The Promise of the Enhanced Broker Internet Platform

The following post comes to us from John Endean, President of the American Business Conference.

A breakthrough for improved corporate democracy is languishing at the Securities and Exchange Commission. The breakthrough, called the Enhanced Broker Internet Platform (EBIP) is a technological innovation that would make it vastly easier for shareholders to participate in corporate elections for directors and shareholder resolutions. This is important because the rate of individual or “retail” shareholder voting is pitifully low. For example, in fiscal year 2012, the rate of retail positions voted was less than 14%.

Why is the response rate so low? Unlike public pension funds and other institutional investors, retail shareholders are under no legal obligation to vote, are not much encouraged by anyone to do so, and remain largely unorganized. Work, personal commitments and everything else that crowds each hour of the day can easily make voting a proxy ballot fall off a shareholder’s “to-do” list.

Enter the EBIP proposal. EBIPs would build on individual shareholders’ reliance on brokers’ websites as their primary source for information by also allowing shareholders to vote their positions on those sites. EBIPs would provide a means for reminding shareholders of the importance of voting while affording them a convenient platform for casting informed votes.

Unfortunately, EBIPs are currently the caboose on a stalled train: a rulemaking to change the structure of proxy fees which has been years in the making and is now languishing at the Commission. The reason for the delay is obscure and best left to the experts. What isn’t obscure is that, if the unrelated and uncontroversial EBIP provision is not uncoupled from the rest of the stalled rulemaking, it is going nowhere.

Fortunately, Congress is starting to notice. Last May, for example, Senator Charles Schumer of New York wrote the chairman of the Commission, Mary Jo White, to urge action on EBIPs. The EBIP proposal, the Senator wrote, “represents a much-needed innovation that will strengthen retail shareholder engagement to the benefit of both issuers and investors.” Accordingly, the Senator urged the Commission “to move forward expeditiously” with the EBIP proposal, and “not allow it to be held hostage” as part of the proxy fee rulemaking. [1]

So far, at least, the Commission has not indicated much interest in acting on the Senator’s advice. This is puzzling. Given that there are 140 million votable retail positions, any effort to increase the voting of those positions would result in a more accurate measure of shareholder sentiment regarding the resolutions put forth by activists or, for that matter, by management. It would more clearly gauge the popularity (or unpopularity) of directors seeking election to corporate boards. In a very real sense, greater shareholder voting is a crucial part of investor protection.

While the similarities between political and corporate elections can be exaggerated, it is true that in both cases broadening voter participation yields more representative results. We should ask for nothing less. Corporate elections have consequences, not just for governance, but also for a host of social and economic policies that are making their way on to proxy ballots. The Securities and Exchange Commission has been offered a tool to advance shareholder democracy. Why is it waiting?

Endnotes:

[1] Letter of Senator Charles Schumer to Mary Jo White, Chairman, Securities and Exchange Commission, May 23, 2013. http://www.sec.gov/comments/sr-nyse-2013-07/nyse201307-32.pdf.
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