October 27, 2003

Understanding the Basics Before Understanding

In the corporate world, there are so many complex – and sometimes nonsensical – areas of law. Yet, one of the most convoluted areas underpin the SEC’s proposal regarding shareholder access. I am talking about the layers of intermediaries that must work together in order to cast votes for a shareholders’ meeting.

Companies ensure that all persons entitled to vote (both record holders and beneficial owners as of a record date) have an opportunity to vote after they have had an ample period of time to review proxy material and return proxy cards – and even revoke their votes if they desire. Companies solicit proxies through several layers of intermediaries – these intermediaries are involved because of the various different ways that securities can be owned. These layers of intermediaries makes it impossible for a company to directly communicate with all of its stockholders – since many stockholders remain anonymous to the company.

The voting process typically involves:

– Depositories provide an omnibus proxy to a company that states the number of shares held by “participants” in the depositories.
– “Participants” or “record holders” (primarily brokers and banks) hire proxy soliciting agents to obtain voting instructions from the beneficial owners who have bought stock through them (in “street name”).
– Tabulation agents tabulate voting instructions and facilitate providing these results to the company from the participants (or from beneficial owners who provided their voting instructions directly to the company).

The voting process is similar to the process for proxy solicitation – but there are some differences. Note that record holders vote by using “proxies” – beneficial owners vote by using “voting instructions.”

For subscribers, we have posted a PowerPoint presentation from ADP that explains this complicated proxy/voting process – this presentation might be useful to handout to directors so that they can better understand the SEC’s important proposal. [you will need a PowerPoint viewer on your computer to open the file under #7 in our “Shareholder Access Portal”; if you can’t – just shoot me an email and I will email the presentation directly to you.]

Directors By the Numbers

The WSJ has a special “Corporate Governance” section today, the most interesting of which is an interview with Peter Clapman of TIAA-CREF and David Farrell of Sun Microsystems. It also includes these factoids from The Corporate Library:

– average board size: 9.2 members
– largest board: 31 members; smallest board: 3 members
– independent outsiders: 66%
– average tenure on board: 8.4 years
– average age of directors: 58.9 years
– percentage of male directors: 90%
– total number of directors: 14,091; 9,369 served on one board and 7 served on nine boards

The Sushi Memo

From the “Ain’t the Internet Great” department, the so-called “Sushi” memo made the e-mail rounds over the past week. A junior corporate partner at [name of law firm omitted; but this could easily happen in any firm] asked the paralegal on a deal they were working on to order her sushi for dinner one evening. The dutiful paralegal did as instructed and went on the seamless web and made some selections for the partner. About 45 minutes later, the paralegal received a call from the irate partner who was very displeased with her evening meal. She ordered the paralegal to research and prepare a memo on sushi options in midtown Manhattan. A memo was produced.

The partner also instructed the paralegal to have the first year on the deal review the memo before forwarding it on to the partner. The partner was apparently quite satisfied with the memo. She was on the elevator one day with the senior partner on the deal when the paralegal entered the elevator. Junior partner asked senior partner if he knew the paralegal. He said of course he did. The junior partner then gushed that he should read this great memo the paralegal wrote for her. At least proper recognition was given!