Shareholder voting is viewed as fundamental to keeping boards and managements accountable, and, every year, billions of shares are voted at thousands of shareholder meetings of public companies. However, it is widely recognized that the current system of share ownership and intermediaries is a byzantine one that accreted over time and certainly would not be the system anyone would create if starting from scratch. There is also broad agreement that the current system of “proxy plumbing” is inefficient, opaque and, all too often, inaccurate. As the SEC’s Investor Advisory Committee has observed, under the current system, shareholders “cannot determine if their votes were cast as they intended; issuers cannot rapidly determine the outcome of close votes; and the legitimacy of corporate elections, which depend on accurate, reliable, and transparent vote counts, has been called into doubt.” Nevertheless, while the IAC and others have made recommendations for action to the SEC, nothing has yet been done or proposed, and the topic of proxy plumbing has been relegated to the SEC’s long-term agenda. (See this PubCo post.) Now, however, some aspects of the problem may be addressed through private ordering. Broadridge Financial Solutions, which provides services related to the proxy voting process, including vote tabulation, has announced that “it will provide end-to-end proxy vote confirmation this year to all shareholders in the annual meetings of the 2,000+ U.S. public companies whose votes it tabulates.”
What is end-to-end proxy vote confirmation? As described yesterday at the Northwestern Securities Regulation Institute by Keir Gumbs, Chief Legal Officer at Broadridge, vote confirmation is essentially a communication back to shareholders that their brokers received their vote instructions, those instructions have been “translated” into votes that were cast and included in the vote tally as instructed.
To say that there doesn’t seem to be a lot of confidence in the accuracy of the vote count would be an understatement. Shareholders tend to assume their shares have been voted, but that may not really be the case. As a basic matter, you would think that shareholders should have the ability to see through the chain of intermediaries to confirm that their shares have been voted as directed, but it’s often difficult or impossible for them to do so. While vote confirmation would certainly not resolve all of the issues arising out of the proxy plumbing morass, it would certainly mean a step forward. Hopefully, Broadridge’s new confirmation process will do the trick.
Broadridge said that its “enhancements to the proxy voting process were developed in conjunction with an industry Working Group led by the Society for Corporate Governance and the Council of Institutional Investors, and involving representatives of custodian banks, broker-dealers, issuers, institutional investors, other proxy tabulators, transfer agents, and the proxy services provider community.” This Working Group has committed to provide vote confirmation for meetings of shareholders of all Fortune 500 companies. Expanding on that commitment, Broadridge’s announcement indicates that it expects to provide vote confirmation to the shareholders of more than 2,000 companies—those companies for which it is acting as tabulator—for annual meetings in 2022.
Broadridge’s new protocols also include a “pilot of the mechanics of early-stage voting entitlement reconciliation,” which “ensures that any discrepancies between the records held by tabulators and those of banks and brokers will be addressed well in advance of a shareholder meeting, so that every share that is duly held and cast will be included in the final vote tally. The pilot will test and refine the new reconciliation protocols across 20 annual meetings of the Fortune 500.”