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Boards & Shareholders Preparing for End of Broker Voting in Elections By Jaclyn Jaeger Don’t discount the old-fashioned tele- a letter to shareholders in a Form 8-K are all phone; such solicitation calls to larger re- ways to achieve this, she said. T he elimination of broker votes in direc- tor elections may well tip the scales of power from corporate boards to sharehold- tail investors can be a useful tactic to drum up votes. Generally, telephone campaigns encourage shareholders to vote and direct What Now? The exact effect that the rule change will have will vary from company to company ers. Companies should prepare now so they the shareholder to record votes by phone, depending on numerous factors, such as the won’t be left dizzy by the rule change. she said. “While call campaigns may not by composition of a company’s shareholder The Securities and Exchange Commis- themselves result in a huge turnout, they base. For example, Finkelstein said, com- sion ended the practice of “broker voting” can provide that swing vote that results in panies should know what percentage of in director elections this summer, a move their shareholders are institutional or retail that may prove to be the most important de- investors, and which institutions have long- velopment in shareholder activism in more or short-term investment strategies. than a decade, Rachel Posner, general coun- Experts cited several other key factors to sel at proxy solicitation firm Georgeson, “The increased risk for a watch, including: said in recent Webcast on the topic. failed director election in the » Historical voting patterns and share- Historically, broker-dealers were al- holder participation; lowed to vote as they saw fit in uncontested wake of the elimination of director elections when clients hadn’t pro- the broker vote, particularly » Agenda items likely to be addressed vided the firms with any instructions—and in future annual meetings, and how typically the firms then rubber-stamped for a company with majority those proposals may affect the ability whatever management recommended. voting in place, is obvious.“ to achieve quorum to conduct business Now, starting Jan. 1, such votes are prohib- of the meeting; ited, leaving shareholder activists that much — Rachel Posner, more influential. » The likelihood of brokers adopting General Counsel, “The increased risk for a failed director Georgeson “client-directed” voting, where the cli- election in the wake of the elimination of ent gives standing instructions on the the broker vote, particularly for a company broker on how to vote in director elec- with majority voting in place, is obvious,” tions and other issues; Posner said during the Oct. 15 Webcast. the successful director election, even in a “The results are staggering.” In 2008, for close vote.” » The corporate governance profile of example, 16.5 percent of shares were voted Posner also urged companies to alert the company, especially as it pertains by brokers exercising discretionary voting, shareholders to the rule change itself—per- to shareholder activism or the chance according to Broadridge Financial Solu- haps with catchy reminders in proxy pack- th
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