25 Jan 2012 | Posted by: Judith (Judy) C. McLevey
Corporate Governance Proxy Proposals & Rule 452
The NYSE has a rule on its books (NYSE Rule 452) that governs when NYSE member organizations, holding customer securities in “street name” accounts as brokers, are allowed to vote on proxy matters where specific client instructions have not been received. In the past, the NYSE has allowed brokers to vote uninstructed shares on certain types of corporate governance proposals when the proposal in question is supported by company management. This is no longer the case and companies and investors need to take note as we head into the 2012 proxy season.
In light of recent congressional and public policy trends, broker voting of uninstructed shares has fallen into increasing disfavor and the matters on which brokers may vote uninstructed shares has narrowed over recent years. For example, the NYSE amended Rule 452 in 2010 to prohibit broker voting of uninstructed shares in the election of directors (other than for the election of directors of investment companies) and the NYSE also prohibited broker voting of uninstructed shares on executive compensation matters as of July 2010, in tandem with the signing of Dodd-Frank.
In light of the attention on broker voting, the NYSE has reexamined its treatment of certain proposals under NYSE Rule 452. As a result, certain types of corporate governance proposals on company proxy statements that the NYSE had previously ruled “broker may vote” matters will be treated as “broker may not vote” matters going forward. Examples of these proposals include: proposals to de-stagger the board of directors, majority voting in the election of directors, eliminating supermajority voting requirements, providing for the use of consents, providing rights to call a special meeting, and certain types of anti-takeover provision overrides. Note – this means that in the absence of specific client voting instructions, brokers will no longer be allowed to vote shares held in their clients’ accounts on these types of proposals effective immediately. As Rule 452 governs the conduct of NYSE member organizations, the change affects voting of shares by all NYSE member firms on these matters for all public companies, regardless of where the company is listed.
The ratification of auditors continues to be a “broker may vote” matter, so companies will still be able to use the broker vote to help them establish a quorum for shareholder meeting purposes.