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Here’s something I blogged last week on The Proxy Season Blog for members:

I blogged earlier this summer about academic research showing that “mirror voting” could diminish the influence of “passive” funds. Mirror voting is a type of “proportional voting” where – loosely speaking – non-voting shares are cast in favor of or against a proposal in the same proportion as the votes cast by other shareholders who actually voted.

It slipped by us that the Texas Stock Exchange has filed a 63-page proposal to require proportional voting for uninstructed shares. The proposal would eliminate broker discretionary votes for uninstructed shares – and the routine/non-routine dichotomy that often seems to cause confusion – and replace it with a uniform vote allocation process for all matters. Specifically:

The Exchange proposes to amend Rule 13.003 to establish a mandatory process for the proportional allocation and voting of uninstructed shares held by Members of the Exchange on behalf of beneficial owners of TXSE-listed equity securities. Specifically, the proposed rule would require a Member to vote uninstructed shares at shareholder meetings and to allocate votes on each proposal in proportion to voting instructions received from beneficial owners for whom such Member holds shares in the applicable TXSE-listed security, subject to the exclusions and methodology set forth in the proposed rule.

The proposed rule reflects the principle that voting outcomes on matters up for a vote at TXSE-listed companies should be determined by the voting instructions of participating beneficial owners, with such instructions applied uniformly to the voting of uninstructed shares for every matter submitted to a shareholder vote. By replacing broker discretionary voting with a formula-driven allocation tied to instructions actually submitted, the proposed rule eliminates the exercise of broker discretion over shares in which the broker has no economic interest and also eliminates the inconsistent and proposal-dependent treatment of uninstructed shares produced by the framework currently in place in the market, while preserving all existing shareholder voting rights.

The proposal also says that – if approved and implemented – the rule change could improve companies’ ability to achieve a quorum and reduce solicitation costs. In late July, the SEC designated a longer time period – till September 9th – to take action on the proposal. Here are the comments that have been submitted to-date – including:

– This 12-pager from the Investment Company Institute that offers preliminary views on this complex issue

– This 8-page letter from SIFMA that “supports the goal of proportional voting to improve quorum and retail representation but has significant concerns about the proposed rule’s operational feasibility” and includes a number of recommendations

In her blog, University of Colorado Law prof Ann Lipton offers this thought on what the change would mean for voting tallies:

I believe [the proposal] means that in situations that require a majority of all outstanding shares to vote in favor – mergers, charter amendments, and the like – nonvotes would no longer be “no” votes, and a majority of voting shares would be able to swing it.

The TXSE just went fully live at the end of July, following its phased roll-out. This is certainly one way to make a splash!

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– Liz Dunshee