NYSE Narrows Broker Discretionary Voting
On January 25, 2012, the NYSE announced changes to the application of Rule 452 to certain management-supported corporate governance proxy proposals. These changes, which are effective immediately, limit the discretionary authority of brokers to vote their customers’ shares without specific voting instructions.
Rule 452 governs when brokers may vote customer shares without instructions. Whether the broker may vote its customer’s shares depends upon the nature of the proposals, and, generally, a broker may vote shares in its discretion only on “routine matters.” When a proposal is not a routine matter and a broker has not received voting instructions from a customer with respect to that proposal, the broker cannot vote the customer’s shares on that proposal. This results in a “broker non-vote.”
In the past, the NYSE has permitted broker discretionary voting authority on certain management-supported corporate governance proposals, deeming such proposals “routine matters.” In light of recent congressional and public policy trends disfavoring broker voting of uninstructed shares, the NYSE determined that it will no longer continue its previous approach under Rule 452 of classifying management-supported corporate governance proxy proposals as “routine matters,” including:
- de-staggering the board of directors,
- adopting majority voting in the election of directors,
- eliminating supermajority voting requirements,
- providing for the use of written consents,
- providing rights to call a special meeting, and
- providing for certain types of anti-takeover provision overrides.
As a result, companies likely will find it more difficult to pass these types of proposals, particularly where a majority of the outstanding shares is required for approval, which is typically required to amend a company’s charter. This in large part is because a “broker non-vote” will have the same effect as a vote against the proposal. A proposal requiring the lesser standard of a majority of the votes present and entitled to vote on the matter, or a majority of the votes cast on the matter, to pass also may be affected (although likely to a lesser extent) as brokers that generally vote uninstructed shares in accordance with management’s recommendation on routine matters are now prohibited from so doing.
Therefore, for the 2012 proxy season, if a company desires to pass a management-supported corporate governance proxy proposal, it should consider whether additional proxy solicitation and other efforts are appropriate and plan accordingly.
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