An attempt by Broadridge Financial Solutions to strike down a shareholder proposal on reasonable voting windows at AGMs could have profound implications for corporate governance, experts have told Responsible Investor.

The proposal, filed in May by corporate governance expert and seasoned filer James McRitchie, asked the US fintech firm to initiate appropriate changes to governance documents or proxy statements to give shareholders “reasonable time” to vote on resolutions after the final proposal is presented at its annual meeting.

McRitchie was prompted to file after noting that some firms were closing the polls within a few seconds of shareholder proponents finishing their presentations at AGMs.

According to the filing: “A failure to provide investors adequate time to vote could negatively affect investor perception of the company and its stock value since fair corporate suffrage is a fundamental right of shareholders.”

In response, Broadridge filed a “no-action” request with the Securities and Exchange Commission, asking the regulator to exclude the proposal. The firm argued that it fell foul of the SEC’s rule around ordinary business and vagueness.

No-action requests are a decades-old mechanism that companies can use to ask for reassurance that the SEC will not act if they omit a shareholder proposal from its proxy statement by appealing to rules that govern the process.

The powerful financial regulator has not yet opined on the arguments. If it sides with Broadridge, McRitchie believes it could set a precedent that hits at a “fundamental right in corporate governance” – namely, the ability for a shareholder to make an informed voting decision on an agenda item.

Time to vote

Speaking to RI, McRitchie said: “It’s very important to be able to vote after you hear the evidence. When proponents present their proposals at the AGM they are making their last pitch to investors.

“Sometimes they will just reiterate arguments they already made in the proposal, but often they will embellish with additional information from the news or by rebutting the arguments against the proposal included in the board’s opposition statement.”

In his filing, he noted that the Interfaith Center on Corporate Responsibility (ICCR) collected data from 31 annual company meetings attended by its members in 2022. Their survey showed 10 out of 31 companies allowed 0-10 seconds to vote at annual meetings after proposals were presented. Five allowed up to 30 seconds, six allowed 50-60 seconds, and 10 allowed two minutes or more.

“It’s very important to be able to vote after you hear the evidence. When proponents present their proposals at the AGM they are making their last pitch to investors”

James McRitchie   

Asked what would constitute an optimum time, McRitchie said he is not qualified to judge. However, he pointed to Carl Hagberg’s suggestion that after all proposals have been introduced, companies should announce that polls will remain open for 10 more minutes during a general discussion or question-and-answer period “to allow voters who have not yet voted or who wish to change their votes online to do so”.

As to why he targeted Broadridge, McRitchie told RI it was partly because the firm “is widely admired and dominates both in its proxy voting and virtual shareholder meeting services”, so its practices are likely to be copied by other companies.

Era of hybrid AGMs

For Sanford Lewis, an attorney at US-based legal adviser strategic counsel and a veteran observer of shareholder proposal battles, the proposal addresses a fundamental issue of corporate governance that is central to the shareholder franchise and the relationship between shareholders and the company.

As he noted, it also comes at a crucial time, when the pandemic has ushered in a new era of virtual and hybrid shareholder meetings.

In a rebuttal to Broadridge’s no-action request that he submitted to the SEC as McRitchie’s legal consultant, Lewis cited a blog post by prominent attorney Liz Dunshee. It noted that allowing time to vote has become increasingly important in the virtual and hybrid meetings.

“The pause to allow people to change their votes probably needs to be lengthier than it would be for in-person, because people can’t simply raise their hand to show they’re filling out a new ballot,” she wrote. “It takes more than mere seconds to change a ballot online – and management can’t see that attendees are working on it.”

Lewis also pointed in his rebuttal to Broadridge’s own guidance on shareholder meetings. This includes a recommendation to “build in a reasonable pause in the script following the presentation of the proposals before closing the polls to allow shareholders to vote or change their vote”.

It suggests this should be “up to 10 minutes” depending on the number and complexity of the proposals.

Looking at the issue more broadly, Lewis told RI: “We have an era of cognitive dissonance in which shareholders have a new experience of virtual participation without an ability to deliberate and act in the meeting.”

At the same time, he notes, this presents new opportunities. “If the interaction and voting is real, shareholders could choose to attend for the engagement provided – genuine interaction and participation,” he says. “They get to hear both sides of the story on a shareholder proposal and then decide how they vote on the different items.

