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The Investor as Owner Subcommittee of the SEC’s Investor Advisory Committee established pursuant to Section 911 of the Dodd-Frank Act has issued two recommendations on disclosure of preliminary voting results.  The recommendations will be discussed at a meeting on October 9, 2014.  The members of the subcommittee are listed here.

Whether or not you agree with the recommendations, the report has merit for its clear discussion of proxy plumbing and the relation of brokers, Broadridge and issuers.  Broadridge fulfills brokers’ responsibilities to prepare and distribute a voting instruction form and proxy materials and also collects voting instructions.

In uncontested solicitations, issuers and their agents can acquire from Broadridge cumulative voting status information beginning the day after the first distribution of proxy materials.  In contested solicitations, Broadridge provides both sides a contest status report.  In these situations there are no confidentiality obligations.

Exempt solicitations are those where a solicitor sends solicitation materials advocating a position on a shareholder matter but does not distribute its own proxy card.  Issuers receive preliminary voting results in the same manner as an uncontested solicitation.  Until recently, exempt solicitors (those distributing proxy solicitation materials but not distributing their own proxy card) received the vote status information on the matter or matters subject to the solicitation. The information was provided as an aggregate total, not broken down by nominee. In May 2013, however, Broadridge ceased providing vote status information upon the request of the exempt solicitor. Instead, the information was only provided where authorized by the relevant issuer and subjected to a three party confidentiality agreement (issuer, Broadridge and exempt solicitor) with respect to the information.

Rule 14a-2(a)(1) exempts the brokers’ role in the voting process from the proxy rules. One of the conditions to the exemption is the broker act in an impartial manner.  The Investor as Owner Subcommittee sees Broadridge’s selective disclosure of preliminary voting information as inconsistent with the brokers’ requirement to be impartial since Broadridge is acting as intermediary for the brokers.

In its first recommendation, the Subcommittee believes SEC staff should specifically state that the obligation to solicit instructions on an impartial basis does not allow brokers (or their intermediaries) to do so with the awareness or expectation that the voting information will be provided to only to one side in a contested or exempt solicitation. Impartiality could be met through the denial of such information to all parties in a contested or exempt solicitation. The Subcommittee believes, however, that the staff should express a preference for disclosure on identical terms to all parties who distribute proxy materials.

The second recommendation addresses possible conflicts of interest by Broadridge.  Broadridge, in addition to distributing materials as intermediary for brokers, also has other relationships with issuers. For instance, Broadridge provides tabulation services and often asks as inspector of election for issuers.  According to the Subcommittee, when serving as an inspector and perhaps as tabulator, Broadridge is in a position to determine the validity of proxies from the very same brokers and banks on whose behalf Broadridge submitted proxies. In effect, Broadridge is in the position of examining its own work.

In the second recommendation the Subcommittee believes the staff should require brokers to take reasonable steps to verify, based upon all the relevant facts and circumstances, that the intermediary (i.e. Broadridge) will act in an impartial fashion and is not subject to impermissible conflicts of interest that impair the ability of the intermediary to act in an impartial manner.


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The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.