TARP repayment shares. I voted against the Advisory Vote to Ratify Named Executive Officers’ Compensation, since CalPERS believes the company does not adequately disclose the process by which executive compensation is determined.
Along with most of the funds, I voted to Amend NOL Rights Plan (NOL Pill). Generally, I vote against such plans, but CalPERS believes the poison pill is in shareowner best interest. Additionally, the company has indicated the adoption is not for anti-takeover purposes.
I joined with the funds to Approve Reverse Stock Split. I voted with most of the funds in favor of Affirm Political Non-Partisanship, a proposal by Evelyn Y. Davis. CalPERS voted against it. They believe the proposal is unnecessary because Citigroup indicates it adheres to all state and federal regulations on this matter. That doesn’t seem like a convincing reason to me but I’m not very firm in my support. In glancing at the proposal, it may well be that everything in the resolution is already covered by law. If so, it does no harm to vote in favor of it.
Along with most of the funds, I voted in favor of all the shareowner proposals. Report on Political Contributions, by the Firefighters’ Pension System of the City of Kansas City. CalPERS believes this proposal poses no long-term harm to the company. According to MoxyVote.com, the Center for Political Accountability also supports this proposal.
Report on Collateral in Derivatives Trading, by the Sisters of Charity of St. Elizabeth. CalPERS believes this proposal poses no long-term harm to the company. It seems to me this has the potential to reduce risk. That’s better than posing no long-term harm. In fact, if shareowners had listened to the Sisters of Charity and members of the Interfaith Center on Corporate Responsibility there is a good chance we would have missed the Great Recession. See this 2008 press release about ICCR sounding the alarm for 15 years. Why weren’t shareowners and management listening? Rev. Seamus Finn, director, Justice, Peace & Integrity of Creation, Missionary Oblates of Mary Immaculate and an ICCR board member, said:
The U.S. government controls over a quarter of outstanding Citigroup shares today. It has an extraordinary opportunity here to send a clear message to Wall Street that more derivatives disclosure is vital. Even more to the point, the Treasury Department really has no choice other than to support our resolution since a failure to do so would directly undercut its campaign for critical financial reform.
ICCR Executive Director Laura Berry said:
To adopt an inconsistent posture at this critical juncture on derivatives disclosure would be disastrous both in terms of how Wall Street reads the signals from Washington and how seriously Congress sees the Obama Administration as being in its support of vital financial services reform. (Shareholders: Treasury Should be Consistent on Capitol Hill and on Wall Street by Voting Citi Shares for More Derivatives Disclosure, press release, 4/16/2010)
Ability to Call Special Meetings, by William Steiner. CalPERS believes shareowners should be able to call special meetings. So do I. I’ve even submitted proposals myself on this issue and, like William Steiner, I often work with John Chevedden on these submissions.
Proposal Regarding Stock Retention, by AFL-CIO. CalPERS is a firm supporter of stock ownership guidelines that require executives to satisfy minimum levels of ownership after leaving the company. It should be noted the proposal mandates that executives hold 75% of their equity awards for two years after retirement or termination. CalPERS prefers that guideline specifics be designed and implemented through the company’s Independent Compensation Committee. I favor holding most equity awards until after retirement.
Shareholder Proposal Regarding the Reimbursement of Expenses in a Contested Election, by AFSCME. CalPERS believes this proposal poses no long-term harm to the company and would be a benefit to shareowners. I think this proposal could increase the ability of shareowners to have additional influence on nomination and election of directors.
I voted using MoxyVote.com. I you agree or disagree with my votes, you can leave comments here on CorpGov.net or on my wall at MoxyVote, search James McRitchie. If you use ProxyDemocracy, keep in mind that you can post how you’ve voted or any other advice regarding a company right on the site. For and example, see the bottom of the Citigroup page. When it becomes technologically feasible, it would be great if sites like MoxyVote and ProxyDemocracy can tell users who sponsored each resolution. Having to look that information up on the proxy takes an extra minute or so. Just as many will vote with various funds because of their “brand” reputation, we will also vote based on the brand of the sponsor.
Per my disclosures, I own a small amount of BP PLC ADS. Maybe because it is a foreign issue, I didn’t find BP as I tried to use MoxyVote.com but I was able to see how CalSTRS voted at ProxyDemocracy.org. Frankly, I’m not as informed as I would like to be, especially with regard to the directors.
I know that investors from both sides of the Atlantic have filed resolutions for the BP, Shell, ConocoPhillips and ExxonMobil annual general meetings, which ask the companies to report on the financial, environmental and social risks associated with their oil sands investments. FairPensions UK, the California State Teachers Retirement Fund (CalSTRS), and Boston-based Green Century Capital Management (Green Century) are coordinating the shareholders’ efforts.
At BP, the only oil company I own, this resolution is identified on the ballot as SPECIAL RESOLUTION: TO INSTRUCT A COMMITTEE OF THE BOARD TO REVIEW THE ASSUMPTIONS BEHIND THE SUNRISE SAGD PROJECT.
Canada’s tar sands are the second largest oil resource in the world, with 173Bn barrels in reserves. However, extraction is energy-intensive and environmentally-damaging, requiring deforestation, extensive water use, and the creation of massive amounts of toxic waste. Even using the most conservative lifecycle analysis, oil from this source emits between 15% and 40% more greenhouse gases than the average of conventional sources, raising doubts about the long-term economic viability of oil sands development. Local indigenous communities affected by oil sands pollution and ecological harm, such as the Beaver Lake Cree Nation, have filed legal challenges that could drastically slow or halt oil sands development. BP has responded, but not to my satisfaction.
Frankly, I trust the analysis done by CalSTRS, FairPensions UK, and Green Century on this issue. “Shareholders must know how companies are preparing for these costs and mitigating future risks,” says Emily Stone for Green Century. Mindy S. Lubber, president of Ceres and director of the $8 trillion Investor Network on Climate Risk (INCR) says,
Investors are concerned that many companies seem to be moving ahead without a well-articulated plan to manage the environmental and social risks associated with the oil sands. Given the extra-long investment horizons of oil sands projects, it is especially important for companies to invest in solutions to these challenges upfront.
