A landmark event in U.S. corporate governance may have slipped under the radar in the wake of proxy-access private ordering and the start of the second proxy season in which “Say on Pay” is on the ballot.
The New York Stock Exchange recently stated in an information memo to its members that it would amend NYSE Rule 452 to prohibit brokers from voting on corporate governance proposals supported by company management without instructions from their clients.
This is only the latest in a series of changes that have cut back on the number of items on which brokers have discretion to vote on behalf of their clients — votes that have historically supported management.
In 2009, the SEC approved a NYSE rule to bar brokers from casting uninstructed shares in uncontested director elections. Meanwhile the Dodd-Frank Act, signed into law in 2010, forbids broker votes on executive compensation matters, including management Say-on-Pay votes.
And in late January of this year, the NYSE stated that proposals relating to de-staggering the board of directors, majority voting in the election of directors, eliminating supermajority voting requirements, providing for the use of consents, providing rights to call a special meeting, and certain types of anti-takeover provision overrides that are included on proxy statements will be treated as “Broker May Not Vote” matters going forward.
The NYSE did state that auditor ratification will continue to be a “Broker May Vote” matter.
Investor advocates have complained for years that uninstructed broker votes automatically cast in support of corporate initiatives amounted to “stuffing the ballot box” in favor of management.
Investors should be aware of unintended consequences. The new rule will make it more difficult for companies with supermajority requirements (such as 75 percent or 80 percent of shares outstanding) to obtain enough votes to pass shareholder-friendly management resolutions. Under the NYSE’s new interpretation, those uncast votes will be counted as dissenting votes.