The Continuing Problem of the Lack of Impartiality with Respect to the Disclosure of Preliminary Voting Tallies (Part 2)
We are discussing the remarks made by Mike Garland, the Assistant Comptroller for Corporate Governance and Responsible Investment at New York City Office of the Comptroller, on his experience obtaining preliminary voting results during the prior proxy season. His remarks have been webcast, can be found here, and the relevant remarks start at 2:17. The quotes were taken from the audio so may not be precisely accurate.
During the prior proxy season, his Office engaged in a number of exempt solicitations in support of shareholder proposals seeking proxy access. In his remarks, he addressed his experience in obtaining preliminary voting results. How important is this information? Very. See 2:45 (describing the information as "among the most important. That’s what really helps to inform strategic decisions and resource allocations."). How successful was he in obtaining this important information? Not very.
Requests for preliminary results were made at 18 companies (or, as he put it, “what we [actually] requested was their agreement to permit Broadridge to provide us with preliminary tallies”). Of that number: “Eight companies failed to acknowledge even our request which was sent by email. Three companies had the courtesy to respond and declined the request. Seven companies agreed in some cases fairly readily.”
So 60% of the companies either ignored the request or said no.
With respect to the seven companies that agreed to allow Broadridge to provide the preliminary voting information, the actual results were no better. As Garland stated:
- But not withstanding their willingness to execute the Broadridge confidentiality agreement, Broadridge refused to provide the tallies because we did not pay Broadridge to distribute our materials to shareowners. At that point we realized we had that problem we stopped making additional requests from companies because it became a moot point.
Some of the companies did provide the information directly but that left the companies in the position of acting as gatekeeper with respect bot to timing and content. Id. (“But I will say that some of these companies that did agree ended up sending us the tallies which we appreciate but it not a substitute for receiving them from Broadridge without the company having the right to play the role of gatekeeper.”).
Later in the Q&A period, Garland was asked (by me) about the self-help efforts whereby CII, Corporate Secretaries and others sought to iron out a three party confidentiality agreement governing the release of preliminary results to shareholders (the discussion is at 2:44 on the video). The talks, however, had broken down.
Garland indicated that he had been a participant in the discussion. He stated that the “process is not a substitute for SEC action. Were it to make more headway, which it has failed to do, it would potentially be a stopgap incomplete solution but it will never provide I think an acceptable solution.” Instead, the he did not “think his problem will be fixed absent action by the Commission.”
Why? First, there was the problem of Broadridge’s refusal to provide the data even when companies agreed to disclosure.
- The good faith efforts with CII and the society of corporate secretary's. What that was moving toward and came close to was a regime whereby if the company agreed and both parties with Broadridge all collectively executed a confidentiality agreement that Broadridge would then provide the preliminary information directly to the shareholder. And as I mentioned previously it turns out A. Broadridge won't do that unless you actually distribute your materials through Broadridge so companies can pay them to distribute materials and they get the benefit of the preliminary tallies rules as a courtesy. There's no requirement as you know.
Second, the approach, even if it worked, puts the company in control of the disclosure process. They could always decline.
- The problem even if it worked better it assumes that the information is the company's. It puts the company in the position of being a gatekeeper; some companies will agree; some won't. I don't think it’s our position that the voting information, the preliminary voting information, belongs to the company. I'm not a lawyer but my understanding is that's an unsettled legal question.
So where does this leave things? As the IAC recommendation requested, the Commission needs to step into this space and ensure that preliminary voting information is disclosed not in a manner that favors one side over the other in an exempt solicitation but on an impartial basis.