I recall my dad, an engineer, showing me some of the oil sands when we visited his brothers in Canada about 50 years ago. He was very skeptical concerning our ability to extract the oil without ruining the environment. I’m not sure we’re there yet. Since I’m voting with CalSTRS on this shareowner resolution, I’m also going with them and voting against all the director nominees and several management proposals as well.
If you are in the UK, I urge you to go to FairPensions on this issue. Click the take action button. From there, you can send a message to your own pension scheme to try to get them onboard with this issue at BP, Shell, ConocoPhillips and ExxonMobil. I wish we had a similar advocacy organizations in the US.
Last year I had a Say on Pay proposal at Schlumberger, which received 39.8% of the votes. I tried to send a message that companies can’t hide, even if they meet in the Netherlands Antilles.
Apparently, they can. Schlumberger got no shareowner proposals in 2010. I haven’t seen much in the way of voting advice, so I checked the voting at ProxyDemocracy.org and voted with CalSTRS using MoxyVote.com. Thanks to these sites, we’re empowered… at least a bit. CalSTRS is withholding votes from Gorelick, Lajous, and Marks. As reported by The Corporate Library,
Schlumberger CEO Andrew Gould’s pay package is the highest among the 75 S&P 500 companies for which we’ve processed proxies so far this year. Last year, Gould realized a total of nearly $51 million in compensation, including a $2.5 million base salary and nearly $46 million in profit from the exercise of market-priced stock options, which vested without a performance requirement. For that money, at the national average gas price of $2.57 in August 2009, Gould could have bought more than 19,832,868 gallons of regular gasoline. If he used them to drive a Toyota Prius getting 50 miles to the gallon, he could have driven to the moon and back more than 2,075 times. Comp committee members Jamie Gorelick, Adrian Lajous, and Michael Marks apparently want to keep those options flowing: in 2009 Gould was awarded 680,000 stock options, more than twice the award granted in 2008. Over the last three fiscal years, he has received more than 1.4 million options and has profited more than $113 million from the exercise of over 2.7 million options. (Astronomical Pay: Schlumberger and Smith Acquisition, 3/22/2010)
Next up for me is Citigroup. Voting ends 4/16/2010. So far, there are no votes recorded or recommended at either ProxyDemocracy.org, CalPERS or MoxyVote.com. However, there are plenty of proposals from shareonwers, several of which look very reasonable.
The Board’s Role at Annual Shareholders Meetings at This Week in the Boardroom: 4/01/10 also mentioned that sites like MoxyVote.com may be changing corporate and board dynamics. I know its changing my behavior.
Joe Mont writes New Efforts Push Investors to Take a Stand (thestreet.com, 3/22/2010). When shareowner returns slid, CEOs continued to be paid 319 times what the average employee drew down. The checks and balances built into corporate governance don’t seem to be working. And how could they, when only 20% of individual shareowners bother to vote? Yes, CEOs are responsible to boards elected by shareowners… at least in theory. Mont reports on some of the new tools that might just make those checks and balances more effective.
MoxyVote.com hopes to be a portal for proxy materials and online voting. Posting the advice of “advocates” and allowing shareowners to vote directly on their site, Moxy Vote could become the next Facebook for people who take their role as owners seriously. ProxyDemocracy.org, helps shareholders vote by publicizing the votes of institutional investors. They pay for proxy research and advice; you can benefit from it by following their advice. It also publishes and scores how mutual funds have voted, so investors can “purchase funds that represent their interests and pressure those that don’t.” ShareOwners.org is helping shareowners advocate together — pushing the Dodd bill, majority voting, and proxy access.
It is good to see theStreet.com bringing attention to these important resources. Of course, we’ve been bringing these sites to the attention of our readers for years. Unfortunately, with an internet traffic ranking of 380,000 at CorpGov.net v 2,500 for theStreet.com, we don’t reach anywhere near the audience. Will they take it to the next level? For example, will they join with ShareOwners.org in asking for their readers to call their Senators TODAY at 202-224-3121 and urge them to support the corporate governance provisions of the Dodd bill. (main points) You can also send them a message through their web-based contact forms. Read some helpful do’s and dont’s from CalPERS and others regarding what to say or write (press release). Read a letter from major public employee retirement systems. I told my Senators the following:
In uncontested elections, directors should be elected by a majority of votes cast. However, the bill needs amendments to give this provision teeth or else boards will simply refuse to accept the resignations of directors who fail to win a majority vote. Please amend the bill so that directors who fail to get a majority vote must be removed within 90 days.
Shareowners should have the right to place director nominees on the company’s proxy. Please ensure the SEC has full authority to proceed with their proposed proxy access rulemaking.
Companies should give shareowners an annual advisory vote on executive compensation. I’m under no illusion this will immediately bring CEO pay back to earth. However, it will get boards talking to shareowners about this issue and it seems likely to reduce the use of incentive structures based on “heads I win, tails you lose.”
Now if the hundreds of thousands of Street.com readers would do the same, we could begin to make real progress in acting like shareowners, not just shareholders.
