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The Independent Steering Committee of Broadridge Newsletter

January 2020. Volume 15.


The updates in this newsletter reflect issues discussed during a meeting of the members of the Independent Steering Committee of Broadridge (“Committee”) on October 29, 2019, and a meeting of the Committee with the staff of the Securities and Exchange Commission (“SEC”) on October 30, 2019.

This newsletter serves to share various developments that are re-shaping the U.S. proxy system with a wider governance audience, and to encourage broad participation in promoting the efficiency and integrity of that system.

About the Independent Steering Committee of Broadridge

The Independent Steering Committee of Broadridge was formed in 1993 to serve as an independent oversight body charged with monitoring the performance, voting accuracy and readiness of Broadridge, and its predecessor, in conducting the U.S. street name proxy system on behalf of the nation’s banks and brokers. The Committee is organized from within the securities industry with the encouragement of the Securities and Exchange Commission (SEC) and consists exclusively of persons who are neither current nor former employees of Broadridge. The members represent the four industry groups involved in the proxy process, namely issuers, institutional investors, brokers and custodian banks.

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SEC & Regulatory Updates

The Committee met with senior SEC staff members on October 30, 2019 to discuss several market developments. The SEC requested to be briefed on the recent handling of universal proxies in proxy contests. Charles Pasfield, Vice President of Client Services at Broadridge, stated that Broadridge is able to support and monitor the use of universal proxies on paper ballots, the Internet, or ProxyEdge®. He also provided updates on the 20 contested solicitations processed in 2019 by Broadridge using universal proxy.i

Eighteen of the contests involved Canadian issuers, while two involved US issuers (EQT and Sandridge Energy).ii In all 20 contests, each side issued its own proxy card and list of candidates. The use of universal ballots often resulted in reconciliation issues in the tabulation of director votes, as many shareholders who vote using paper are able to vote for more directors than the number of seats up for election (which can be prevented when using online voting).

The SEC staff members requested, in advance of the meeting, to be updated on Broadridge’s policies and practices in handling and resolving disputes between management and dissidents in proxy contests. Mr. Pasfield shared that typically the solicitor for the dissident initiates contact, and Broadridge staff works with the solicitor to resolve issues, explain processes, or to accommodate uncommon proxy card formats. Broadridge provides information to both sides – maintaining neutrality – and provides daily voting updates to each side containing the vote totals of both sides.

Additional updates were provided on the SEC Investor Advisory Committee Recommendations on Proxy Plumbing and the goals and timeline of the market-based practitioner working groups focusing on (1) end-to-end vote confirmation; (2) NOBO/OBO (non-objecting beneficial owner / objecting beneficial owner); (3) universal proxy; (4) proxy fees; and (5) proxy technology & market structure.

The Committee was updated on Broadridge’s efforts to promote end-to-end vote confirmation and recent accomplishments in repairing breaks in respondent and custodial bank relationshipsiii often caused by issues involving omnibus proxy—and which have been a hindrance towards end-to-end confirmation and a cause of voting disenfranchisement of legitimate shareowners. Broadridge researched and discovered that out of 739 custodial-respondent relationships with non-DTCC participants, 600 had breaks. Efforts were centered on fixing and reestablishing those broken linkages, thereby bringing the overall number down to 89 unsupported relationships for 2019.

The Committee discussed the systemic causes—and possible solutions—for those breaks, which include fees that may prevent small or regional banks from joining DTCC directly, lost or undelivered hard-copy omnibus proxies, and new complications raised by non-brokerage firms providing administrative functions. Broadridge reported that it is currently instituting processes for ongoing scans to identify any future breaks, which would help eliminate omnibus proxy issues as a deterrent to end-to-end vote confirmation.

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Technology Updates

Broadridge reported that it continues investments in technology infrastructure as a top priority to constantly strengthen cybersecurity, readiness and resilience efforts around all aspects of its operations and to support existing and new clients for the 2020 proxy season.iv The Committee reviewed and discussed Broadridge’s alignment of its internal cybersecurity protocols with the updated National Institute of Standards and Technology (NIST) Cybersecurity Frameworkv and its CSA STAR Level 2 Certificationvi.

