With Rule 452 amended, are matters finished? Not exactly.
First, the rule applies to members of the NYSE. Brokers that are not subject to the requirement are outside the rule's boundaries. That means that brokers who hold shares for NYSE or Nasdaq companies but are not members of the NYSE (only members of FINRA) can vote in uncontested elections (or on any other matter). The only limits are those imposed by state law. As a result, management may still receive in each election a block of discretionary votes. Having said that, it is likely that most discretionary votes are in the hands of NYSE brokers. Moreover, non-NYSE brokers may follow Rule 452 anyway as a sort of safe harbor.
Second, the Rule continues to regulate discretionary voting in the negative. There is no definition of routine. Instead, there are 18 categories of non-routine and one catch-all category. The catch-all provides:
- the person in the member organization giving or authorizing the giving of the proxy has no knowledge of any contest as to the action to be taken at the meeting and provided such action is adequately disclosed to stockholders and does not include authorization for a merger, consolidation of any matter which may affect substantially the rights or privileges of such stock.
In other words, a proposal that has the potential to substantially affect the rights or privileges of stock would be included.
Notwithstanding the list, the NYSE will note each matter that is or is not subject to discretionary voting in the weekly bulletin. See Rule 452.11 (“When member organization may not vote without customer instructions.—In the list of meetings of stockholders appearing in the Weekly Bulletin, after proxy material has been reviewed by the Exchange, each meeting will be designated by an appropriate symbol to indicate either (a) that members may vote a proxy without instructions of beneficial owners, (b) that members may not vote specific matters on the proxy, or (c) that members may not vote the entire proxy.").
This places extraordinary discretion in the hands of the NYSE in determining when discretionary votes can be cast. Indeed, the NYSE has been criticized on occasion for its exercise of discretion in this area. See Amy Goodman & John Olson, A practical guide to SEC proxy and compensation rules, at 12.3, n. 21 (2001).
Rule 452 should be amended to reverse the presumption. All matters submitted to shareholders should be deemed non-routine, with discretionary voting not allowed. Only if specifically listed as routine would discretionary voting be permitted (approval of the auditor, etc.). This will reduce the discretion of the NYSE and ensure that shareholders and investors are aware of the matters considered routine. It will put on public display the matters that brokers can influence with their discretionary votes, making the system more transparent.
The amendment to Rule 452 adopted by the Commission is a start but there is a long way yet to go.