May 1, 2023
Proxy Plumbing: Report on End-to-End Vote Confirmation
In 2022, I had the opportunity to delve into the efforts of the Operations Subcommittee of the End-to-End Vote Confirmation Working Group. As we noted in the January-February 2022 issue of The Corporate Executive, the Operations Subcommittee of the End-to-End Vote Confirmation Working Group announced last year that it had agreed to provide end-to-end vote confirmation during the 2022 proxy season for Fortune 500 annual meetings that were tabulated by members of the Operations Subcommittee, and to pilot an early-stage vote entitlement reconciliation process for 20 Fortune 500 meetings. End-to-end vote confirmation is the affirmation to a nominee from the tabulator (and to the nominee’s beneficial owner by the bank or broker) that the vote made was counted as cast. Vote entitlement refers to bank’s or broker’s voting entitlement on behalf of their clients.
As Liz recently noted on The Proxy Season Blog, the Operations Subcommittee of the Working Group has published a report on its findings from the 2022 proxy season, which it shared with the full Working Group and the SEC. Liz notes the following key takeaways from the report:
– Need for industry participants to continue working together to identify cost effective and efficient solutions.
– Need for the regulators to review the findings and assist in moving forward regulations to strengthen the proxy process and continue building trust in the system. (Note: in large part, this will be determining (i) which party is responsible for resolving issues e.g., the tabulator or the bank/broker and its service provider, and (ii) a consistent process by which certain complex holding structures are voted, e.g. where shares are held via a US bank or broker via a Canadian participant or another foreign participant in a CSD.)
– Investigate whether a tabulator can efficiently and legally combine all entitlements for a bank or broker whether they are held at DTCC, a foreign depository, registered in firm name, or registered in customer name.
– Exchanges and regulators should ensure record date information is published prior to record date, including in the SEC’s Edgar system, preferably standardizing with the NYSE’s 10 calendar day record date notice requirement.
– Require tabulators to electronically receive or access omnibus proxies versus requiring paper, thus ensuring omnibus proxies are processed and adjusted promptly.
– Build the technology for vote confirmation to be “pushed” to the institutional and retail beneficial investors versus requiring the investors to retrieve. The industry recognizes this will be costly for the proxy service providers.
While the pilot may have fallen short of expectations in some cases, it was undoubtedly an important step forward for proxy plumbing reform, and hopefully we will see some rule changes and other developments come out of these efforts.
– Dave Lynn