This is the second part of an article looking at what can be done about a surprisingly antiquated system. The first part is available here.
Other potential solutions called for multiple providers instead of a single intermediary and that the SEC should design the solution to make it easier for other players to compete in the marketplace.
On the other hand, Bertsch warned that the core function of proxy voting may need to be a monopoly but that it should be regulated. And while state law complicates the application of a central regulatory system application, a principles-based system simply won’t work.
It was noted that the current processing fee schedule incentivises distribution over voting and that fees should only be collectible if there is a vote; something the exchanges need to remedy. It was also proposed to get rid of custodians so that there were only record holders.
But all felt that these short-term fixes should not hold up progress on a complete technological solution.
Now for Broadridge. Its representative, Lyell Dampeer, said that 75% of proxies had no paper communications and that 95% were voted electronically.
He described a range of technological solutions the company had already introduced: phone voting, cloud channels, broker apps, allowed use of social media during solicitation, it was also working on blockchain, but recognised there “were still opportunities to enhance the process”.
He said it was perfectly possible to have reconciliation of voting entitlement prior to the meeting date – using data from transfer agents, broker central depositories and institutional investors’ own records. He noted that a record of ownership could easily be made available but that it is typically only accessed after meetings in order to prove overvoting, a practice he described as “disingenuous”.He also said that Broadridge could easily provide confirmation of voting but only when it is also responsible for tabulating. “Blockchain requires real time reconciliation of voting and ownership but it does not require a monopoly,” he said, “there are other providers.”
Bertsch said that others firms responsible for tabulating have not been cooperative, so, for 50% of annual meetings, confirmation is not available. He said that the SEC should strongly encourage these constituents to participate in reconciliation and vote confirmation.
Moving to the P&G/Trian contest, Dampeer noted that the firm had been told by lots of shareholders that they do not want to receive information electronically.
And that in a contested election there is no tabulator, so no confirmation is possible since it is a manual process. He also said that Broadridge had never been asked to send contested proxies electronically until the P&G contest, but that it is now designing a process so that issuers can do this. He also said that having the annual meeting agenda prior to the record date so that investors can decide whether it’s worth recalling shares would be extremely helpful.
It seems to me that, while blockchain could facilitate the proxy process, the technological solutions to the lack of a paperclip are already available, and, with a little will power, enforcement and regulation from the SEC, could be in place for the next proxy season.
As for what’s next on the agenda, the SEC will host a roundtable on November to “hear investor, issuer, and other market participant views about the proxy process and rules”. The session will focus on key aspects of the system, “including proxy voting mechanics and technology, the shareholder proposal process, and the role and regulation of proxy advisory firms”. Definitely a date for the diary!