“Bank of America persuaded the SEC to drop “proxy access” provision as they negotiated a $150 million settlement of a lawsuit tied to the takeover of Merrill Lynch & Co… The U.S. Chamber of Commerce, which represents more than 3 million companies, has said “activist shareholders” would use proxy access to hijack elections to pursue “political or social issues.”” (SEC Said to Push BofA Proxy Rule in Enforcement Case, Bloomberg.com, 2/18/10) “SOX substantially beefed up the obligations of the audit committee, at least for Exchange traded companies. See Section 301 of SOX. The committee was given the direct authority to supervise and to hire/fire the outside auditor. The committee was also given the authority to hire counsel without full board approval.” “In the proposed settlement with BofA, the SEC is seeking to augment the authority of the audit committee one more time. The Commission is giving to the audit committee (not the full board) the authority to hire counsel. Counsel must not only review filings but must discuss possible deficiencies with the audit committee in executive session, without the presence of the non-indpendent directors. The latter restriction is significant.” (The Board of Directors and a Review of Corporate Disclosure, theRacetotheBottom.org, 2/17/10)
Interesting, Bloomberg failed to get the Chamber’s new line. “Late last month, for the first time in more than a decade, the US Chamber of Commerce changed the boilerplate language that appears at the bottom of its press releases. The nation’s largest business lobby no longer claims to be “representing more than 3 million businesses and organizations of every size, sector, and region.” Instead, it claims to be “representing the interests of more than 3 million businesses” (emphasis added). The smallness of the tweak masks its major significance: Representing somebody, which strongly implies a direct relationship, is very different from representing their interests. The Chamber is in effect acknowleging that the “3 million” businesses aren’t actually its members… It was forced to admit that its true membership isn’t the 3 million businesses that it has claimed, but something on the order of 300,000.” (Chamber of Commerce No Longer “Represents” 3 Million Businesses, Mother Jones, 2/12/10)
I guess we at CorpGov.net should be claiming to represent the interests of the approximately 100 million Americans who own stocks or mutual funds… but why stop at Americans, since we occasionally cover corporate governance issues in other countries as well?
Apple, lags industry peers on sustainability reporting and has not made public greenhouse gas reduction commitments. Apple shareowners are beginning to vote their proxies on Moxy Vote, based on recommendations from Calvert Investments to support a resolution on on sustainability reporting. (Is Apple green enough?, Mac News) The problem is there is another proposal seeking a bylaw requiring a board committee on sustainability… and there are all those directors to vote for or against. While I love Moxy Vote and own Apple stock, at this point, in Beta form, I’m disappointed the site has no one to advise me on how to vote the other issues or on the directors. So, I turn to ProxyDemocracy.org and even they have collected no votes in advance of the 2/25/10 meeting from “ten institutional investors that are particularly engaged in corporate governance.” I’ll wait until next week to vote.
Eric Jackson does a nice job interviewing John Gillespie and David Zweig, co-authors of “Money for Nothing.” Gillespie says we won’t have real change until the old players like Bernanke, Geithner and Summers leave. Zweig says, “corporate governance needs a new name to encourage change, maybe corporate democracy.” (Corporate Governance Role in Meltdown, TheStreet.com, 2/17/10) See my review under the heading Fix the Boards – Fix the System. Buy the book.
“Advocates of genocide-free investing won another important victory this week, when American Funds, a family of mutual funds with more than $775 billion in investments, decided to divest virtually all its holdings in PetroChina. Before a shareowner meeting held on November 24, American Funds owned 167 million shares in PetroChina, worth $190 million.” “Investors Against Genocide advanced a resolution asking that the Board of American Funds “institute procedures to prevent holding investments in companies that…substantially contribute to genocide or crimes against humanity.” American Funds opposed the measure, and affirmative votes for the proposal ranged from 8.5% to 11.8% at the meeting.” (American Funds Sells PetroChina Holdings, SocialFunds.com, 2/18/10) The showing on their resolution would have probably been much higher had voting instructions issued by Broadridge actually complied with the requirements for proxies to clearly indicate the voting topic instead of simply referencing “a shareholder proposal described in the proxy statement.” Broadridge could get away with it because that the language the issuer wanted and since Broadridge uses a voter information form, they don’t feel they are bound by SEC requirements that apply to proxies. (see our coverage of that issue at Investors Against Genocide Fighting American Funds, Broadridge and Vague SEC Requirements: More Problems Solved Using Direct Registration.
Corporate governance advisory firm PIRC made history again. In January 2009 they took a radical step, and began publicly disclosing via their website the voting recommendations they make for company meetings. Now they have set out have set out six best practice principles for corporate governance advisors, as follows:
- Clear voting policy guidelines should be made available to clients, the companies whom the adviser is monitoring and to the market;
- Clear audit trail and explanation of the process for assessing companies and making voting recommendations should be available to clients and the companies monitored;
- Possible conflicts of interest should be disclosed to clients and to companies monitored and, where necessary, to market regulators (i.e. paid consulting with companies);
- Companies monitored should be given reasonable opportunity to comment on voting recommendations made and the basis of such recommendations;
- Voting agencies should routinely report to clients on actions taken on their behalf;
- All voting recommendations made by a voting adviser should be publicly disclosed post-meeting. (Corporate governance agencies: the need for transparent voting decisions by Tom Powdrill on Responsible Investor, 2/18/10)
The Securities and Exchange Commission Investor Advisory Committee will meet in DC on February 22 at 9 a.m. The agenda for the meeting includes consideration of a Committee recusal policy, a report from the Education Subcommittee, including a presentation on the National Financial Capability Survey, a report from the Investor as Purchaser Subcommittee, including a discussion of fiduciary duty and mandatory arbitration, a report from the Investor as Owner Subcommittee, including recommendations for the Committee on Regulation FD and proxy voting transparency, as well as reports on a work plan for environmental, social, and governance disclosure and on financial reform legislation, and discussion of next steps and closing comments. I’ll be tuning into the webcast if time permits.
The Conference Board issued a new report, Directors’ Duties under the New SEC Rules on Disclosure Enhancement, available to members. From my quick review, the report appears comprehensive but written clearly and in an easy to understand format. Highly recommended for directors, their advisors and monitors. Additionally, the SEC posted six new Compliance and Disclosure Interpretations 116.07, 117.05; 119.21, 119.22 and 119.23, which offer guidance on disclosure under Items 401, 402(a), and Item 402(c) of Regulation S-K. Staff also added new question 121A.01 related to Exchange Act Form 8-K, which explains calculation of the four-business day filing period for disclosing the results of a shareholder vote. See also guidance on the new requirements from Compliance Week issued in January and December as well as the original rule. Additional guidance from the Altman Group, Walking the Tightrope – New Proxy Disclosures on Director Qualifications, Board Risk Oversight and Board Diversity – and new Climate Change Disclosures for the 10K.
