June 26, 2008

Online Bartering of Voting Rights: My $1 Million Idea

How do you like that? I finally came up with a viable million dollar idea (probably many millions) and I’ve got too much on my plate to do something about it. So it’s free for the first taker!

I got the idea when I was reading a white paper by Glyn Holton, founder of the Investor Suffrage Movement, that describes a system that would let people who own shares of a company transfer the voting rights of their stock to other shareholders so investors with similar goals could establish a bloc of votes. Glyn has already conducted proxy transfer trials (Thanks to publisher, Jim McRitchie, for alerting me to

In the white paper, Glyn envisions a world where soccer moms donate the voting rights of their holdings to their favorite charities. It sounded interesting, but not earth-shattering. But my antenna got raised when I got to a paragraph on page 18 that says “For example, the purchase and sale of voting rights raises public policy issues, so an exchange should not facilitate such transactions.”

Hmm, voting rights have been sold for decades, but typically in one-off transactions to facilitate a deal. What if someone created an online marketplace where voting rights could easily be bought and sold? It could even be in the form of an auction where management and a third-party bid up the price.

Taking it a step further: what if a retail holder checked a box when they opened a brokerage account indicating that their broker should routinely sell the voting rights of their holdings until they instruct otherwise. The proceeds from the annual sale of a particular batch of voting rights would be deposited in their account.

All of this would lead to exchanges listing the latest prices for voting rights for specific securities – and then derivatives could be created on top of that. This all sounds pretty crazy – but is it? It’s potential impact dwarfs that of shareholder access.

I’m sure there are legal issues up and down the board that I’m not aware of. Let me know what you think. And if you take this idea and run with it – think of me from your yacht. Remember that I’m not saying whether something like this is good for the market and for boards or investors. I’m just throwing it out there as some possibility that could cause a whole lot of change…


This one is about one of those things that I swear I’ve blogged about before – but it was all in my mind. When I’ve been out speaking about e-proxy, I point to as an example about how the playing field is changing. Founded by Andy Eggers of Harvard’s Department of Government, the site is a free resource where one can more easily analyze the voting track record of mutual funds. As you might recall, the SEC adopted rules a few years ago that requires mutual funds to report their votes for the year. However, the way the information is required to be reported is hard to decipher (eg. Fidelity files more than 100 of these forms). This site organizes the information from those Form N-PXs.

The site has other features, including alerts as to how the big institutional investors intend to vote (if those investors decide to announce what their intentions are, as they are permitted to do under the SEC’s proxy rules – see note below). So the site makes it easy for anyone to vote, by reducing the time they need to spend on detailed analysis of issues and candidates. And this is just the start – you can easily envision a path where this site and others do much more to facilitate the information gathering process and present it in a much easier way than currently available in a way that may eventually impact the results of annual meetings.

Anyways, I waited so long to blog about this development that Andy has blogged about it himself on Harvard Law School’s Corporate Governance Blog and in his own blog.

Under Rule 14a-l(1)(2)(iv), shareholders are permitted to publicize their voting intentions – as well as the reasons behind the intentions – without it being deemed a “solicitation.” Today, not many shareholders take advantage of this exemption to announce their intentions – CalPERS and a handful of others – so this feature doesn’t hold much value. If more shareholders start making announcements, then it will become a more important aspect of the site.

SEC Proposes to Delete References to Credit Ratings

Yesterday, the SEC held an open Commission meeting to propose – jointly from three Divisions, Trading & Markets, Corporation Finance and Investment Management – changes that include replacing references to ratings by Nationally Recognized Statistical Rating Organizations (ie. NRSROs) with alternative qualitative standards. This follows another proposal from several weeks ago related to regulation of the ratings process. Here is a statement from the Corp Fin Staff and Chairman Cox’s opening remarks from the open meeting (and a WSJ article). The SEC’s related press release is not out yet – we will be covering this topic more in the coming weeks.

– Broc Romanek