Stock Exchange Activity
Shareholder voting and communications issues are regulated by both the U.S. Securities and Exchange Commission (SEC) and the stock exchanges, which oversee these activities through listing standards and regulatory rules.
The NYSE Proxy Working Group
In April of 2005, the New York Stock Exchange (NYSE) created a Proxy Working Group to review the rules regulating the proxy voting process. The Proxy Working Group was asked to make specific recommendations regarding NYSE Rules 452 and 465.
Rule 452 allows brokers to vote on certain "routine" proposals if the beneficial owner has not provided specific voting instructions to the broker at least 10 days before a scheduled meeting. The NYSE currently identifies 18 items which are not considered "routine." One of these items is the uncontested election of directors. Click here to review NYSE Rule 452.
Rule 465 governs the fees paid by listed companies to member firms for the firms' distribution of proxy materials and other communications to the shareholder. Virtually all brokers and banks have contracted out the administrative process of distributing proxy materials, tabulating votes, and responding to requests for shareholder lists to one particular company, Broadridge Financial Solutions. Click here to review NYSE Rule 465.
The NYSE requested the Working Group to review these rules and make recommendations to the NYSE. According to NYSE materials, the primary objective of the Working Group was to develop recommendations which would create a "more effective and efficient voting system for investors."
The Proxy Working Group Report of June 5, 2006
On June 5, 2006, the NYSE Proxy Working Group released its first report with the following conclusions and recommendations:
1.The NYSE Should Amend Rule 452 to Make the Election of Directors a "Non-Routine" Matter. Since corporate directors have authority over the most fundamental issues facing a corporation, the election of directors can no longer be considered a "routine" event. If Rule 452 is amended in this manner, brokers will no longer be permitted to vote the shares of beneficial owners who do not give specific voting instructions in corporate elections.
2. The NYSE Should Take a Leading Role in Efforts to Further Educate Investors About the Proxy Voting System. The Proxy Working Group believes that any plan to amend Rule 452 to make the election of directors a "non-routine" matter must include as a critical component a large scale education effort to inform shareholders about the mechanics of the proxy voting process.
3. The NYSE Should Support Efforts to Improve the Ability of Issuers to Communicate with Beneficial Owners. Given the potential impact that eliminating broker voting of uninstructed shares in director elections would have on issuers, particularly as a result of the trend towards "majority voting" for directors, the Proxy Working Group believes that there is a significant need for more effective communications between issuers and shareholders. The research conducted by the Working Group indicated that most investors will choose to allow issuers access to their contact information by classifying themselves as non-objecting beneficial owners ("NOBOs") if they are provided detailed information about the differences. For this reason, further education for investors about the NOBO/OBO distinction is appropriate.
4. The NYSE Should Continue to Evaluate the Effectiveness and Necessity of Broker Discretionary Voting Following the Amendment of Rule 452 to Make the Election of Directors a "Non-Routine" Matter. The Proxy Working Group also recommends that, in light of continuing technological and governance developments, including developments which make it easier to communicate with shareholders, possible regulatory and/or statutory changes impacting shareholder elections, and educational efforts, the NYSE should continue to evaluate the future need for broker discretionary voting under Rule 452. As a part of this effort, the Working Group believes it is important to consider the critical role broker voting has played in allowing issuers to achieve a quorum for shareholder meetings, and to address this issue as part of any change to Rule 452.
5. The NYSE Should Engage an Independent Third Party to Analyze and Make Recommendations Regarding the Structure and Amount of Fees Paid Pursuant to Rule 465. Virtually all banks and brokers contract out the administrative process for proxy mailings to Broadridge Financial Solutions. While this system may change over time, until such change occurs the NYSE remains the entity best able to review the appropriateness of the costs in the system and to oversee Broadridge's performance. Accordingly, the Proxy Working Group recommends that the NYSE engage an independent third party to analyze and make recommendations regarding the structure and amount of fees paid under Rule 465. In addition to the costs, this third party analysis should include a study of Broadridge's performance and the business process by which the distribution of proxies occurs, and this study should be conducted under the supervision of a subset of the Working Group.
6. The NYSE Should Request that the SEC Study the Role of Groups Making Voting Decisions Over Shares in which They Do Not Own or Have An Economic Interest. As the Proxy Working Group has reviewed the role of brokers in voting shares in which they do not have any economic interest, the Working Group has also considered the role of other groups, including various institutional advisory services and proxy working groups, making voting recommendations and/or decisions over shares in which they do not own or have an economic interest. Accordingly, the Working Group recommends that the NYSE request the SEC to study the role these groups play in the proxy voting process.
Click here to review a copy of the NYSE Proxy Working Group's Report and Recommendations of June 5, 2006.
Click here to review the comment letter to the Proxy Working Group submitted by the Shareholder Communications Coalition on June 30, 2006.
