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P&G Couldn’t Avoid The ‘Snake Pit.’ Better Tech, Verification Will Stop This In The Future

P&G Couldn’t Avoid The ‘Snake Pit.’

An amended version of this byline appeared on, below please find the extended version.

The proxy contest between Procter & Gamble and activist investor Nelson Peltz’s Trian Partners, which P&G said on Oct. 16 it had won by a mere 0.2% of the shares outstanding, has devolved into a rarely-seen phase known as the “snake pit,” where both sides question registered ballots through a painstaking process. It’s a spectacle that evokes the predigital era on Wall Street and accentuates the stark difference in the counting of the votes of beneficial shares versus registered shares – the former can be tallied in a matter of seconds or minutes, while the latter can take weeks or months.

If you’re an investor, you’re probably not amused. I happen to know a lot about all this, because I’m the head of Broadridge, which counts more proxy votes than any other financial technology firm. So let me shed a little light into all this for you and share some good news. Technology and independent verification are making proxy voting more effective and transparent. Long, drawn out processes, like the one P&G shareholders are facing are going the way of ticker tapes and stock markets that can trade only paper certificates.

Putting aside the merits of both P&G’s and Trian’s arguments, let’s take a closer look at the mechanics of how proxy votes are counted in a contested corporate election. P&G has more than 2.6 billion shares outstanding. There are two types of shares at stake. The first type, called beneficial shares, represent 94% of the total shares outstanding and are held by institutional and retail investors in their bank custody and broker-dealer accounts, respectively. Virtually all of these shares were processed by Broadridge. (Some 2% were processed by other companies.) Over the course of the contest, more than 90% of the shares processed by Broadridge came in through digital channels and all votes, including those on paper ballots, were tallied, updated, and simultaneously shared with both sides on a daily basis. The results were finalized within minutes of the polls closing.

But the whisker-slim margin put a microscope on a second type of share – they’re approximately 6% of the total outstanding – called registered shares. They are owned by corporate executives, directors, employees and investors holding stock certificates. This small fraction of the overall number of votes is being disputed, reminiscent of the Florida recount in the 2000 presidential election.

So, why is there a huge difference between the counting of beneficial shares and the counting of registered shares? 

Votes of the beneficial shares processed by my firm are received, reviewed and tabulated by a state-of-the-art technology proxy-voting platform.  We receive institutional and retail votes from multiple digital channels as well as through the mail, and all votes are subject to multiple reviews to ensure that they are recorded accurately. For example, all votes from holders of 1,000 or more shares are audited, which means they are reviewed two or three times to ensure that the correct vote has been entered into the system.  For votes coming from smaller shareholders holding fewer than 1,000 shares, a statistical sampling analysis is used to review reported votes and ensure that they were, in fact, accurately captured and entered.  

We’ve also invested in systems to monitor for duplicate votes to ensure that only the last vote is counted, and to verify that the reports sent to both sides of the contest and to the Inspector of Election, accurately reflect the underlying vote tally. The net result is that, even in a contest as close as P&G, the vote tally of these ballots has not been called into question. 

The confidence in Broadridge’s vote processing is driven by the significant and sustained investments made in digitizing the proxy voting process.  It also stems from an adherence to rigorous processes and the focus that comes from having a team of more than 150 professionals dedicated to making sure the vote is correct. Most importantly, these processes are subject to regular and comprehensive independent testing on a quarterly and annual basis.

Throughout the year, a Big Four accounting firm performs agreed-upon procedures that are conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA). On a quarterly basis that Big Four accounting firm performs procedures that test the accuracy of Broadridge’s processing and reporting of voting instructions received from shareholders. The performance of these agreed-upon procedures consistently results in “no exceptions” with respect to Broadridge’s vote-counting procedures, which exceed 99.9% accuracy. In addition, that same accounting firm annually performs certain agreed-upon procedures to ensure compliance with Rule 3110 of the Financial Industry Regulatory Authority (“FINRA”), as well as with similar rules of the New York Stock Exchange (“NYSE”), other stock exchanges, and with rules of the United States Securities and Exchange Commission (“SEC”), covering broker-dealer and custodian bank requirements in the beneficial proxy process.

Further, Broadridge maintains an independent Steering Committee consisting of bank, brokerage, institutional investor, and corporate issuer user groups. The Steering Committee has established its own criteria under which Broadridge measures and reports its performance. These criteria exceed the NYSE’s and SEC’s rules for vote processing and reporting. On an annual basis, the Big Four accounting firm performs agreed-upon procedures related to the Steering Committee’s measurement criteria. That firm also performs annual procedures related to the reporting of the shareholder voting results for over 2,000 non-contested meetings in which Broadridge provides proxy services for both registered and beneficial shareholders. These agreed-upon procedures relate to Broadridge’s vote processing and reporting of the shareholder voting results that are presented to the Inspector of Election and to the corporate issuer.

Additionally, a Big Four accounting firm performs an SSAE 16 engagement. The SSAE 16, conducted on an annual basis, is a Report on Controls Placed in Operation and Tests of Operating Effectiveness Relating to Investor Communication Solutions and Global Proxy. The Big Four accounting firm performs an examination of Broadridge’s controls relating to registered and beneficial proxy services, interim communications, shareholder mail, and reorganization processing, and the ProxyPlus® general computer controls.  To our knowledge Broadridge is the only proxy vote processor that undergoes this level of independent review.

And that’s the point. Broadridge is a neutral third party in these contests, focused on the accuracy of the vote count, with no interest in the outcome.  

This is not how counting registered shares plays out. For better or worse, Broadridge is not involved with registered shares. In a contested election, the votes of registered shareholders are counted on a very different playing field.

Each side hires its own proxy solicitors to mail and gather the votes of registered shareholders. The proxy solicitors for each side then present their respective results to an independent Inspector of Election. When the outcome of the election is close, as it is with P&G, and the votes of registered shareholders will determine the final outcome, the Inspector of Election must reconcile the often contradictory results it has been given. That means that every one of the reported 200,000 contested ballots is being scrutinized by the Inspector, proxy solicitors from each side and lawyers representing both P&G and Trian. This contentious and expensive process can include comparing multiple ballots from the same shareholder cast on different dates, with signatures and dates often in dispute. That is the snake pit.

It’s not a place any investor should have to visit. In today’s world of electronic stock exchanges and high-frequency trading, results being adjudicated over a table by competing parties is painfully outdated and unnecessary. Plans are already afoot to move proxy voting for beneficial holders to next-generation technology. This year Broadridge, partnering with J.P. Morgan, Northern Trust and Banco Santander, successfully used a private blockchain for vote-counting at a corporate issuer’s annual general meeting. It is critical that the financial industry – corporate issuers, regulators, processing agents and proxy solicitors alike – focus on ways to leverage cutting-edge technologies, including blockchain, and integrate independent verifications to bring increased transparency and speed into proxy contests. Holding the votes of registered shareholders hostage to the snake pit is harmful to corporate governance and undermines our system of active and continuous engagement among shareholders, managements, and boards.

Battles like this are a reminder of why my firm continues to invest in the infrastructure underlying proxy voting.  Technology-driven, independent processing of beneficial shares that included outside independent verification made our corporate governance system more effective and transparent. Eventually, the advances should make the counting of registered shares work better, too. That will ensure that long, drawn-out processes, like the one faced by P&G shareholders, become another relic of a bygone predigital era.

From, October 27, 2017 © 2017 Forbes. All rights reserved.