We have discussed in the last post the potential importance of running tallies in proxy contests. The JP Morgan Chase battle over the separation of chair and CEO was also important because it illustrated the role of Broadridge in the disclosure of running tallies.
Broadridge has a signficiant role in the proxy process. It is Broadridge that for the most part distributes proxy materials to street name owners. It is Broadridge that for the most part sends and receives voting instructions and provides companies with the requisite tabulations. In the proxy process, however, Broadridge is not directly subject to oversight. It acts as an agent for brokers (brokers are the ones with the legal responsibility to forward proxy materials and collect voting instructions).
Brokers in turn are exempt from the proxy rules in connection with the fowarding process under Rule 14a-2(a)(1). The rule provides, among other things, that the broker:
- does no more than impartially instruct the person solicited to forward a proxy to the person, if any, to whom the person solicited desires to give a proxy, or impartially request from the person solicited instructions as to the authority to be conferred by the proxy and state that a proxy will be given if no instructions are received by a certain date.
In connection with these responsibilities, Broadridge has, apparently, had a practice of providing running tallies in contests over shareholder proposals to the issuer and to the shareholder that made the proposal. In effect, this provided running tallies to both sides, putting them on an impartial footing and allowing them to adjust their strategies and resource allocations accordingly.
In the middle of the battle over the separation of chair and CEO at JP Morgan Chase, Broadridge announced that it would no longer provide running tallies to the shareholder making the proposal. The information would, however, still be provided to the issuer. In other words,Broadridge effectively opted to abandon an impartial approach to the distribution of voting data in contests.
Eventually, JP Morgan Chase, under apparent pressure from New York Attorney General Eric Schneiderman, opted to provide the data to shareholders, although subject to confidentiality obligations.
The resolution of the JP Morgan matter, however, came late in the process. Moreover, the Broadridge approach presumably remains in place for all other contests. Thus, absent a shift in approach, shareholders will be denied this information while issuers will continue to receive running tallies, providing issuers with an advantage in proxy contests.
With all of this in mind, we turn to the SEC's recent case against ISS with respect to the disclosure of voting tallies.