The Corporate Library’s ‘2010 Proxy Season Foresights #3: The Growth of Clawback Provisions, ($15) found that the number of companies with clawback provisions continued to increase in 2009, and almost half of such companies are smaller-cap firms outside the Russell 1000.
The Centre for Corporate Governance Research (CCGR) is organising its 8th International Corporate Governance Conference on Wednesday 23rd June 2010, to be held at the University of Birmingham, UK. The theme of the conference is ‘Corporate Governance and Sustainability’. Keynote speakers include Colin Melvin (Chief Executive, Hermes Equity Ownership Services Ltd), Dr Michael Blowfield (University of Oxford) and Dr Beate Sjåfjell (University of Oslo). Sir Adrian Cadbury, the CCGR’s External Advisor, will be attending the event. Papers are invited on issues relating to any area of corporate governance and sustainability. Papers should be sent as an electronic copy in PDF format, by 31st March 2010 to Karen Hanson.
Moxy Vote is running a series, Here’s to the many pioneers!, Part 1 includes yours truly, Jim McRitchie, along with Mark Latham, Andy Eggers and Matt Keenan. Part 2 will include Glyn Holton, Nell Minow, and the Social Investment Forum. I’m blushing to be in such company. Thanks to Mark Schlegal and to all the fine work at Moxy Vote for facilitating involvement by retail investors and providing advocates such an important pipeline of influence.
The Council of Institutional Investors (CII) published a White Paper, The OBO/NOBO Distinction in Beneficial Ownership: Implications for Shareowner Communications and Voting, authored by Alan Beller and Janet Fisher of the law firm Cleary Gottlieb Steen & Hamilton LLP. Mr. Beller is a former Director of the SEC’s Division of Corporation Finance. From the Executive Summary:
The SEC is likely to be cautious in seeking to change the current framework in significant ways, at least in the near term. Defining the objective is critical to developing a proposal. If the goal is to increase the ability of shareowners and companies to communicate directly, a number of incremental steps may be taken to address the OBO/NOBO distinction and facilitate direct distribution of proxy materials, without discarding the current distribution platform. Such an approach could lead to meaningful improvements, without seriously affecting the interests of many of the participants in the current framework, and we believe it has a greater chance of widespread support than more radical alternatives… On balance, we believe that the immediate interest of shareowners and companies in better communications would be better and more effectively served with an incremental approach that promotes less reliance on — or eliminates altogether — the OBO/NOBO distinction and otherwise increases the potential for direct communications.
Frank G. Zarb, Jr., a Partner at Katten Muchin Rosenman LLP, and John Endean, President of the American Business Conference, raise an important topic in a recent post to the HLS Forum on Corporate Governance and Financial Regulation (Restoring Balance in Proxy Voting: The Case For “Client Directed Voting,” 1/14/2010). Unfortunately, their solution would likely lead us essentially back to a restoration of “balance” through what amounts to “broker voting.” Mark Latham’s proposal for “Feed-based Automated Vote Emulation” (FAVE, see Investor Education On Proxy Voting, VoterMedia Finance Blog, 1/29/2010) based on the concept of Proxy Voting Brand Competition offers more promise. Let’s take the best elements from both proposals.
As Zarb and Endean point out, “the voting rate among individual investors hovers at the 20% level. Companies that mail their investors a notice that the materials are available on the internet – in lieu of mailing the all materials in paper – have seen even lower voting levels in the 5% range.” They attribute the low turnout to “busy lives” and likelihood that “reviewing and completing multiple voting forms along with related materials is not a center ring concern.”
As Latham puts it:
It’s not that we retail investors lack intelligence. We lack the time and expertise to analyze proxy voting issues – board elections, executive compensation, mergers etc. We lack the economic incentive to spend the time and to gain or buy the expertise. So those who do vote tend to follow the board’s recommendations – the only professional advice conveniently available.
By contrast, institutional investors are much better organized to use specialized professionals for voting decisions.
Most people realize there’s no point in casting uninformed votes just for the sake of voting. That plus the difficulty of becoming informed are key reasons why many do not vote.
Under CDV, a shareowner could provide their broker with advance standing instructions for the voting on specific types of proposals “that are sufficiently clear that the broker would not have to interpret standing instructions when applying them to the proposal. An example is a company or shareholder proposal to de-stagger the board of directors.” The voter instruction form provided to each shareowner would be tailored to them, indicating which proposals are the subject of standing instructions and providing them with a means to over-ride their previous instructions.
I like this aspect of the Zarb and Endean proposal on CDV. Unfortunately, very few shareowners would be willing to sit down and fill out a questionnaire that lists typical shareowner resolutions, hopefully also explaining the pros and cons of each. If they were willing to do that, they’d probably be voting already. The most effective way to educate shareowners on these issues would be to expose them to the policies developed by institutional investors and encourage them to compare policies as a whole and/or as applied to specific votes.
Many shareowners could eventually be encouraged to undertake such exercises. However, it is mostly likely to be a gradual process. Education will mostly likely come one issue or one company at a time. Most shareowners faced with such a questionnaire would probably ask for other options. The default offered by Zarb and Endean’s CDV proposal consists of choosing one of the following options to ba applied to all votes:
- in proportion to other retail shareholders;
- in a manner consistent with the board’s recommendation; or
- in a manner that is contrary to the board’s recommendation.
If a participant did not choose one of these default elections, no vote would be recorded on matters with respect to which the shareholder has not otherwise affirmatively cast a vote.
I call option 3 the “bomb throwing option.” Why would individual own a stock and provide instruction to always vote against the board’s recommendation? That makes no sense, especially when applied to a whole portfolio. Option 1 allows your vote to count toward forming a quorum but would otherwise have no effect. Marking none of the three options would deny your vote to the quorum. Neither would appear rational on a predetermined basis for an entire portfolio. That leaves option 2, which would have an effect very similar to broker voting. We can do better than blind trust in all the boards of all the companies in our portfolio on every issue. Think of giving such a blank slate to a politician.
