March 27, 2009
From; Carl T. Hagberg, Chairman and CEO
Carl T. Hagberg and Associates
"Helping Publicly-Traded Companies - And Their Suppliers - To Deliver Better and More Cost-effective Services
to Investors...since 1992"
6 South Lakeview Drive
Jackson, NJ 08527
To: Elizabeth M. Murphy
Secretary, U.S. Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Re: Proposed rule Change to NYSE Rule 452, File No. SR-NYSE-2006-92
Dear Ms. Murphy, members of the Commission and SEC staff:
As a participant in the proxy voting process for over 40 years - both as an investor and as someone who is involved in the proxy processing, tabulation, inspection and vote-certification processes - I am writing in support of this much overdue reform to the proxy rules.
Currently, it is incontrovertible - as the NYSE Proxy Working Group concluded in 2006 - that while at some time in the past it may, arguably, have been so - the election of directors is no longer a "routine matter".
Thus, it follows - both logically, in terms of the way the old rule has been phrased, and in terms of the ethical aspects surrounding the way the current rule has been working - that brokers should not, and must not be allowed to cast votes - whether for or against individual directors - in the absence of instructions from their beneficial-owner customers.
It seems especially worth noting - since so few commenters have apparently done so - that, in practice, this issue is essentially moot anyway in today's environment: Investors who are truly concerned about the overall fairness and reasonableness of director elections know how to count. And they also know how to determine exactly how many votes that are ostensibly cast "for" and "withheld" from individual directors were cast by the actual owners. And increasingly, they insist that votes cast by brokers who have not received specific instructions from their customers should NOT be counted in the final report on the voting. This is especially true, and especially important where there is a majority voting standard in effect. But it is equally true, in my opinion, when there is a plurality voting standard, because votes "for" and "withheld" from individual directors are indeed a valuable corporate governance metric, and a very clear indicator of investors' satisfaction with the performance of individual directors. Accordingly, the real vote - by real voters - should not be disguised by uninstructed broker votes, even if more sophisticated investors are able to "crack the code".
I also wish to point out that the rapidly growing practice on the part of brokers to cast uninstructed votes proportionately should also be disallowed if this rule change is adopted, as indeed it should be. From my many years of observing voting outcomes "up close" it is absolutley clear to me that "proportional voting" gives a totally disproportionate weight to the votes of "disaffected shareholders", who, by definition, have a greater propensity to vote.
Many observers have expressed the fear that companies will have trouble reaching a quorum without the broker vote, and certainly, this is an issue that must be dealt with. But as the savviest observers have already pointed out, there is a simple and equitable solution here: All that is needed is to have one single agenda item that IS "non-routine" - such as the ratification of auditors - or to add a box on the proxy or voting instruction card that would allow brokers to cast uninstructed votes "for the purposes of achieving a quorum to transact business at the meeting"...if so instructed by the benefical owner.
I also wish to strenuously object to the idea that many of my colleagues in the public-company world have been putting forward; that this reform should wait until all the many longstanding "issues" surrounding the proxy voting system are addressed as a whole.
Let me point out that the debate and discussion of the now untenable broker-voting practice has been going on for more than five years. The recommendations of the Proxy Working Group are, already, over two years old. And frankly, there has been no action at all on any of the other "issues" on the shamefully long list of current proxy-system deficiencies - and there is no timetable on the horizon for dealing with any of them.
The list of unresolved issues is a shockingly long one: a totally out-of-date and totally impenetrable system surrounding the status of "objecting" and "non-objecting beneficial owners"; incontrovertible evidence that average investors have no idea of how the proxy voting system actually works, as shown in the Working Group's extensive survey; a system where there has been no competitive bidding-out of the fee and service arrangements in more than 20 years (!) despite the fact that there have been major technological changes over these years; incontrovertible statistical evidence to show that clandestine vote-buying, and probable "vote stealing" schemes exist, where the only possible motive is to "rig" the election results...and finally, the fact that nothing at all has been done to further the "investor education programs" that the SEC has been advocating, and promising to foster for at least three years now; again with no timetable, and no action plan on the table.
Let us move now...to resolve at least one of these important issues, as the NYSE is, very sensibly, asking you to do. Please note that this rule change is totally separable, both intellectually and in terms of operating systems from all the other issues mentioned above. And please note too that if there was a timetable for dealing with all the other issues, it would surely require a 3-5 year effort. This rule change can and should be implemented now.
Respectfully submitted, this 27th day of March, 2009
Carl T. Hagberg