The Opinion Research Corporation Survey of April 2006
As a part of its research, the Proxy Working Group commissioned an Investor Attitudes Study by the Opinion Research Corporation in April of 2006. Overall, the Study found a great deal of confusion about the proxy voting process, even though most investors say they open and read at least some of their proxy statements, and nearly half claim to always vote on the issues identified. Many of the investors participating in the study were uninformed about the stock registration system and the procedures that are used when they do not return proxy voting instructions to their broker. The study found a clear preference for Non-Objecting Beneficial Owner ("NOBO") status, especially when the issue is explained objectively and investors are asked to choose. Very few prefer Objecting Beneficial Owner ("OBO") status, in particular if a $25 annual fee (14%) or a $50 fee (5%) is charged to maintain the status.
Click here to review a copy of this Investor Attitudes Study by the Opinion Research Corporation of April 7, 2006.
The NYSE Rule Amendment on Broker Discretionary Voting
On October 24, 2006, the NYSE approved the Proxy Working Group's recommendation to eliminate broker discretionary voting on the election of directors by proposing to amend Rule 452. This proposed rule amendment was filed with the SEC for its approval. To date, the SEC has not acted on this proposal.
Click here to review a copy of the NYSE's press release of October 24, 2006, announcing the approval of the Proxy Working Group's recommendation regarding broker discretionary voting.
Click here to review the NYSE proposal to the SEC to amend Rule 452, filed on October 24, 2006.
Click here to review NYSE Amendment No. 1, to exclude investment companies from its proposal to amend rule 452, filed on May 23, 2007.
Click here to review NYSE Amendment No. 2, to amend Rule 452, filed on June 27, 2008.
Click here to review NYSE Amendment No. 4, to amend Rule 452, filed on February 26, 2009.
Click here to review a Council of Institutional Investors (CII) letter of April 17, 2008, urging the SEC to act on the NYSE proposal to amend Rule 452.
Click here to review the SEC's response to the CII letter, dated May 9, 2008.
Click here to review a CII letter of May 21, 2008, providing additional concerns about broker voting.
After the release of its 2005 Report and recommendations, the NYSE Proxy Working Group established the following three (3) Subcommittees:
1. The Communications and Proxy Process Subcommittee, to review the existing shareholder communications process.
2. The Investor Education Subcommittee, to evaluate how to achieve greater shareholder participation in the proxy voting process.
3. The Cost and Pricing Subcommittee, to examine the appropriate fees and costs imposed by NYSE Rule 465 in connection with the solicitation of proxies.
The Proxy Working Group Report of August 27, 2007
On August 27, 2007, the Proxy Working Group released an Addendum to its Report and Recommendations. This Addendum discusses the reasons to exclude investment companies from the proposed amendment to Rule 452 and provides an update of the Working Group's activities since the 2005 Report.
Click here to review the Addendum to the Report and Recommendations of the NYSE Proxy Working Group, issued on August 27, 2007.
SEC Consideration of the NYSE Rule Amendment on Broker Discretionary Voting
On February 26, 2009, the SEC released for public comment a proposed amendment to New York Stock Exchange (NYSE) Rule 452. The amendment proposes to eliminate broker discretionary voting in elections of corporate directors.
This amendment was recommended by the NYSE Proxy Working Group in 2006, as a part of its evaluation of the proxy system.
The Coalition believes that broker discretionary voting should be considered as one component of a comprehensive review of the proxy voting and shareholder communications system.
Click here to review the SEC Release.
Click here to review the comment letter submitted by the Shareholder Communications Coalition on March 27, 2009.
Click here to review the comment letter submitted by the National Investor Relations Institute on March 16, 2009.
Click here to review the comment letter submitted by the Society of Corporate Secretaries & Governance Professionals on March 20, 2009.
Click here to review the comment letter submitted by the Business Roundtable on March 25, 2009.
Click here to review the comment letter submitted by the NYSE Proxy Working Group on March 25, 2009.
Click here to review the comment letter submitted by the Securities Transfer Association on March 27, 2009.
Click here to review the comment letter submitted by Intel Corporation on March 26, 2009.
Click here to review the comment letter submitted by Computershare Limited and Georgeson, Inc. on March 27, 2009.
On April 24, 2009, the Coalition submitted a letter to the SEC requesting full Commission review of any proposed amendment to NYSE Rule 452. Click here to review the Coalition's letter of April 24, 2009.
On July 1, 2009, the SEC approved the NYSE amendment to Rule 452, eliminating broker discretionary voting in director elections.
Click here to review the SEC order approving the NYSE Rule 452 amendment.
NYSE Commission on Corporate Governance
On September 1, 2009, the NYSE announced that it will form an advisory commission to examine U.S. corporate governance and the overall proxy process. The advisory commission will take a comprehensive look at strengthening best practices for both corporate governance and the proxy process.
Click here to review the NYSE announcement on the formation of the advisory commission.
Click here for more information about how stocks are bought, sold, and traded.
read more >
Some of the terminology on this website can get confusing. Please click here for a Glossary of Helpful Terminology.
read more >