By Steve Schaefer, Forbes Staff
This story appears in the November 18, 2013 issue of Forbes.
Richard Daly, chief executive of Broadridge Financial Solutions, may be the most important person in corporate governance today. His firm is responsible for sending out proxies and tallying shareholder votes for tens of millions of stock owners around the world. Indeed, Broadridge processes 85% of all outstanding shares voted in the United States and 72% of shares voted outside of the U.S. –distributing some 2 billion investor communications in print and electronically each year.
The proxies and shareholder communications Daly is responsible for give investors the power to effect change in the companies they own–to oust board members of giant corporations if necessary. But Daly gets no respect from the very investors he is trying to empower. His core business is viewed by them almost as junk mail, the stuff that weighs down postal mailbags and promptly winds up at the curb in the paper-recycling bin. When it comes to proxy statements, for example, fewer than 5% of the 50 million sent out annually ever get voted.
“There is an investor engagement crisis in America that has implications for long-term prosperity, ” say Daly with table-pounding emphasis. In a video on Broadridge’s website he continues his rant: “ Millions of individuals vote for a favorite American Idol, even though it has no impact on their financial well-being.”
Daly’s urgent warning should be taken with a grain of salt. Broadridge is in the enviable position of being a near-monopolist when it comes to proxies. The money rolls in even if the statements wind up in the trash. Last year Broadridge had total revenues of $2.4 billion. That’s only 6% ahead of 2012 and 17% better than 2007, the year the firm was spun off from ADP. But its recurring fee growth has compounded at a respectable 6% per year since the spin off.
Most of these fees don’t come from Broad?ridge’s actual clients–the brokerage firms. They come from companies like IBM and Pfizer that are required by the SEC to pay?brokerages to deliver stockholder communications. Broadridge is the quintessential outsourc ing firm. It handles everything and bills the companies on behalf of its brokerage clients. It then remits to the broker s their fees after taking its cut. Broadridge’s operating margins tend to run at 13%, and last year net income was $212 million, up 70% from 2012, in part because of a spike in mutual fund proxies. Since the spin off from ADP, its shareholders have doubled their money compared with a total return of 41% for the S&P 500.
“Broadridge is the most important firm on Wall Street that you’ve never heard of,” says former New York Stock Exchange c hairman and CEO Dick Grasso, who has known Daly for almost 30 years.
Indeed, Broadridge thrives on handling administrative tasks that fall under headings like record keeping, billing, tax reporting, securities transfer, clearing, settlement and other necessary but mind-numbing chores that have little to do with the business goals of most brokerage houses.
Since the creation of the Depository Trust Company in 1973, stock ownership has been tracked through bookkeeping rather than through physical possession. The practice of runners with stock certificates under arm dashing from firm to firm in d owntown New York gave way to electronic record keeping and shareholders keeping their shares with brokers in so called “street name.”
This presented a corporate governance problem for companies obligated to communicate with their stock holders. It also created an opportunity for any firm that could successfully map and keep track of who owned what.
“Nobody pulled off this utility-type outsourcing for financial services before we did,” Daly says.
A native of Queens, N.Y., Daly, 60, got into the business in 1979 when he transitioned from CPA at Touche Ross to chief financial officer at Independent Election Corp. of America, one of the biggest proxy firms in the business. Street-smart and hard working (he boasts of delivering newspapers in the fourth grade), Daly rose to become chief operating officer before jumping ship, diving deeper into Wall Street’s back office as operations chief for Thomson McKinnon.
By the summer of 1987 Daly wanted to get back into the proxy–services business. He started his own venture, offer ing brokers a better deal by white –labeling their shareholder communications. He persuaded takeover consultant Arthur Long of proxy solicitation firm D.F. King to fund its growth. Unfortunately, before the financing could come together Long died of cancer.
So Daly sold his newborn business to payroll giant Automatic Data Processing in 1989, launching the firm’s proxy-services group. He immediately signed up 31 clients in its first year. In 1992 ADP acquired Daly’s former employer IECA, and by 1999 the group was handling investor communications for 90% of securities held of record by U.S. banks and broker-dealers.
Inside ADP Daly laid the groundwork for a strong independent Broadridge. Daly spent over $1 00 m illion, for example, building 643,000 square feet of printing facilities on Long Island that churns out more than 5 million envelopes on an average day. A fter he lobbied ADP management, it agreed to a tax- free spin off of his unit to shareholders in April 2007.
While Broadridge appears to have few significant competitors, there is always the risk that contenders may come from outside. In an era when start ups like Twitter can challenge a long-established industry like news dissemination, Daly needs to stay vigilant.
In his favor are his deep Wall Street connections and long standing reputation for reliability, which go a long way at big financial firms that aren’t apt to make quick changes.
“You want somebody who crosses the T’s and dots the I’s,” says Norman Eaker, chief administrative officer at Edward Jones. “They’re not overly flashy, but they underpin the financial system.”
Daly has gone to great strides to expand his services outside of the proxy business. In 2010, for example, Broadridge spent $78 million to acquire NewRiver, a firm that has a lock on the electronic delivery of prospectuses for mutual funds and is a key player in the retirement and annuity markets. More recently it has partnered with Accenture in Europe and Asia to provide back– office services like settlement and books and records.
Daly’s latest attempt to get investors to actually read their shareholder communications is called Fluent. It’s a Web–based product that delivers secure and accurate stock and fund information regardless of whether investors use smartphones, tablets or desktops. Pre existing proxy clients like Morgan Stanley and UBS are already offering Fluent to their clients under their own brand names.
“I get my news out of the Apple newsstand app; my wife gets hers on Facebook. Going to a website and entering a password is not how people live their lives anymore,” says Daly. ” We ‘re g oing to provide people access to information, and we’re not going to rely on whether they view it as important.
From Forbes.com, October 30, 2103 © 2013 Forbes. All rights reserved.