| The NYSE in October moved to eliminate broker discretionary voting on the election of directors by proposing to amend its NYSE Rule 452. The proposal, which is pending approval by the Securities and Exchange Commission, calls for the amendment of NYSE Rule 452 to be effective for all shareholder meetings held on or after Jan.1, 2008.
The proposal follows recommendations of the Proxy Working Group (PWG), created in April 2005 by the NYSE and gathered from a diverse range of industry experts, to review the proxy voting process. NYSE Rule 452 allows brokers to vote on certain “routine” proposals if the beneficial owner of the stock has not provided voting instructions to the broker at least 10 days before a scheduled meeting. The NYSE has amended Rule 452 a number of times since its adoption in 1937, and the rule identifies items that are considered “non-routine.”
“The goal of the NYSE has been to not allow the broker to vote on any proposal that substantially affects the rights of shareholders,” said NYSE President and Co-COO Catherine Kinney. “As mentioned in the report, today the election of directors is simply too important to ever be considered routine, even when the election is uncontested. Shareholder voting on the election of directors is a critical component of good corporate governance.”
The PWG report also recommends that elements of the proxy and shareholder communications process be improved. In order to prepare investors and the industry for these significant changes to the proxy voting process, the PWG has created three subcommittees: one to review the shareholder communication process, one to examine the fees and costs in connection with the solicitation of proxies, and one to educate investors to achieve greater shareholder participation in the proxy voting process.
Beginning in April 2005, the Proxy Working Group engaged in a comprehensive, 16-month information-gathering process, led by its chairman, Larry Sonsini of Wilson Sonsini Goodrich & Rosati.
"The election of directors is the most important shareholder franchise,”said Mr. Sonsini. “However, the amendment to Rule 452 should not be viewed in a vacuum. It is critical that the other recommendations of my committee be implemented, particularly in the areas of investor education about the proxy voting process and with respect to the ability of issuers to communicate with the beneficial owner of the shares."
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