Council of Institutional Investors Presses SEC for Guidance on Interim Vote Tallies

Amy Goodman is a partner and co-chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. The following post is based on a Gibson Dunn alert by Ms. Goodman, Elizabeth A. Ising, and James Moloney.

Last May, Broadridge Financial Solutions, Inc., the provider of proxy services for over 90% of public companies and mutual funds in North America (“Broadridge”), decided to end its established practice of providing interim vote tallies (sometimes referred to as “preliminary voting results”) to proponents of shareholder proposals. Following this change in practice, the Council of Institutional Investors (“CII”) sent a letter to the SEC asking the Commission to reverse Broadridge’s change in practice. Later in July, Broadridge reviewed its decision, promising to “continue to monitor developments on th[e] issue” and noting that it is contractually obligated to follow client directions regarding release of interim vote tallies.

In response, shareholder proponents like John Chevedden submitted a number of proposals seeking to restrict issuer access to interim vote tallies. Thus far, the SEC has permitted exclusion of these proposals for a number of issuers, including Amazon, Home Depot, Intel and Southern Company.

In early February of this year Broadridge addressed a similar interim tally issue when it announced that each party engaged in a non-exempt contested solicitation would only receive tallies with respect to votes cast on its own proxy card. Later that month, Broadridge reversed its position, announcing that each side in such opposing solicitation would continue to receive interim vote tallies for votes cast on their own and each other’s proxy card.

In the wake of these policy changes, the CII opted to weigh in with another direct appeal to the SEC seeking guidance on the applicable rules governing the disclosure of preliminary vote tallies. In early March, after other efforts had failed to resolve the issues, the CII submitted a second letter to the SEC’s Division of Corporation Finance, this time specifically asking the Division to take action “to ensure a level playing field for any participant in an active solicitation.” Specifically, the CII requested that the Division clarify the applicability of certain proxy rules and/or act to expand the scope of events which trigger Form 8-K disclosure obligations. Specifically, the CII requested the Division to:

  • Issue interpretive guidance that clarifies Rule 14a-2(a)(1)’s definition of “impartiality” to do one of the following: (a) prohibit the disclosure of interim voting tallies to any party; (b) disclose, to any requesting participant engaged in an active solicitation, only the interim number of shares voted without any detail as to exactly how the shares were voted; or (c) disclose the interim vote tallies on ballot items to any requesting participant engaged in an active solicitation. [Note: Any of these changes would establish, for any participant in an active solicitation, equal access or lack of access to the available vote tally information.]
  • Issue interpretive guidance that clarifies that Rules 14b-1 and 14b-2 do not permit the selective disclosure of interim vote tallies. [Note: These rules are currently silent on the issue, but the CII believes that proxy distributors like Broadridge may be relying on these rules as the basis to engage in selective disclosure.]
  • Expand the category of reportable events on Form 8-K to affirmatively require the disclosure of interim vote tallies. [Note: The CII believes that interim vote tallies may constitute material information to investors and thus such information should be required disclosure on Form 8-K, similar to the current requirement to disclose voting results on Form 8-K following a shareholder meeting.]

The CII also made clear in its letter that the overall policy on this topic should return to the state of the world before Broadridge’s May 2013 decision to terminate its policy of providing interim vote tallies. In doing so, the CII expressed its preference that any interpretive guidance from the Staff be responsive to items 1(c) and 2 above and further acknowledged that other actions may be “too disruptive to the proxy voting process” at this time.

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