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The Securities and Exchange Commission wants to hear from publicly traded companies, their investors, and others on how its proxy plumbing is functioning.
Proxy plumbing is the system behind how companies communicate with investors via proxy statements and how investors weigh in on company matters through proxy voting. The SEC is holding a roundtable this fall to get feedback on its proxy-related rules.
The roundtable, announced July 30 by SEC Chairman Jay Clayton, doesn’t have a set agenda or date yet. Topics for discussion include the process for casting and counting shareholder votes on everything from executive pay to mergers, the costs and challenges of sending proxy materials to investors who buy shares through brokers, and the kind of ballot used when an activist investor takes on a company’s board of directors.
“It’s something that’s long overdue,” said Jill Fisch, a University of Pennsylvania Law School professor who’s written about the proxy process. “The way shareholders vote and the way we keep track of shareholder voting is very behind in terms of the technology that’s available.”
The commission last looked at its proxy rules in 2010. Since then, there’s been what Clayton has called “a dramatic increase” in talks between investors and company executives and directors. More than three-quarters of companies in the S&P 500 index have reported engaging with their shareholders so far this year, compared with 6 percent in 2010, according to Ernst & Young LLP.
“The scope of topics subject to shareholder engagement also has increased,” Clayton said in a statement announcing the roundtable. Investors are increasingly raising issues such as climate change and diversity in addition to more traditional corporate governance-related topics. One place where this shift has showed up is in the proposals shareholders submit for a vote at company meetings.
Clayton is asking whether there should be new limits on shareholder proposals, as business groups such as the U.S. Chamber of Commerce have called for. He also wants to know whether new regulations are needed for proxy firms that give investors voting advice, which Congress has considered imposing with legislation.
The SEC is reviewing its rules for these and other parts of proxy plumbing to see if they’re still effective.
“The SEC’s proxy rules have not kept up with the needs of the modern-day investor or the modern-day public company,” Brian O’Shea, senior director of the Chamber’s Center for Capital Markets Competitiveness, said in a statement. “We have long called for an overhaul of these rules to help promote the long-term performance of companies, and we’re pleased that the SEC is taking a serious look at this outdated system.”
Proxy plumbing has seen tweaks over the years, including a few made after the SEC’s 2010 request for feedback. But its infrastructure hasn’t changed much since the 1970s, according to Ken Bertsch, who directs the Council of Institutional Investors and pushed for a roundtable like this. “So there’s a lot of potential but also a lot challenges,” he told Bloomberg Law.
Some individual investors, for example, still vote on paper ballots. Their voter participation rate has fallen in recent years as mutual funds and other institutional owners have come to account for more of the shareholder base, according to Broadridge Financial Solutions Inc. The firm processes the vast majority of investor votes cast in the U.S.
“We welcome the opportunity to provide facts and data on the aspects of the process that we administer,” Chuck Callan, Broadridge’s senior vice president of regulatory affairs, said in a statement. “Proven technologies provide opportunities to further improve the process for all participants.”
Broadridge already confirms and audits proxy votes on a regular basis. It’s also testing blockchain’s digital ledger technology as a way to better record votes.
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