Two Questions for the SEC Following the Proxy System Roundtable

Summary of Study

Bottom Line: The U.S. proxy system is overdue for reform. The array of issues highlighted during the roundtable revealed some of the system’s serious defects and limitations. These failings undermine public confidence in the governance of listed companies and compromise the integrity of the capital markets generally.  

Answers to the following questions can help lead the way through the “tangled web” of the current proxy system and identify reforms that are straightforward and practical. 

1) Can the Commission step back from a one-size-fits-all regulatory approach and encourage the development of alternative systems for communication and proxy voting that serve the needs of increasingly diverse categories of shareholders (present and future)?

The three shareholder categories—registered investors, street name accounts and the silent majority – gives rise to questions and suggestions that the Commission should consider in determining how to restructure and improve the proxy system.

  • Can the “direct access” system serve as a model for how the proxy system as a whole should work? 
  • Is the direct access approach still under consideration by the Commission?
  • Should the silent majority be given an opportunity to exercise their voice, albeit outside the proxy system as it relates to issuers? 

2) Can the Commission find ways to make the proxy system achieve the standards for transparency, reliability and accuracy that are applicable to Corporate Actions?  

  • If existing back office systems can produce results for corporate actions that are accurate to the penny, why can’t they do the same for record date share positions and proxy vote tabulation? 
  • If records can be reconciled to produce accurate results in tender and exchange offers, dividend payments, mergers and other transactions where money is at stake, why not at shareholder meetings where votes are at stake? 
  • Is the difference between corporate actions and proxy processing a matter of commitment, resources and cost, or is there something fundamental about the records and procedures used in share voting that differs from those used for corporate actions?

These are questions that the Commission is best positioned to answer. If, as is likely, the difference is a matter of resources and economics, the Commission should have no difficulty conducting an analysis of the differences and calculating the costs and benefits of upgrading the proxy system to meet the standards applied to corporate actions. 

Read the full comment letter here.