In contrast, Latham’s proposal would rely on “proxy voting feeds,” similar to blog RSS feeds, that would have a standardized format for transmitting and receiving proxy voting decisions. “Anyone could publish a feed, and anyone could subscribe to any published feed. You would instruct your broker to vote your shares according to the decisions in your chosen feed. You could change your choice of feed at any time, and manually override any specific voting decision.”
These feeds, for example, could be provided directly by institutional investors, public interest groups and others. I could set up my feeds to vote with the Domini Funds, if they own the stock and announce their vote in advance. If Domini doesn’t vote, vote like Florida SBA. If neither vote, vote like CalPERS, then CalSTRS, TIAA-CREF, etc.
More likely than direct feeds from individual institutional investors or advocates, initial feeds would probably come from aggregators like ProxyDemocracy.org, MoxyVote.com, or TransparentDemocracy.org. I’d like to see a system that allows me to set defaults by resolution type AND by the voting practices of trusted brands. Let’s give shareowners real options… and options that will eventually encourage them to obtain an education by conducting their own comparisons, whether of proxy voting policies or the basis for brand reputation. Latham’s paper also offers some reforms that will help us to get from here to there, like “data-tagging (e.g. XBRL) of proxy and vote filings, to facilitate creating public databases.”
I’d like to see further discussion of such proposal and exploration of all options. The Corporate Library Blog provided a good start with the following: “I’d like this if it also offered investors the opportunity to have their proxies voted according to the recommendations of independent sources like RiskMetrics or according to the guidelines of groups like the Council of Institutional Investors, the Shareholders Education Network, or the organizations participating in Moxy Vote.” (“Client Directed” Voting, 2/14/10)
The Commission should pass a rule that states that a shareholder has full control to request that a proxy ballot or VIF be delivered electronically to the voting platform of his or her choice (e.g., as one may select a physical address or an e-mail address). Such a rule would compel participants to “plug in” to electronic voting platforms that are being developed. Consequently, distributors and tabulators would quickly realize that a central dissemination and collection point may provide a nice solution to the inefficiency of attempting to build an interface with each platform separately. Or, in lieu of a central source, such a rule would encourage the development of standardized file formats and procedures for electronic voting that would expedite progress.
A January 20 Moxy Vote Blog, Want better governance? Here is your silver bullet, raises a final important point, conflicts of interest.
It is of even greater importance for regulators to ensure that a shareholder has full control over the delivery of his/her proxy ballot because there are conflicts of interest among industry participants that could derail the development of electronic voting platforms. The distribution agents in the industry work for the issuers (either directly or, indirectly, as is the case with broker-held shares). As such, the agents have the incentive to satisfy these paying customers rather than do what is best for corporate governance. By giving delivery control to the shareholder, we’d create a proper check and balance on the proxy distribution agents that otherwise may not have incentive to engage with all retail-friendly electronic platforms.
Client Directed Voting, as outlined by Zarb and Endean, has some very good elements… like the ability of creating “default” proxy voting policies, much like those used by institutional shareowners. However, it falls short in failing to recognize the potential conflicts of interest outlined in the above cited Moxy Vote Blog post. “The distribution agents in the industry work for the issuers (either directly or, indirectly, as is the case with broker-held shares). As such, the agents have the incentive to satisfy these paying customers rather than do what is best for corporate governance” or what is best for the individual shareowner. Delivery and feed subscription control must go to the shareowner.
David Bogoslaw, writing for BusinessWeek, notes new services like Moxy Vote—and upcoming regulatory changes—may boost the level of individual investors’ participation in shareholder voting. (Proxy Voting Made Easy, 2/10/2010)
Our hope is that is also will allow shareowners to vote more intelligently by letting the see how others are voting and by providing abbreviated reasons. Shareowners can vote like their favorite brands, using services like Proxy Democracy and MoxyVote.com. Good to see mainstream media picking up on this development.
ProxyDemocracy.org shares our vision of empowered investors and of corporations that stay accountable to their owners. They’ve got a new look to the site and sent out a note updating readers on the following:
Get the latest information: ProxyDemocracy has changed its appearance — and is offering more information than ever. Visit our dynamic new Web site and check out the storyboard that explains our educational services. In addition, see how “ProxyDemocracy News’’ catches you up with reports and analysis about votes, campaigns, meetings and policy. And explore “Around the Web,” a daily update of shareholder news from a variety of sources.
Influence critical decisions: As we head into the peak 2010 corporate meeting season, we’d like to keep you informed. Soon ProxyDemocracy will be launching a newsletter describing our activities, previewing our reports and inviting your feedback. While we have your e-mail address, under federal rules you need to opt in to continue receiving updates from us. Just enter your e-mail address and name in the “Join Our Mailing List’’’ box on our Web site. We promise not to abuse the privilege.
Change corporate behavior: Writing last month in Slate, former New York Governor Eliot Spitzer said that, just as technology has changed politics, new-media forums led by ProxyDemocracy are transforming corporate democracy. You are on the verge of something big.
Build ProxyDemocracy: ProxyDemocracy is a one-of-a-kind resource. Ours is the only organization to show individual shareholders how big institutions plan to vote at corporate meetings — and to keep score of the proxy votes made by the mutual funds in your 401(k) accounts. As a nonprofit organization, we rely on your help. To cast your vote for ProxyDemocracy, make a tax-deductible contribution. Please click the new “Donate” box on our Web site so we can continue this exciting work.
I hope readers will check out their new site, give them some feedback and make a donation to keep their effort growing.
