On January 25, 2012, the NYSE announced that for certain types of corporate governance proposals it would no longer permit broker discretionary voting.1 This is another in a series of amendments aimed at limiting broker discretionary voting. In 2009 and 2010 the NYSE eliminated broker discretionary voting in director elections and on matters relating to executive compensation.2
Effective immediately, brokers cannot vote uninstructed shares on corporate governance proposals:
- to de-stagger the board of directors;
- relating to majority voting in the election of directors;
- eliminating supermajority voting requirements;
- providing for the use of written consents by stockholders;
- providing rights to call a special meeting; and
- certain types of anti-takeover provision overrides.
The NYSE intended the above list to serve as an example of the types of proposals that would require client instructions, and is not intended to be comprehensive. The NYSE also advised that a company including a corporate governance proposal in its proxy statement that is not covered by this list should reach out to the NYSE staff to confirm whether brokers will be able to vote uninstructed shares on such proposal.
Since Rule 452 governs NYSE member organizations, the Rule 452 update affects voting of shares by all NYSE member firms for all public companies, regardless of whether such public company is listed on the NYSE. As a result of the Rule 452 update, companies will likely find it more difficult to pass all types of proposals related to corporate governance, especially where a majority of the outstanding shares is required for approval. Companies submitting corporate governance proposals affected by the Rule 452 update during the 2012 proxy season should make sure their shareholders understand the need to instruct their brokers to vote on these proposals, through additional proxy solicitation and other appropriate efforts. Otherwise, companies may not receive the votes representing a necessary quorum for the matters to be voted upon or sufficient to pass certain corporate governance proposals.
Footnotes
1 New York Stock Exchange Rule 452 (Giving Proxies by Member Organization) governs when NYSE member brokers, holding customer securities in "street name" accounts, are allowed to vote shares on proxy proposals without specific client instructions. A broker's ability to vote its customer's shares depends upon the nature of the proposals. A broker may typically vote shares in its discretion only on "routine matters." When a broker has not received voting instructions from a customer with respect to a proposal relating to a non-routine matter, the broker cannot vote the customer's shares on that proposal.
2 Please see the Fried Frank client alert, SEC Approves Elimination of Broker Discretionary Voting in Director Elections, dated July 7, 2009, available at http://www.friedfrank.com/sitefiles/publications/bb8ebe7e519c0a83a649976a9f21f66c.pdf See also, http://friedfrank.com/siteFiles/Publications/FINAL%20-%209-10-2010%20-%20SEC%20Approves%20NYSE%20Prohibition.pdf
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