Securities Law - SEC Acts On Proxy Voting Proposal

At the present time shareholders can hold corporate shares directly or indirectly through financial intermediaries such as brokers. Current New York Stock Exchange Rule 452 provides “in uncontested elections brokers can vote shares they hold in street name on behalf of customers when customers do not return voting instructions.”

The SEC in a divided vote approved the New York Stock Exchange proposal to halt brokers voting of customer shares in uncontested elections if voting instructions have not been received. Although the Rule is a NYSE rule, broker members would be required to comply with the Rule no matter where the shares are listed.

According to the SEC staff, this will improve corporate governance and accountability by helping to insure that only those with an economic interest in listed companies vote in director elections. However, there is concern about the effect of that amendment on shareholder participation because shareholders ordinarily expect the brokers to vote their shares [almost always in favor of current management]. Now that those shares will not be voted without specific instructions, what will it mean to the voting process? In other words, companies will have to find ways to communicate with shareholders more aggressively to get shareholders to vote their shares. The failure to get a sufficient number of votes might mean that quorum limits are not met and director elections might fall short of voting requirements. In other words, companies will be put to substantial greater cost to see to it that the requisite number of shareholders vote at elections.

The Amended Rule will be effective January 1, 2010.

Edward X. Clinton, Sr.
Copyright 2009