Egan Associates has raised the issue of shareholder concentration in previous newsletters. In the US, a new directive has been issued by the New York Stock Exchange (NYSE) on the use of proxy votes by brokers who previously had the capacity to vote on behalf of shareholders without any proxy directions.
Previously NYSE member brokers were permitted to vote shares for proxy proposals without specific instructions from their clients. Over time, the number of areas where brokers have been permitted to vote without direction from their clients has been reduced, and the current situation is that brokers are prohibited from voting uninstructed shares for the election of directors and from voting on executive compensation proposals.
The recently introduced Information Memo 12-4 On January 25, 2012, places further restrictions on brokers such that they now need client authority to vote on a full range of issues related to directors, corporate governance and compensation/remuneration. These include:
- Proposals to declassify the board of directors
- Proposals regarding majority voting in the election of directors
- Proposals to eliminate supermajority voting requirements
- Proposals to provide for the use of written consents
- Proposals to provide rights to call special meetings
- Proposals to implement certain types of anti-takeover provision overrides
These changes to NYSE procedures are effective immediately.
- It is expected that companies submitting corporate governance proposals for shareholder approval will need to engage shareholders on these proposals to make sure that they understand the importance of instructing their brokers to vote on these proposals. The call for increased shareholder communication is consistent with that here in Australia. It is expected that companies will need to communicate specifically with shareholders about the need to provide proxy authority to brokers in order for them to be able to vote on their behalf.
- THE NYSE has not provided a comprehensive list of corporate governance proposals which would be covered by this Memo. It is up to any company including in its proxy statement a corporate governance proposal to check with the NYSE staff as to whether brokers will be able to vote uninstructed shares on such proposal.
- Because Rule 452 governs the voting rights of NYSE member brokers regardless of whether the company is listed on the NYSE, the changes in the application of Rule 452 affect NASDAQ-listed and other non-NYSE-listed companies, as well as NYSE-listed companies, whose shares are held by a NYSE broker.