Schapiro: SEC Ready to Tackle Proxy Voting Structure

If you take anything away from SEC Chair Mary Schapiro’s Friday speech to the Society of Corporate Secretaries and Governance Professionals annual meeting in Chicago, it should be this: the regulator plans to act quickly to institute the regulations behind financial reform.

In the meantime, Schapiro told a packed hotel room the SEC on Wednesday plans to vote on issuing a concept release on shareholder voting infrastructure, known by many as “proxy plumbing.” Additionally, Schapiro and her Deputy Chief of Staff Kayla Gillan explained to the hundreds of conference participants Friday that the SEC is looking to update many of the outdated forms registrants use and take another look at risk disclosure requirements.

“As you may know, the SEC is also on the verge of another important proxy initiative,” Schapiro said. “Next week, the commission will consider publishing a concept release soliciting detailed ideas about how to modernize the voting infrastructure through which, I am told, over 600 billion shares are voted every year at more than 13,000 shareholder meetings.

“It has been many years since we conducted a broad review of the proxy voting system. And we are well aware of corporate and investor interest in promoting greater efficiency and transparency in the system. We are also aware of the opportunity our review presents to enhance the accuracy and integrity of the shareholder vote.”

Gillan, who participated in a later session on proxy plumbing, spelled out the SEC’s reasoning behind the concept release. At the center of voting infrastructure concerns are so-called OBO/NOBO (objecting beneficial owners/non-objecting beneficial) shareowners, she said.

“We realize it had to be brought to the fore,” Gillan said. “A lot of the concept release will address OBO/NOBO. We acknowledge all the academic literature on this.”

Proxy plumbing refers to the proxy process, securities lending and voting entitlement issues surrounding the voting of those billions of shares every proxy season. The combination of ever growing share volume with the complex system of share lending and derivatives as well as the technology that allows shares to be traded at lightning speed has created a big problem for companies, investors and boards.

There are three areas that the SEC staff hopes the concept release will address, according to Gillan. “They are accuracy, transparency and efficiency [of the voting system], communication to shareholders and the relationship to the economic interest of shares,” she said.

As part of the concept release, Gillan told the audience the agency will focus on the following issues:

• The convoluted system of shares lending
• The effectiveness of e-Proxy (there’s been a decrease in voter participation)
• The role of the proxy advisory firms and the potential for conflicts of interest (Read  what Compliance Week wrote about a white paper from the National Investor Relations Institute and Society of Corporate Secretaries.)
• Empty voting

As for the financial reform corporate governance measures, such as Say on Pay, Schapiro said that once the Conference Report is approved by the Senate later this month her agency will begin issuing rule proposals with “accelerated comment periods.” But she did reiterate that the most important part of the rule making process are the comments the SEC receives from people involved in the process, especially corporate secretaries, executives, directors and shareholders.

“We will endeavor to hear from all of those out there,” she said. “We have a lot to do in the governance area.”

A lot to do indeed.

- Gary Larkin