NYSE Further Narrows Broker Discretionary Voting: Potential Impact on a Company’s Proxy Season Planning

The New York Stock Exchange (NYSE) once again has limited the ability of a broker to vote on proposals at shareholder meetings for which the broker has not received voting instructions from its customers. This narrowing follows recent rule amendments triggered by the Dodd-Frank Act prohibiting brokers from voting uninstructed shares in the election of directors and on proposals relating to executive compensation.

Citing recent congressional and public policy trends disfavoring broker voting of uninstructed shares, on January 25, 2012, the NYSE notified members that it no longer will allow brokers to vote on corporate governance proposals without customer instruction – even if the company’s board and management support the proposal. Previously, the NYSE considered management-supported corporate governance proposals “routine” matters for which brokers could exercise discretionary voting on behalf of their beneficial-owner customers. The NYSE notice listed the following examples of corporate governance proposals for which brokers no longer can vote without instruction:

  • de-staggering or de-classifying boards of directors;
  • requiring majority voting for election of directors;
  • eliminating supermajority voting requirements;
  • providing for shareholder action by consent rather than at a shareholder meeting;
  • providing rights to call a special meeting of shareholders; and
  • overriding certain types of anti-takeover provisions.

Interestingly, these types of proposals are generally considered “pro-investor” by many shareholder groups and shareholder activists. Be that as it may, the further limitation on discretionary voting by brokers likely will increase the difficulty and costs associated with obtaining shareholder approval of these types of proposals, making it likely that companies will need to engage proxy soliciting firms and lengthen the time period for soliciting proxies. Moreover, the matters listed in the NYSE notice merely represent examples of corporate governance matters for which brokers no longer can vote in their discretion. So, when planning to include corporate governance proposals, other than those listed in the notice, in their proxy materials, and the required disclosure regarding broker voting, companies will need to consider contacting the NYSE to obtain its guidance on whether broker voting will be permissible. Companies would thus be advised to carefully plan an appropriate strategy for obtaining shareholder approval of corporate governance proposals well in advance of the proxy season.

The NYSE notice to members is available here: NYSE notice.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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