Views on improving the integrity of global capital markets
10 November 2017

Counting Proxy Votes of Registered Shares Needs Modernizing

In a throwback to pre-digital Wall Street, it may take weeks or months to count the votes of registered shareholders in the proxy contest between Procter & Gamble (P&G) and activist investor Nelson Peltz of Trian Partners.

This situation has highlighted the mechanics of how proxy votes are counted in a contested corporate election, aptly explained by Rich Daly writing for Forbes in P&G Couldn’t Avoid The ‘Snake Pit.’ Better Tech, Verification Will Stop This in The Future (27 October 2017).

Daly, CEO of Broadridge Financial Solutions, explains the technology gulf between the counting of beneficial shares (held by institutional and retail investors in their bank custody and broker/dealer accounts, respectively) and the counting of registered shares (owned by corporate executives, directors, employees, and investors holding stock certificates).

In P&G’s case, the beneficial shares make up 94% of the total 2.6 billion shares outstanding and have already been counted by neutral third parties (including Broadridge). Meanwhile, the 200,000 contested ballots come from the pool of registered shares, which make up the remaining 6%.

These ballots are currently being scrutinized by the Inspector of Election, proxy solicitors from each side, and lawyers representing both P&G and Trian in a process Daley calls “painfully outdated and unnecessary.”

The counting of the beneficial shares of course is not the problem. It is the 6% of shares owned largely by company insiders and those holding stock certificates that are causing the hold up. Sure, this situation is rare and will not often repeat itself because the majority of all shares in the market are beneficial shares that can be counted in the blink of an eye.

How Could This Happen in the Digital Age?

Read the following paragraph from Daly’s article and try not to roll your eyes:

Each side hires its own proxy solicitors to mail and gather the votes of registered shareholders. The proxy solicitors for each side then present their respective results to an independent Inspector of Election. When the outcome of the election is close, as it is with P&G, and the votes of registered shareholders will determine the final outcome, the Inspector of Election must reconcile the often contradictory results it has been given. That means that every one of the reported 200,000 contested ballots is being scrutinized by the Inspector, proxy solicitors from each side and lawyers representing both P&G and Trian. This contentious and expensive process can include comparing multiple ballots from the same shareholder cast on different dates, with signatures and dates often in dispute. That is the snake pit.

Surely it is time to take these votes out of the hands of proxy solicitors who can hold them hostage for their own purposes.

Do we have the technology to do this?

We do.

Why don’t we do it then? Because there are special interests involved who benefit from the use of an antiquated system. This is bad corporate governance and bad for both issuers and investors.

Let’s change it.

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Photo Credit: ©Getty Images/Dave and Les Jacobs

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

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