During a wide-ranging speech on corporate governance issues before a meeting of the Society of Corporate Secretaries and Governance Professionals in Chicago, Securities and Exchange Commission Chairman Mary Jo White hinted at where agency rulemaking is under consideration on some hotly contested proxy matters.
Although no timetable was set, White, addressing he group on Thursday, said the SEC will, in time, propose rules for universal balloting.
There has been renewed discussion about whether current proxy rules provide shareholders with a sufficient range of choices in election contests if they are voting by proxy, rather than in person at a company’s annual meeting, White explained. In a contested director election, it is not generally possible for shareholders to pick freely from nominees on each side’s proxy cards unless they attend and vote in person at the meeting. They can vote for either the entire slate of candidates put forward by management or by a proponent and cannot pick and choose the individuals that they believe are the best candidates from the two slates.
Concerns have led the SEC, amid public pressure, to consider how its current rules apply to universal proxy ballots, single proxy cards that would list both management’s and a proponent’s nominees in contested director elections, allowing shareholders to vote for a mix of nominees of their own choosing. The idea proved to be controversial when it was raised during a February roundtable the Commission held on ways to improve the proxy voting process. Questions included when a universal ballot could be used, whether it would be optional or mandatory and under what circumstances, whether any eligibility requirements should be imposed on shareholders to use universal ballots, what the ballot would look like, and whether both sides must use identical universal ballots.
Agreeing that the “devil will be in the details,” White has instructed SEC staff to bring a rulemaking recommendation to the Commission for consideration.
Regarding preliminary proxy vote information, rulemaking may be more of a moving target. Under the current system, proxy materials are distributed to shareholders directly, in the case of registered shareholders, and indirectly through brokers and banks. The vast majority of banks and brokers retain an agent to send out the request for voting authority.
In addition to delivering proxies to the company reflecting the instructions received from the beneficial owners, the agent makes preliminary vote tallies available to the company before the meeting. This allows the company to determine whether it will meet its quorum requirement and access to this information also allows the company to assess the direction a vote is taking and to adjust its proxy solicitation strategy.
In the past, Broadridge, the largest agent collecting vote tallies, provided voting tallies when a proponent had mailed exempted soliciting materials to shareholders and signed a confidentiality agreement. It did this so long as the banks and brokers did not raise an objection. But, in 2013, some brokers objected to the early release of voting data and the practice ended. Investor groups and academics have expressed concern about this turn of events and argued for equal access to the information.
Should the SEC step in? White said it has been asked to either interpret existing rules or adopt new ones to clarify that brokers are obligated to require their agents to deliver preliminary vote tallies to all interested participants.
“If the Commission were to advance a rulemaking in this area, it could take several forms,” White said. A rule could condition the broker’s exemption from the proxy rules on an overall “impartiality” requirement to level the playing field, such that everyone gets preliminary vote tallies, or nobody gets them. Alternatively, a rule could permit brokers to provide issuers with the total votes that have been cast only in order to determine quorum, rather than a preliminary vote tally that would indicate how the shareholders have voted.
As with universal ballots, White urged independent compromises, although she did concede that a possible solution worked on by the Society of Corporate Secretaries and Governance, the Council of Institutional Investors and Broadridge, ultimately fell apart.