Don’t Let Companies Change Shareholders’ Blank Votes

Posted by Andrew Tuch, co-editor, HLS Forum on Corporate Governance and Financial Regulation on Tuesday June 2, 2009 at 10:41 am
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Editor’s Note: This post comes to us from James McRitchie, Publisher of CorpGov.net.

Please take a few minutes to read and submit comments on a rulemaking petition that a group of ten filed with the SEC on Friday, May 15th, to amend Rule 14a-4(b)(1). The petition seeks to correct a problem brought to our attention by John Chevedden, long-time shareowner activist. See petition File 4-583 here. Send comments to  rule-comments at sec.gov with File 4-583 in the subject line.

The problem is that when retail shareowners vote but leave items on their proxy blank, those items are routinely voted by their bank or broker as the subject company’s soliciting committee recommends. Current SEC rules grant them discretion to do so. As shareowners who believe in democracy, we have filed suggested amendments to take away that discretionary authority to change blank votes, or non-votes, as they might be termed. We believe that when voting fields are left blank on the proxy by the shareowner, they should be counted as abstentions.

This problem is not the same as “broker voting,” which has already been repealed on “non-routine” matters and, we hope, will soon be repealed for so-called “routine” matters, such as the election of directors. For example, even though “broker voting” has been repealed for shareowner resolutions, if a shareowner votes one item on their proxy and leaves shareowner resolutions blank, unvoted, those blank votes are routinely changed to be voted as recommended by the company’s soliciting committee.

See two examples. At Interface, I voted only to abstain on ratification of the auditors. Yet, you can seeProxyVote automatically fills in my blank votes with votes as recommended by the soliciting committee. A second example, at Staples, shows much the same. You can see blank votes that are changed also include the shareowner proposal to reincorporate to North Dakota, even though such proposals are not considered routine and are not subject to “broker voting.”

Just as broker votes should be eliminated so that votes counted reflect the true sentiment of shareowners, the practice of converting blank votes to votes for management should also end.

In our petition, we also highlight a secondary concern. When shareowners utilizing the ProxyVoteplatform of Broadridge vote at least one item and leave others blank, the subsequent screen warns them that their blank votes well be voted as recommended by the soliciting committee. This provides an opportunity to the shareowner to change their blank vote before final submission, if they don’t want it to be voted as recommended.

Of course, if we are going to have a system that allows the votes of shareowners to be changed, it is salutary of Broadridge to provide advanced notice. We applaud them for that effort. However, we note that it may fall short of what the SEC requires. Rule 14a-4(b)(1) requires that when a choice is not specified by the security holder, a proxy may confer discretionary authority “provided that the form of proxy states in bold-face type how it is intended to vote the shares represented by the proxy in each such case.” (my emphasis)

Broadridge says that shareowners using ProxyVote are communicating “voting instructions” to their bank/broker. They are not voting a proxy. Since Rule 14a-4(b)(1) pertains to “forms of proxy,” not the “voting instruction form,” there is no violation. However, subdivision (1) refers to the “person solicited” and the need to afford them opportunity to specify their choices. The person being solicited is the beneficial shareowner. Therefore, unless the subdivision applies both to a voting instruction and a proxy, the requirements to indicate with bold-face type how each field left blank will be voted loses meaning.

However the SEC interprets the current rule, we hope they move forward with a rulemaking to remove discretion to change blank votes and to require blank votes to be counted as abstentions. While the petition is being considered for action, we hope Broadridge will modify its system to clearly indicate in red bold-face type how votes will be cast for each item where a blank vote will be changed.

A few months ago, The Millstein Center for Corporate Governance and Performance released Voting Integrity: Practices for Investors and the Global Proxy Advisory Industry. While this important briefing was primarily focused at the proxy process for institutional investors, the need for integrity applies equally to the votes of retail investors:

At the heart of any discussion about proxy voting is the humble shareholder ballot. In its simplest interpretation, the ballot is arguably the principal method by which a company’s shareholders can, while remaining investors in the company, affect its governance, communicate preferences and signal confidence or lack of confidence in its management and oversight. The ballot is the shareholder’s voice at the boardroom table. Shareholders can elect directors (and, in several jurisdictions, have the right to remove them), register approval of transactions, supply advisory opinions and (increasingly) authorize executive pay packages, all through the medium of the ballot. It is one of the most basic and important tools in the shareholder’s toolbox… Safeguarding the intention of a voting instruction is of paramount importance to system integrity.

Co-filing with James McRitchie, Publisher of CorpGov.net, are:

John Chevedden, Rule 14a-8 proposal proponent since 1996 Glyn Holton, Executive Director, United States Proxy Exchange Mark Latham, Ph.D., VoterMedia.org Eric M. Jackson, Ph.D., Managing Member, Ironfire Capital LLC James P. Hawley, Ph.D., Professor and Co-Director, Elfenworks Center for the Study of Fiduciary Capitalism, Saint Mary’s College of California Andrew Williams, Ph.D., Professor and Co-Director, Elfenworks Center for the Study of Fiduciary Capitalism, Saint Mary’s College of California Andrew Eggers, President, Proxy Democracy Bradley Coleman and Erez Maharshak, Proxy Democracy.

