As we approach the 2009 annual meeting season, we are alerting clients to reconsider the impact of changes in “routine” broker voting on corporate director elections. In effect, companies who have not yet adapted to the new proportional voting policies now in use by a number of brokerage firms may find themselves unprepared for the upcoming proxy season. Notably, these proportional or “mirror” voting policies could make electing company-endorsed directors more difficult than ever.
Director elections are one of a number of “routine proposals,” so designated by the New York Stock Exchange under NYSE Rule 452, which call for discretionary voting by brokers as member organizations. Discretionary voting is designed to allow brokers to vote their client’s shares in cases where the broker has not received any instructions from the client or “beneficial owner”. As a matter of course, brokers had always voted these uninstructed shares in favor of the recommendation of the issuer’s board – creating an automatic advantage for proposals recommended by management.
Tracking this new retail vote influence is of even more importance to companies. Companies may be surprised to see vote support that had been previously expected evaporate as discretionary votes are cast. While all brokers issue instructed votes ten days prior to an annual meeting (as well as discretionary votes if that broker does not vote in a proportional manner), brokers who issue discretionary votes in a proportional manner designate the unvoted shares 72 hours before the annual meeting and then update their votes daily to reflect any new instructions. Although this may seem like very little notice, a good proxy solicitor should be able to estimate the impact of proportional voting approximately a full week to ten days prior to the meeting date.
This post was submitted by Bruce Goldfarb, the President & CEO of Okapi Partners, A New York City - based proxy solicitor and experts on issues relating to shareholder activism. We're pleased to have Bruce as one of our newest Blog & Tacklers and look forward to his contributions in the future.