“I find it a very attractive scenario and a promising innovation for shareholder democracy.”

Firm’s no-action request

In Broadridge’s no-action request, in support of its claim that the proposal should be excluded because “it concerns the conduct of shareholder meetings, which relate to the company’s ordinary business operations”, the firm pointed to other successful no-action letters relating to the conduct of annual meetings.

Yet according to Lewis, the current proposal “is distinguishable from prior proposals addressing mere minutia” of the conduct of annual meetings. “Instead, it goes to a fundamental governance concern in this third era of corporate governance: will the deliberative norm of meetings be made real?”

In his rebuttal, Lewis also rejected Broadridge’s second argument that the proposal is vague and indefinite “so as to be materially false and misleading in violation of Rule 14a-9 under the Exchange Act”.

“The thrust of the proposal is clear, as are the possible solutions,” he said. “Moreover, Broadridge is an expert in this arena. If anyone has the expertise to assess what is appropriate and reasonable to address these clearly identified governance failures, the company can do so. But it is neither ordinary business nor vague to ask the company to do so.”

Contacted by RI regarding the proposal, a spokesperson for Broadridge reiterated a point made in its no-action request: “In 2022, the company implemented several practices at its annual meeting that were intended to provide shareholders with adequate time to question, debate and vote upon proposals brought before the annual meeting.”

“If the interaction and voting is real, shareholders could choose to attend for the engagement provided – genuine interaction and participation”

Sanford Lewis

In particular, the firm provided time following the reading of the proposals for shareholders in attendance to ask questions regarding the proposals to be voted upon.

The no-action request also claimed that the proposal implicitly critiques the conduct of the 2022 meeting by requesting “appropriate changes” to provide “a reasonable time for votes to be cast or changed”, but does not provide any guidance for management, the company’s directors or shareholders to understand what changes would be needed in order to satisfy the proposal.

In his rebuttal to the no-action request, McRitchie claimed Broadridge were being “unduly defensive”. He said the proposal “seeks to avoid reversion to conduct displayed by the company at its 2020 meeting, when it prohibited shareholders from voting after considering the information presented”.

“It’s true that Broadridge allowed no time to vote in 2020 and then allowed plenty of time in 2022,” he told RI. “However, they haven’t committed to putting anything in their policies or their proxy committing the company to allow a reasonable amount of time to vote. Time to vote is subject to the board’s whims.”

“Broadridge is the perfect target for establishing the principle of allowing time to vote for a number of reasons, which we have spelled out numerous times, including their failure to allow any time to vote after presentations in 2020.”

Lewis noted that, if Broadridge thought the proposal was fulfilled and they had substantially implemented the request, it could have argued that. “It is telling that they did not do so,” he said. “There is not the clarity in governance documents or the proxy statement that is requested in the proposal.”

Wide implications of SEC decision

The question then is, who will the SEC side with?

Lewis believes he and McRitchie have presented a very strong case. “If they side with Jim, I think it means this is a good issue for shareholders to be raising with any companies that are not allowing enough time,” he said.  

If successful – alongside drumming up support for the proposal – McRitchie says he will consider filing at other firms as well as trying to raise awareness more broadly around the issue.

If the SEC supports Broadridge, however, both are concerned about the implications for shareholder rights.

“In that case, I might try and take more steps to get publicity on this issue,” said McRitchie. “On the other hand, I might be so discouraged that the SEC has agreed that voting is just a procedure then I might quit.

“There is no more fundamental right in corporate governance than the shareholder’s right to vote. The SEC’s duty from the start has been to ensure shareholders have the information they need to make an informed vote.”

In his rebuttal to the no-action request, McRitchie said that a verdict in favour of Broadridge would “essentially sanction the company’s opinion that shareholders have no right to request that polls remain open until they can consider the information presented”.

He continued: “The company’s logic would even bar shareholders from voting on a proposal that requests the company not close the polls before proposals are presented.”

Lewis agrees that, in the event that the verdict goes against McRitchie, investors should take up the cause “because it is a fundamental corporate governance issue”. He also supports an appeal against an unfavourable judgement, despite acknowledging that such appeals are hard to win.

“Beyond that, there are various forms of recourse possible if the no-action request is granted, including petitioning the SEC to require disclosure of the amount of time given to shareholders to vote at corporate meetings or seeking changes in state corporate law to require companies to allow adequate time.”