When US commentators speak of implementing a system of ‘end-to-end’ vote confirmation, so that each shareholder would be able to confirm that the vote they cast in a corporate election, or for or against a proposal, had actually been cast in the way they wished – not an outrageous expectation, you would think – most of the rest of the world would likely react with incredulity. Surely such a system must already be in place, they would cry, in the ‘most sophisticated economy’ in the world.
But it isn’t. As Securities and Exchange (SEC) commissioner Elad Roisman said in a speech in March referring to the problem: “there is no consensus about who should foot the bill (or give up the right to send a bill) to make this happen. And, with so many players involved in the system, it is easy for each to point a finger at someone else.”
So, as if this is a surprise, it’s all about the money; more precisely, who is going to pay to make it happen. Or perhaps it’s all about who is going to make money out of it.
There aren’t many candidates.
At the end of last year, the SEC’s Investor Advisory Committee (IAC) recommended to the SEC that it mandate end-to-end vote confirmation. At the same time, it recognised that only one company, financial solutions and securities processor Broadridge, had a system for providing such confirmations. “Broadridge has created a method,” said the recommendations, “for institutional investors to use an online end-to-end voting system, which allows for confirmations of votes.”
Vote confirmation was defined by the Report of Roundtable on Proxy Governance: Recommendations for Providing End-to-End Vote Confirmation published in 2011 – an outcome of the SEC’s 2010 Concept Release on the US Proxy System – as requiring the tabulator to confirm to each nominee that it has “received, processed and counted in the final tabulation those shares voted by the nominee”. The ‘nominee’, the brokerage firm holding shares in its name for a client, can then confirm to the shareholder – its client – that their shares have been properly counted.
While recognising that Broadridge currently has a monopoly in this area, members of the IAC appeared reluctant to go on the record to talk about the lack of any other service provider. And the other two share processors – Mediant and Computershare – did not respond to enquiries as to whether they offered end-to-end vote confirmation or not; the assumption within the industry is that they do not.
That no one else offers vote confirmation, of course, does not mean that no one else can.
The release of the IAC’s recommendations, however, had something of a confounding effect on Broadridge’s stock price. It dropped precipitately in the days following the first set of recommendations, from around $135 to $121. It then recovered, but dropped again, when the final recommendations were approved, from $132 to $124. Excluding a drop in February and the precipitous collapse owing to the pandemic market crash, it has hovered around that price ever since. Not the behaviour of a stock about to be handed a profitable monopoly.
Back in May 2016, the Securities Industry End to End Vote Confirmation Steering Committee, set up to implement in a couple of pilots the recommendations of the vote confirmation Roundtable referred to earlier, concluded that: “There are no impediments to issuers in providing the added assurance to their shareholders that votes are included as instructed in the final tabulation.” But still confirmation is largely unavailable. In other words, it is possible, it’s just that no one is doing it. As the IAC wryly noted: “Uptake on the system has been slow, however, and it is currently not used by individuals.”
At an earlier IAC meeting on this specific issue, Ken Bertsch, Executive Director at the Council of Institutional Investors said that other firms responsible for tabulating have not been cooperative. 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.
Although Broadridge is the dominant player in the market, in around 50% of meetings, entities other than Broadridge perform the ‘master tabulation’ for all of the votes of both street name and registered shareholders. Street name is a slang term used to describe a brokerage that holds ownership of securities on behalf of a client.
Thus Broadridge is part of the process, but doesn’t control the whole chain that runs from shares voted to votes recognized back to votes confirmed. There are other participants which determine voting entitlements; custodian banks, financial institutions that hold customers’ securities for safekeeping, and broker-dealers, for example. Another insider noted that when Broadridge is asked by these other participants to send out materials and collect votes, it reports those votes directly to the issuer using ICS Online, one of its free online platforms. ICS Online is also used by corporations’ solicitors who often also act as the ‘transfer agent’, the party assigned by a corporation to maintain an investor’s financial records and track their account balance. Broadridge can see the votes of each underlying investor but the solicitors and other transfer agents can only see the votes in aggregate for each bank or broker ‘nominee’, the brokerage firm holding shares in its name for a client.
For the last 10 years, Broadridge has provided limited end-to-end vote confirmation to institutional investor clients, but it has to be able to see all the street votes, including the street votes that it has not processed, as well as all the votes of the registered shareholders, in order to do this universally. It has not extended this service, except in limited circumstances, to retail investors. It has conducted some pilots where, at a corporation’s direction, it has made a platform available to retail shareholders that allows them to put in their control number – used to distinguish individual shareholders for voting purposes, on a website – and receive vote confirmation.
There are limitations to Broadridge’s confirmation process, however. “ProxyEdge, Broadridge’s voting platform,” said one industry insider, “can confirm votes, but while it confirms votes to certain shareholders, those confirmations aren’t currently provided to proxy advisors, who might actually be responsible for executing the votes.”
When Broadridge is not the tabulator, the only time confirmation of all votes has occurred was during the pilots run by the Steering Committee, when everyone used the tool designed for them by Broadridge. However, any transfer agent could, in theory, provide end-to-end confirmation all the time for the registered votes that they process, not just during pilots.
An industry expert has said that the technology to set up vote confirmation is trivial. But that resistance to implementation appears to be widespread; and that resistance lies with the tabulators, the custodian banks and the transfer agents. Broadridge has suggested to the SEC that if it wanted to make vote confirmation happen,it should simply require issuers to tell their agents to do it. There is nothing to prevent issuers from doing this without being told. But they clearly aren’t. Either they don’t want to pay for it, or they don’t care; or don’t care until a vote comes down to the wire.
Finally, the Roundtable recognised that “to the extent vote confirmation imposes additional duties on tabulators and nominees, additional charges for vote confirmation services may be appropriate”. The lack of progress is all about the money.