Nice article by that title appeared in Canada’s Financial Post. “Imagine a democracy where those who don’t vote have their ballots automatically cast in favour of the incumbents… Enter an idea whose time has come: websites such as corpgov.net, shareowners.org (corrected), proxydemocracy.org and moxyvote.com. These are just four offerings on the Internet designed to help disgruntled shareholders organize and register their displeasure or lobby for change.” (1/26/2010) Prior article was entitled Shareholder democracy oxymoron (FP, 1/25/2010)
Reporter, Diane Francis, goes on to compare our sites to the Politics 2.0 social movement that elected Obama. She concludes with a quote from former New York governor Eliot Spitzer from an article in the Wall Street Journal. “Virtually every thoughtful discussion of corporate governance concludes that unless shareholders act like the true owners they are, all the proposed corporate reforms will fail. While there are some who claim shareholders are simply too ill-informed to participate meaningfully, this argument should carry no more weight in the corporate context than it does in the traditional political arena.”
I certainly hope the sites mentioned by Ms. Francis, and others such as isuffrage.org, Lemonjuice.biz and theRacetotheBottom.org, can foster the type of movement that changed politics… and I hope we can do it sustainably.
At a hearing on compensation in the financial services industry, House Financial Services Committee Chairman Barney Frank said, “If you are the owner of shares … you have a privacy right, but if you own shares on behalf of a fiduciary you will need to disclose how you vote.” In late 2003, after years of pushing from people like Bob Monks and Nell Minow, approved rules requiring mutual-fund managers to disclose how they voted their proxies once a year every August.
A MarketWatch article (Frank: We’re going to have big investors disclose votes, 1/22/10) quotes Beth Young of the Corporate Library, “”By requiring public disclosure of votes, investment managers will think more about whether they have the information and staff to act as a fiduciary for the people they are voting on behalf.” Public disclosure increases feedback between corporations and investment managers as both consider votes more carefully.
The Employee Retirement Income Security Act (ERISA), has long required pension-fund administrators to disclose to pension-fund investors how they are voting on their behalf. However, that information does not need to be disclosed publicly. Additionally, to my knowledge, no fund administrator has ever been disciplined for failing to vote in the interests of plan beneficiaries. See my 1995 correspondence with the Pension and Welfare Benefits Administration and commentary under Fiduciary Responsibilities for Proxy Voting.
The MarketWatch article goes on to quote Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, on the positive impace on mutual fund voting. “The public-disclosure requirement has had a positive impact on how they operated and voted their slates. The information about mutual-fund votes does push the funds to be more active than they were.”
Apparently, no bill is in the drafting stage but such a provision may be included in future legislation later this year. This would be another very positive step that would help shareowners, in this case pension members, hold fund managers and ultimately corporate managers accountable. You can’t hold your pension fund trustees accountable if you don’t know how they vote. Examination can lead to change.
We saw that to be the case earlier this week at State Street Global Advisors (SSgA) after pressure from Walden Asset Management and United for a Fair Economy. Prior to their scrutiny, SSgA voted automatically Against ALL shareholder resolutions on environmental and social issues, whether the issue affected shareholder value or not. SSgA will now abstain if the resolution’s economic impact case is not clear, but will vote FOR resolutions where a strong case regarding how this affects shareholder value is made. (Major Shift in Proxy Voting Policy at State Street, CorpGov.net, 1/20/10)
We can expect similar shifts at pension funds, once Frank’s future measure is enacted. Of course, several public pension funds already not only disclose their votes once a year, but also do so in advance. You can see how leaders like the AFSCME Employees Pension Plan, CalPERS, CalSTRS, and Florida SBA are voting by going to ProxyDemocracy.org. I find that information very valuable when I’m voting my own shares as a retail investor. As a member of CalPERS, I also monitor how they are voting to ensure it is in the best interest of plan beneficiaries, like myself. When it isn’t, you can be sure CalPERS hears from me. Fortunately, those disagreements are infrequent.
A review of 160 socially responsible mutual funds from 22 members of the Social Investment Forum (SIF) finds that the vast majority of the funds — 65 percent — outperformed their benchmarks in calendar year 2009, most by significant margins.
These SRI funds topped benchmarks across nearly all asset classes, including balanced, large cap, small cap and global funds, as well as bonds. The performance data that was analyzed by the Social Investment Forum covered all of 2009 and was provided by an independent third party, Thomson Reuters. (Download full table of results.)
This analysis underscores the reality that socially responsible investments offer what are genuinely competitive returns,” said Cheryl Smith, chairman of the board at SIF and president at Boston-based Trillium Asset Management Corporation. “In fact, the 2009 data show that SRI funds specializing in large cap stocks have turned in an extremely strong performance that outpaced the S&P 500 over both the short term and the long term.”
The 22 fund families represented in the SIF analysis are: Access Capital Strategies; AHA; Appleseed; Ariel; Azzad; Calvert; Community Capital Management; Domini; Gabelli; Green Century; Integrity; Legg Mason; Meeder Asset Management; MMA Praxis; Neuberger Berman; New Alternatives; Parnassus; Pax World; Portfolio 21; Sentinel; Walden; and Winslow.
Today, SIF also unveiled its revamped Mutual Fund Performance Chart for retail investors. The new and improved chart allows interested investors to learn more about SRI mutual funds based on asset class, performance record, approaches to environmental, social and governance (ESG or sustainability) issues, proxy voting guidelines, and other investment criteria.
For example, the Chart shows that more than 50 percent of SIF member mutual funds consider companies’ executive pay practices when developing their portfolios, and more than two-thirds look for companies with good records on climate change issues and community development. Virtually all exclude tobacco companies altogether from their portfolios or restrict their involvement in such firms. (Download table.)
Lisa Woll, CEO, Social Investment Forum said: “In the wake of the financial crisis more and more consumers are concerned about runaway executive pay practices and other forms of corporate misconduct and sustainability risks. The SIF’s Mutual Fund Performance Chart allows retail investors to explore which SRI funds incorporate these and other sustainability issues into their investing and proxy voting practices.”
You can also compare many of the proxy voting records of these and other funds at ProxyDemocracy.org. Responsible investing is less risky in times of bubbles. They are also less risky if you want to keep living on a habitable planet.
