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Two major financial intermediaries have recently changed their policies and will no longer issue discretionary votes. For years, funds have been able to factor discretionary voting into their proxy strategies. Coupled with several firms who previously updated their approach to discretionary voting, this shift could impact funds by reducing the votes they need to get approval for certain proxy proposals without subsequent communications.
If additional intermediaries follow suit, it may become more costly for funds to achieve quorum as they may need to engage in additional solicitation with their shareholders. This may take the form of additional mailings, either by hard copy or delivered electronically, and may also create the need for additional follow-up phone calls, which are an additional expense.
A “broker discretionary vote” is a proxy ballot that brokers cast on behalf of shareholders who, by a certain date, have not provided specific instructions on how they wish their shares to be voted. This rule stipulates that after a specified date, the broker may return a proxy on the shareholder’s behalf. The broker has discretion and in some instances will vote with management, and in others on a proportionate basis. Only brokers can submit discretionary votes—banks cannot do so.
Although discretionary voting is permitted exclusively on routine proposals, it can have an impact (via the broker non-vote) on non-routine proposals that may be part of the same agenda. Currently, the election of directors/trustees and the ratification of auditors are the only proposals categorized as “routine” under the rule. The NYSE provides guidance on when and how these votes can be used.
In certain cases, funds may rely on broker discretionary voting to reach quorum on routine items. When planning for a proxy, it’s important to know which brokers support the discretionary voting process, and which do not. Broadridge can help you access historical voting data, so you can identify brokers that submit discretionary votes, and understand how they vote certain issues.
Proactive proxy campaign planning enables funds to adopt alternative communication strategies that may include:
For example, Notice and Access enables funds to forward a notice in lieu of distributing full proxy statements. In this way, funds can reduce expenses and still distribute compliant materials to shareholders.
Our access to historical voting data is one of the ways we help mutual funds increase participation among retail shareholders. We also research and study how shareholders respond to various outreach efforts and are constantly identifying new ways to get the vote. As you consider how to make up for a potential gap caused by a drop-off in discretionary voting, you may want to consider:
We are always working to help our clients transform today’s challenges into tomorrow’s opportunities. To learn more about how data-driven analytics, omni-channel delivery and blockchain are helping mutual funds achieve their proxy goals, please download our Next Generation Proxy Voting report.
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