SEC Plans to Patch – Not Fix – the Proxy System

Yesterday, the SEC held an open meeting to issue a concept release seeking public commentary on the US proxy system. Cluttered with Washington-style self-congratulation, the meeting can be summed up with a comment from Meredith Cross, Director of the Division of Corporation Finance. Referring to the proxy system, she said:

While we believe the system is overall working, it is certainly reasonable to ask if it can work better.

In case you are confused, she was talking about the US proxy system, which has our corporate elections resembling politburo elections of the former Soviet Union, with corporate boards routinely running unopposed, a complete lack of transparency, no hope of ever auditing a vote, blatant vote buying, as many as 5% of votes being lost or double counted in each corporate election, and an average cost of $300,000 for anyone with the temerity to actually nominate an independent candidate for a board. That is the system Cross said is “overall working.”

Clearly, the SEC has no intention of implementing fundamental change. With that painfully understood, we can otherwise commend Meredith Cross and her colleagues for an excellent concept release. While it is not ambitious, it clearly explains many important issues, including:

  • broker over-voting and under-voting of the shares they hold on behalf of clients
  • the possibility of allowing some means of confirming a shareowner’s vote was actually cast as instructed
  • the possibility of helping institutions who have loaned shares recover those shares in time to be allowed to vote
  • proxy distribution fees charged by brokers
  • the limited ability of corporations to communicate with their shareowners
  • approaches for promoting retail investor participation
  • data tagging of proxy materials
  • proxy advisory firms
  • dual record dates, and
  • empty voting

If some of these topics are a mystery to you, certainly read the concept release. It explains them all extremely well:

SEC concept release on proxy plumbing

The SEC is allowing 90 days for comments. The USPX will prepare detailed comments, and we will invite members to participate in that process. We will have more to say about specific issues raised in the concept release in the weeks ahead.

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