We Own You!: How technology can help stockholders take control of the corporations they own, Slate.com, 1/12/10. Eliot Spitzer writes, “Twitter, text messages, YouTube, and other technology transformed politics in 2008. This success raises a compelling question: Can the same technology awaken the more dormant world of corporate democracy?… Could proxy voting in 2011 generate the same enthusiasm as actual voting did in 2008?” It just might if we can get a few people with Spitzer’s star power to focus attention.
Good to see Eliot Spitzer talking up use of ProxyDemocracy.org, MoxyVote.com and Shareowners.org. He gets his facts slightly wrong, Both ProxyDemocracy.org AND MoxyVote.com intend to be neutral information providers. MoxyVote.com labels its information sources as “advocates” but that doesn’t mean MoxyVote.com agrees with them.
Both work on the concept of trusted brands to help shareowners vote more easily and more intelligently. In the case of ProxyDemocracy.org, their “respected institutional investors” spend considerable resources investigating not only resolutions but also director nominees. By announcing their votes in advance, they allow retail shareowners to benefit from their research and they create brands with a larger following than they would have voting alone.
Spitzer says there are at least two critical hurdles that still have to be overcome:
- “First, most shareholders don’t vote because they assume their votes don’t matter; shareholder votes are almost never close.” However, this year that is changing. With most of the Fortune 500 using majority vote requirements to elect directors and with “broker votes” no longer allowed when retail shareowners fail to vote within 10 days of the annual meeting, your vote counts more than ever. We are sure to see several directors turned out of office. That doesn’t stop them from replacing tweedle dee with tweedle dum, but its a good start.
- “There is no water cooler for corporate democracy. A presidential or mayoral race prompts conversations among friends and colleagues and generates daily press coverage. A corporate proxy vote doesn’t. We don’t all own the same shares, and even if we did, we probably wouldn’t talk about it.” That’s where sites like Shareowners.org and my own blog come in. People should be talking about how they are voting. It would be great to have TV shows like the Nightly Business Report actually providing analysis of the issues facing owners, rather than tips for the next bet. If PBS doesn’t do it, Spitzer could do it through Slate.com.
Of the two problems, the second is more important. When shareowners start talking to each other about how they’re voting, more will vote… and, more will vote intelligently. We will also start taking on more of the issues that currently send the system off balance.
For example, this morning I received a copy of a letter from Goldman Sachs to the SEC referencing my resolution to allow shareowners to ask the board to amend the bylaws, allowing owners of 10% of the company’s stock to call a special meeting. Management at Goldman Sachs wants to omit the resolution from the proxy on the basis that they intend to submit a proposal to the 2010 annual meeting to allow shareowners of 25% to hold a special meeting.
They argue that Rule 14a-8(i)(9) allows them to exclude the proposal from its proxy, since the proposal directly conflicts with their proposal. In the past, the SEC has allowed such exclusion based on confusion that would reign if shareowners passed both resolutions. That is nonsense. If both pass, the lower threshold applies. If we can ever get the “water cooler” discussions going around corporate democracy, shareowners won’t stand for a system that tips the balance of power to management at every turn. We will see if the SEC under Mary Schapiro acts to protect shareowners by allowing the resolution, or if they protect management by issuing a “no action” letter.
“Street name registration” undermines our culture, turning investors into gamblers by providing them “security entitlements,” instead of real ownership rights. Just as poker chips allow us to play under rules which often favor the house, those holding “security entitlements” do not acquire the rights of share owners. For example, one right sharowners have is to receive a proxy, whereas those of us registered in street name receive a voter instruction form (VIF). SEC rules guarantee certain rights to proxy holders but not, it is argued, to those voting through VIFs. (see
Investors Against Genocide Fighting American Funds, Broadridge and Vague SEC Requirements: More Problems Solved Using Direct Registration.
On January 13th I will post a draft petition to the SEC that I have been working on with Glyn Holton, of the United States Proxy Exchange, and others to convert from “street name” to a system of direct registration. I hope you will consider signing on as a co-filer. Can we change voting behavior? Yes, we can! Just give us the rights of ownership and see how democracy transforms the world of corporations.
On November 16, 2009, the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University presented a lunch-time lecture with Mark Latham, Director of VoterMedia.org and ProxyDemocracy.org. Latham is also a member of the SEC’s Investor Advisory Committee, as a representative of individual investors. He has written extensively on how the internet can be used to allocate resources to facilitate voter education using a democratic marketplace model. Previously, Latham was a professor at UC Berkeley and a money manager with Salomon Brothers and Merrill Lynch.
Mark Latham has spent the last seven years developing new tools for voters (investors and citizens) to hold elected leaders accountable in corporations and democracies. The financial crisis, changes at the SEC and the decline of mainstream media are opening doors for implementing these ideas. Latham’s lunch-time talk at Stanford’s law school attracted mostly a young crowd of students to a presentation that was much more discussion than lecture.
Latham briefly discussed his role on the SEC Investor Advisory Committee and some of the recent developments that have laid fertile ground for his ideas, including:
- the financial crisis and our poor systems of accountability,
- 25% of the stock market is held directly by individuals but the other 75% held through institutions is also held for our benefits. We should have more input into how proxies are voted
- broker voting no longer applies to director nominees
- most large companies have instituted majority voting requirements for electing directors and that is now filtering down to medium and small companies, and
- proxy access will bring more focus on proxy voting and the need to facilitate more intelligent voting with minimal effort.
He described something of the developing battle for the hearts and minds of investors as proxy "plumbing" or "mechanics" issues are explored by the SEC and interested parties. The Business Roundtable is lobbying hard for a system that allows management to communicate directly with shareowners. One component they have been pushing is client directed voting, CDV. Various proposals by Stephen Norman, the corporate secretary of American Express, have outlined that under CDV, investors would give their brokers general instructions on how they wanted their shares cast on all matters, routine and not routine. One frequently cited variant involves five options, including:
- always voting as management recommends;
- always voting against management recommendations;
- abstaining on all matters;
- voting according to the brokerage firm’s voting policies; or,
- voting shares in proportion to the way the brokerage’s other clients have voted their shares.
