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The SEC’s Investor Advisory Committee met last Thursday. As Dave shared, the major agenda topics included pass-through voting/engagement with beneficial owners and non-GAAP financial disclosures. Here are some of the most interesting tidbits I took away from the commentary on pass-through voting by panelists Jill Fisch of University of Pennsylvania Carey Law School, John Galloway of Vanguard, Will Goodwin of Tumelo, Katie Sevcik of EQ Shareowner Services, and Paul Washington of the Society of Corporate Governance:

– The challenges with offering true voting choice (not just policy choice) for retail investors are largely engagement-related, not due to technology limitations.

– For institutional investors, the biggest issue with the traditional system is that there’s often a discrepancy between how their shares are voted in their separate account and how their shares held in pooled vehicles are voted, which dilutes their input. Pass-through voting can solve this discrepancy.

– There are more options when pass-through voting is offered to institutions, including true pass-though voting (voting their own individual ballots), creating a tailored voting policy or choosing among policies.

– Pass-through voting may present some challenges for issuers that need to be addressed. Those include: (i) identifying, communicating and engaging with upstream investors, (ii) educating retail investors about the choices offered, (iii) difficulties getting a quorum, (iv) implications for loaned shares and (v) other proxy plumbing considerations.

– There are many hurdles to greater retail investor participation. Those include: (i) access to information/information overload, (ii) limited time, (iii) intermediation issues (for example, that beneficial owners can’t attend a meeting without documentation from the broker), and (iv) the need for nuanced analysis on a proposal by proposal basis.

Law Prof Jill Fisch also pointed out that the voting instruction forms sent by brokers sometimes inadequately describe proposals, presenting another hurdle to retail investor participation because they have to do more digging. For example, a voting instruction form might just list “racial equity audit” or “health and safety governance” with no explanation of what the proposal is actually seeking to accomplish.

The panelists didn’t necessarily agree on the best outcome or path forward, but they seemed to acknowledge the importance of each other’s ‘must-haves’ and ‘need-to-haves’ as the proxy voting system evolves. Those include strong turnout, an informed voting base, that the system is cost-effective and efficient, that voting outcomes are accurate, and that there’s a democratic process for beneficial owners.

– Meredith Ervine