Tuesday, March 31, 2009

Brokers and those routine votes

Last week I mentioned that the SEC rules on "routine" broker votes are once again in flux.

Individual investors usually hold their stock in brokerage accounts, registered in its "street name," i.e. the name of the broker. The proxy then, or its agent ADP Proxies, has often voted on routine matters. So: what counts as routine?

Until 2002, most increases the availability of stock options were considered routine, and thus subject to such broker-level rubber stamping. That stopped because of widespread complaints that stock options had become throughout the 1990s an instrument for the distribution of wealth away from shareholders, toward management and employees. Part of the fall-out of the post-dotcom and post-Enron re-appraissal of corporate governance was a change on this point: no more routine broker votes on stock options.

Uncontested directorial elections, though, have continued to be treated as routine. That is what is now up for change.

The first-line regulator on such matters is not the Securities and Exchange Commission but the New York Stock Exchange itself, though the NYSE must submit its rule changes to the SEC for approval. Accordingly, the NYSE has submitted to the SEC a rule change that would prohibit discretionary voting by brokers in uncontested director elections.

Experts at Wachtell Lipton have argued that "the proposed rule change could significantly increase the power of institutional shareholders generally and activist shareholders specifically in influencing director elections and corporate affairs."

The public comment period on this rule change expired Tuesday, March 28.

Here's a link to one of those public comments, what the Investment Company Institute (the trade group for mutual funds and such) has had to say.

The ICI isn't happy. It has concluded "that the proposal would have a disproportionate impact on investment companies and would create significant difficulties for investment companies in achieving quorums and electing ... directors."

For now, I'll leave the issue there, although of course I'll be very happy to hear reactions from readers of this humble blog.

1 comment:

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