Wednesday, July 1, 2009
The SEC voted to approve an NYSE proposal that would eliminate broker discretionary voting for all elections of directors, whether contested or not. Currently, NYSE Rule 452 and corresponding Listed Company Manual Section 401.08 permit brokers to vote on behalf of their beneficial owner customers in uncontested elections of directors if the customers have not returned voting instructions. While the NYSE filed this proposed rule change with the SEC years ago, the SEC did not publish it for public comment until March 6, 2009. It received 153 comment letters from issuers, transfer agents, institutional investors, proxy advisory firms and others.
The NYSE's proposal is designed to enhance corporate governance and accountability by helping assure that investors with an economic interest in the company vote on the election of directors. It also would address concerns that broker discretionary voting for directors has impacted election results.
Specifically, the NYSE proposal would add "election of directors" to the list of enumerated items for which a member generally may not give a proxy to vote without instructions from the beneficial owner. The proposal contains a specific exception for companies registered under the Investment Company Act of 1940. In addition, the NYSE proposes to codify two previously published interpretations that do not permit broker discretionary voting for material amendments to investment advisory contracts with an investment company.
The NYSE's proposal will apply to shareholder meetings held on or after Jan. 1, 2010. The SEC's approval order will be published in the Federal Register and posted on the SEC Web site as soon as possible.