Paul Washington is Executive Director of the ESG Center at the Conference Board and Chair of the Independent Steering Committee of Broadridge. This post is based on his Broadridge memorandum. Related research from the Program on Corporate Governance includes Universal Proxies (discussed on the Forum here) by Scott Hirst; Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge (discussed on the Forum here) by Bo Becker, Daniel Bergstresser, and Guhan Subramanian; and Private Ordering and the Proxy Access Debate (discussed on the Forum here) by Lucian A. Bebchuk and Scott Hirst.
Executive Summary
In recent years, the U.S. Securities and Exchange Commission (“SEC”) and industry service providers have made significant changes and improvements in processing and reporting proxy votes. The SEC provided new rules for use of universal proxy cards (“UPC”) for proxy fights (“contested solicitations”) and industry initiatives have led to reconciliation of ‘voting entitlements’ well in advance of shareholder meetings and confirmations to shareholders that their votes are reported as cast.
As described in more detail below, systems for processing and reporting votes of shares held “beneficially” in accounts at custodian banks and broker-dealers, are accurate, transparent, and fair. This is critical: When it comes to the largest proxy contests, the votes of beneficial shareholders can represent upwards of 95% of the total shares voted. In most contests, the outcome is known at the close of the polls.
However, when it comes to the remaining 5% of the votes, those held in “registered” form directly on the books of companies (or their transfer agents), the process is largely manual and opaque. Opposing sides count their own votes without providing the daily status reports that all sides receive for votes of beneficial shareholders. Therefore, in the closest cases, final tabulations by election inspectors can be delayed for weeks while attorneys for each side examine the votes of registered shareholders in a “snake pit.” Moreover, in contrast to systems for processing beneficial shares, there are no independent audits of the process or votes by an internationally recognized certified public accountant firm.
When it comes to further improving the U.S. proxy system overall, the “last mile” involves looking at how registered shareholder votes are processed, reported, and audited, and how they can be confirmed on an “end-to-end” basis to shareholders.