Even in uncontested elections, a ban on broker-voting could have profound consequences. Activists often wage "Just Say No" campaigns against specific directors, and in companies where directors must receive a majority of votes cast, broker votes can lead to artificially high "yes" totals that keep current directors in their seats against shareholder wishes.
NYSE Ban on Broker Voting Gets a Second Chance By Melissa Klein Aguilar sumably it has something to do with the to spend more money reaching sharehold- arrival of new SEC leadership that is tak- ers who previously didn’t vote. I t’s back: A proposal from the New York Stock Exchange to keep broker-dealers ing a more shareholder-friendly tone; the SEC must approve any NYSE rule change Consequences from voting in elections for corporate board directors. The NYSE refiled its controversial for it to go into effect. As currently written, the amendment would apply to proxy voting for share- W ithout broker votes in director elec- tions, companies with majority- vote standards could see their lives get proposal Feb. 26, more than two years holder meetings held on or after Jan. more complicated. New directors might after the exchange first tried to pass the 1, 2010. If the SEC doesn’t approve the have a more difficult time crossing the 51 reform against so-called “broker voting.” amendment by Aug. 31 of this year, how- percent threshold, and embattled incum- Assuming the idea finally wins approv- ever, the effective date would be delayed bents might end up with a majority of al—decidedly more possible under the votes against them. That would essential- new Securities and Exchange Commis- ly force the incumbent off the board, since sion leadership—it could give shareholder he would usually be required to tender his activists more strength when expressing resignation. displeasure with directors they don’t like. “We look forward to swift “We don’t have a lot of experience yet Broker-dealers are currently allowed with how boards will deal with such ten- to cast ballots in uncontested director action by the SEC on this long dered resignations,” says Claudia Allen, elections if their clients fail to provide overdue shareholder reform.” chair of the corporate governance practice voting instructions at least 10 days before in the law firm Neal Gerber & Eisenberg. a scheduled company meeting. The NYSE —Amy Borrus, Moreover, companies that have adopted proposal would amend Rule 452 to clas- Deputy Director, the SEC’s new “e-proxy” rules (allowing sify all director elections as “non-routine” Council of Institutional Investors them to post their proxy statements on- matters, which would end the brokers’ line and then tell investors to read it there) right to vote those shares. (Contested have seen a sharp drop in retail votes. That elections are already considered non-rou- leaves broker votes all the more influen- tine matters that brokers cannot vote on at least another four months and would tial—and if they are omitted from director absent client
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