Again, please submit comments on the petition to  rule-comments at sec.gov with File 4-583 in the subject line.

  1. [...] Cisco ($CSCO) is one of the stocks in my portfolio. Their annual meeting is coming up on 11/15/2012. ProxyDemocracy.org had collected the votes of five funds when I voted on 11/8/2012.  I voted with management 83% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by Cisco: How I Voted – Proxy Score 83% | Corporate Governance — November 11, 2012 @ 6:01 pm

  2. [...] Microsoft ($MSFT) is one of the stocks in my portfolio. Their annual meeting is coming up on 11/28/2012. ProxyDemocracy.org had collected the votes of six funds when I voted on 11/16/2012.  (The Table below doesn’t include the votes of Trillium.) I voted with management 92% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by Microsoft (MSFT): How I Voted – Proxy Score 92% | Corporate Governance — November 16, 2012 @ 2:41 pm

  3. [...] FactSet Research Systems Inc. ($FDS) is one of the stocks in my portfolio. Their annual meeting is coming up on 12/18/2012. ProxyDemocracy.org had collected the votes of three funds when I voted on 12/14/2012.  I voted with management 100% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by FactSet Research (FDS): How I Voted – Proxy Score 100% | Corporate Governance — December 17, 2012 @ 9:40 am

  4. [...] and opposition. Of course, the margin would have been even higher without insider holdings and blank votes going to management. Have we turned the corner on declassification measures to the point where companies might as well [...]

    Pingback by UNFI Vote: Have We Turned the Corner on Annual Elections? | Corporate Governance — December 24, 2012 @ 9:53 am

  5. [...] Walgreens ($WAG) is one of the stocks in my portfolio. Their annual meeting is coming up on 1/9/2013. ProxyDemocracy.org had collected the votes of four funds when I voted on 1/1/2012.  I voted with management only 24% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by Walgreens (WAG): How I Voted – Proxy Score 24 | Corporate Governance — January 2, 2013 @ 9:13 am

  6. [...] Costco ($COST) is one of the stocks in my portfolio. Their annual meeting is coming up on 1/24/2013. ProxyDemocracy.org had collected the votes of four funds when I voted on 1/22/2012.  I voted with management only 25% of the time.  View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by Costco: How I Voted – Proxy Score 25% | Corporate Governance — January 22, 2013 @ 11:05 am

  7. [...] CSP Inc. (CSPI, $CSPI) is one of the stocks in my portfolio. Their annual meeting is coming up on 2/12/2013. ProxyDemocracy.org had no advice for me, since the company is so small.  I voted with management 0% of the time.  View Proxy,  Proxy Supplement, Solicitation by North & Webster Value Opportunities Fund, LP, Letter from North & Webster, and Response. See more at EDGAR. Re Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by CSPI: How I Voted – Proxy Score 0% | Corporate Governance — February 6, 2013 @ 9:34 am

  8. [...] Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by Apple: How I Voted, Proxy Score – 46 | Corporate Governance — February 21, 2013 @ 12:06 am

  9. [...] Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) [...]

    Pingback by Walt Disney (DIS): How I Voted – Proxy Score 17 | Corporate Governance — February 27, 2013 @ 6:13 am

  10. [...] Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes.) [...]

    Pingback by Whole Foods Markets: How I Voted – Proxy Score 69 | Corporate Governance — March 11, 2013 @ 9:04 am

  11. [...] The default choice should either be whatever the shareowner selects or it should be a “not voted” vote, just like if a voter fails to mark an item on the proxy, that item should be left blank, although it is now often counted in favor of management. (See my petition to the SEC for a rulemaking File 4-583 with broken link on the SEC site at http://www.sec.gov/rules/petitions.shtml or as discussed at http://blogs.law.harvard.edu/corpgov/2009/06/02/dont-let-companies-change-shareholders-blank-votes/ [...]

    Pingback by Take Action: Last Day to Comment on NYSE Rules on Proxy Distribution Fees | Corporate Governance — March 14, 2013 @ 11:25 pm

  12. [...] vote for directors and no longer require supermajority votes. Yes, proxy mechanisms are flawed (votes left blank go to management). Yes, we have agency capitalism with little incentive for agents to monitor, but fixes are [...]

    Pingback by Review Essay: Citizens DisUnited | Corporate Governance — April 24, 2013 @ 9:22 am

  13. [...] Don’t Let Companies Change Shareholders’ Blank Votes [...]

    Pingback by CII Sticks Up For Retail Investors on Blank Votes, Phony VIF Ballot Titles & Biased Vote Reporting | Corporate Governance — May 21, 2013 @ 9:32 am

  14. [...] Direct registration would solve a myriad of problems, such as obtaining evidence of ownership and disenfranchisement through use of voter information forms. Let’s hope discussion moves across the [...]

    Pingback by Kay Review Recommendations | The Shareholder Activist — September 20, 2013 @ 9:18 am

 

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