March 6, 2018
A business group wants the Securities and Exchange Commission to help boost individual investors’ low voter turnout by letting them set preferences in advance with stockbrokers like Fidelity Investments and Charles Schwab Corp.
Then, instead of casting votes manually, shareholder ballots for director elections and other matters up for consideration at companies they own could be filled in automatically, the American Business Conference said in a Feb. 26 petition to the SEC.
Washington-based ABC represents about 50 companies, each with approximately $1 billion in revenue.
Regulators have weighed rule changes in the past to allow for a more automated voting system for individual, or retail, investors but they haven’t pursued the idea because of concerns about uninformed voting. ABC’s petition dismisses those concerns, saying they’re based on “a low view of retail holders” or perhaps “a fear that retail holders have inconvenient opinions.”
An SEC spokeswoman declined to comment on the petition.
Voter participation rates for individual investors have fallen in recent years as mutual funds and other institutional owners have come to account for more of the shareholder base, according to vote processor Broadridge Financial Solutions Inc. Its data for the latest round of annual shareholder meetings indicate more than a quarter of all U.S.-listed shares went unvoted primarily because retail investors didn’t take part.
ABC says shares shouldn’t go unvoted at a time when corporate ballots are becoming more of a battleground for issues including climate change and gender diversity.
“Partly because of the gridlock we’re seeing politically, we’re seeing more and more social and economic issues brought up in corporate elections,” ABC’s president John Endean told Bloomberg Law. “The more people who vote, the better.”
The cumbersome voting process is a major reason why individual shareholders don’t vote as often as institutional investors, according to University of Pennsylvania Law School professor Jill Fisch, whose recent research on the issue is cited in the ABC petition.
“It’s really hard for them to vote their stock,” Fisch told Bloomberg Law. Individual investors voting by paper, phone, or online may have to submit separately for each company in which they own shares.
Fisch said it would help if investors could default their vote so that it’s in line with, or against, the board’s recommendations or similar to how other investors are voting. Investors could also have the option of changing their default before the vote is submitted.
“It becomes a tool that would permit retail investors to vote their shares more efficiently,” said Frank Zarb Jr., a former SEC official who also has advocated for this kind of approach. Zarb, now a Washington-based partner at the law firm Proskauer Rose LLP, said a more efficient voting process would make individuals more likely to participate.
Even though institutions own the majority of voting stock in public companies, Fisch said how individuals vote can still make a difference.
Take Procter & Gamble Co.’s recent proxy fight with activist investor Nelson Peltz. “The margin was so small,” she said, “one shareholder was almost the pivotal voter.”
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