If investors did not declare a preference, the default choice would be proportional voting, and investors could always override these choices with their own. Latham noted the need to expand the concept of CDV to include options provided by ProxyDemocracy.org, TransparentDemocracy.org, MoxyVote.com and others as they develop.
A lively discussion ensued on issues such as:
- Why should we think recommendations by these groups, or indeed the current advisors to institutional investors are any good?
- How important is making money and what part would other values play in CDV options?
- Would these organizations not only lead to greater participation by retail shareowners but also greater financial literacy?
- Are there various legal issues that need to be addressed around free speech, fiduciary duties, and/or proxy solicitation? (download, for example, a request to the SEC re guidance)
- How will these sites drive the selection of mutual funds and the limited options available to most workers through 401(k) type plans?
I spotted Kim Cranston, President of TransparentDemocracy.org, in the back of the room and had a few minutes to chat with him after the event. Their site covers both civil and corporate elections and is designed to will help you…
- Learn more about the contests on your ballot,
- See how organizations and individuals recommend that you vote,
- Create a printed ballot based on your opinions that you can use to mark your real ballot,
- Share your opinions with friends.
A video recording of the session with Mark Latham will be posted on the Arthur and Toni Rembe Rock Center site by early December. The next stop for Latham was the Institute of Governmental Studies at the University of California at Berkeley.
"We can support public interest journalism with our tax funds, by letting voters allocate the funding to competing media organizations. This would prevent the government from controlling the publicly funded media and their messages. Such a system has been implemented for three years at the University of British Columbia’s student union, and tested in Vancouver’s 2008 civic election. Each voter community can fund its own media: each municipality, state, country, student union, labor union, corporation etc. The city of Berkeley may be a good fit for the next implementation."
When Tocqueville visited the United States in the 1830s, it was our propensity for civic association that impressed him as the key to making democracy work. "Americans of all ages, all stations in life, and all types of disposition:’ he observed, "are forever
forming associations. There are not only commercial and industrial associations in which all take part, but others of a thousand different types–religious, moral, serious, futile, very general and very limited, immensely large and very minute…. Nothing, in my view, deserves more attention than the intellectual and moral associations in America." Robert D. Putnam’s famous 1995 essay, Bowling Alone, introduced many to the concept of social capital.
Gert Tinggaard Svendsen and Gunnar Lind Haase Svendsen have edited an informative and greatly expanded update. The "Handbook Of Social Capital: The Troika of Sociology, Political Science and Economics" examines how three disciplines work together in developing and shaping networks. Economics primarily focuses on transaction costs. Political science focuses on institutions and sociology focuses on the norms that regulate behavior.
Life is easier in communities with high social capital. Networks of civic engagement foster generalized reciprocity and trust. Communication and coordination amplify the growth of reputations, facilitating collective action. Well worn templates and success lead to future collaboration and broaden our sense of empowerment. I read the essay’s mainly thinking of how these concepts might be applied to internet sites, such as the Investor Suffrage Movement, Proxy Democracy.org, Shareowners.org, TransparentDemocracy.org, MoxyVote.com, and VoterMedia.org.
One concept discussed by the editors was that of bridging vs. bonding. Bridging implies open networks across social cleavages, inclusion, and generalized trust. Bonding implies closed, inward looking networks based on particularized trust. Bridging seems more important for organizations attempting to facilitate shareowner action.
According to Elinor Ostrom and T.K. Ahn, "trust is the core link between social capital and collective action. Trust is enhanced when individuals are trustworthy, are networked with one another and are within institutions that reward honest behavior." One interesting study found that reciprocal agents using conditionally cooperative strategies have a higher chance to interact with one another and the surrounding population than agents who defect. "Information regarding a potential transaction partner’s trustworthiness is crucial when trustworthy individuals try to initiate cooperation."
Reputation is everything. "Self-governing systems in any arena of social interaction tend to be more efficient and stable not because of any magical effects of grassroots participation itself but because of the social capital in the form of effective working rules those systems are more likely to develop and preserve, the networks that the participants have created and the norms they have adopted." For example in in development projects, even "primitive" irrigation systems developed with the involvement of farmers often outperform those using more modern concrete and steel headworks. Investment by participants makes the difference.
In other words, in project planning we need to focus as much on the incentives of participants as we do on the physical or virtual technical infrastructure. Simply agreeing on a set of rules put in place with by others may get something up and running but doesn’t engender participation or long-term success.
Poulsen discusses research on cooperation, such as the "Prisoner’s Dilemma." Cooperation often falls over time because reciprocally minded subjects give up contributing if they feel like they are the only ones doing so. Punishing or expelling nonparticipants can generate higher and more stable cooperation but only if group members have information about each other’s contributions.
The chapter, "Corruption," by Uslaner found unequal distribution of resources in a society to be at the heart of the problem. Inequality leads to low generalized trust and high in-group trust, which leads to corruption, which leads to more inequality. Corruption thrives on particularized trust, where people only have faith in their own kind or small circle. "The policies that work best to reduce inequality and promote trust – universalistic social welfare policies – also depend upon honest governments to deliver the good and upon a social compact to provide benefits such as universal education and health care to the rich and poor alike."
Rothstein carries the theme forward by noting the services for the poor tend to become "poor services," whereas if all are included, middle and upper classes will demand higher quality. Popular movements of protest and self-help stand in contrast with charities dominated by middle and upper classes. "Needs testing and bureaucratic discretionary power are often more difficult to reconcile with principles of procedural justice, compared with universal public services. Since selective welfare institutions must test each case individually, they are to a greater extent subject to the suspicion of cheating, arbitrariness and discrimination, compared with universal public agencies."
That should give potential readers a rough idea of some key discussions. While the Handbook is geared toward an academic audience, especially those concerned with economic, political and social development, the more general reader will also find important insights in the cross-disciplinary approach.