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Proxy Enhancements

The Committee reviewed key Broadridge initiatives underway to increase shareholder engagement and voting, particularly among retail shareholders. These include the use of plain English, color, personalized messaging, calls-to-action, QR codes, and branding in communications, by both issuers and brokers, all of which help emphasize the importance and ease of voting. Research efforts and focus groups confirmed the positive impact of these measures in promoting shareholder engagement. Additionally, the recent launch of the ProxyVote® application provides users the ability to vote all investments in a single session across multiple brokerage firms. Biometric sign-in and push notifications of upcoming proxy votes facilitate a hassle-free experience for voters, while previously identified deterrents in the voting process (such as PIN numbers) were removed in light of the layers and strength of other security measures.

Four of the top 25 brokers have implemented Broadridge’s new application programming interface “API” allowing retail investors to vote through broker sites and efforts are underway at an additional top 10 brokers.

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2019 Proxy Season

Findings from 4,059 public company annual meetings (versus 4090 in 2018) held between January 1 and June 30, 2019 were reported to the Committee.

As published in ProxyPulseTM: 2019 Proxy Season Reviewvii, institutional and retail ownership of public company shares remained mostly unchanged, hovering around 70% and 30%, respectively, over the last five years. Average support for say-on-pay proposals declined one percentage point to 88% in 2019, while average support for management nominated directors was 95% in 2019 (down slightly from 96% in 2018). The overall volume of shareholder proposals submitted for a vote was the lowest in five years, from a high of 549 in 2015 to 420 in 2019, likely reflecting greater engagement between institutional shareholders and management and discussions outside the proxy season. The number of environmental and social proposals put to a vote increased slightly from 110 in 2018 to 115 in 2019.

Committee Members

Stephen P. Norman
President of S.P. Norman and Co., LLC
Chair of the Independent Steering Committee of Broadridge; & Editor


Institutional Investors

Raymond Cameron
Global Head, Investment Stewardship
BlackRock
Michael Garland
Assistant Comptroller
New York City Comptrollers’ Office
Philip Larrieu
Investment Officer, Corporate Governance
California State Teachers’ Retirement System
Michael McCauley
Senior Officer, Investment Programs & Governance
State Board of Administration of Florida


Broker-Dealers

Lawrence Conover
Vice President
National Financial Services
Steven Dapcic
Director
Pershing LLC.
James Monahan
Executive Director
Morgan Stanley & Company LLC. (retired September 2019)
John O’Day
Director
Bank of America Merrill Lynch (joined August 2019)


Custodial Banks

Thomas Broderick
Vice President
State Street Bank
Gloria Lio
Managing Director
Bank of New York Mellon
Michael Marino
Director – PS Client Service
Credit Suisse
Joseph Swanson
Senior Vice President
Northern Trust Company


Corporate Issuers

Stacey Geer
Executive Vice President,
Deputy General Counsel,
Corporate Secretary
Primerica, Inc.
Rick E. Hansen
Corporate Secretary and Lead Counsel, Securities and Corporate Governance
General Motors Company
Hope Mehlman
Executive Vice President, Chief Governance Officer and Assistant Corporate Secretary
Regions Financial Corporation

Tangela Richter
Corporate Secretary & Chief Governance Officer
American Express


Non-Voting Observers

Amy Borrus
Deputy Director
Council of Institutional Investors (CII)
Granville Martin
Senior Vice President & General Counsel
Society for Corporate Governance (Society)

Any comments or suggestions may be sent to: steve@spnormanco.com

  1. When a director election has more nominees than available board seats, shareowners typically receive two versions of the proxy card: one from the company and one from the shareholder who nominated the alternative candidate(s). Each card provides an unique list of nominees, neither list is complete, and shareowners are prohibited from using both cards to vote. Thus, depending on the combination of candidates a shareowner supports, he or she may be disenfranchised. "Universal" proxy cards solve this problem by listing all duly nominated board candidates, allowing shareowners to vote for the precise combination of nominees they wish to represent them. CII website: Universal Proxy Cards. https://www.cii.org/cii_universal_proxy
  2. Only management used the universal proxy in Sandridge Energy (opposition prevailed). Both sides used the universal proxy in EQT (opposition prevailed). In all instances, each side had its own card and proxy committee assignments. The use of separate cards produces different voting rules and limitations. (Fall Meeting of the Securities and Exchange Commission and The Independent Steering Committee of Broadridge October 30, 2019; pg. 4).
  3. Respondent banks are banks that do not maintain their own position with DTC but use another bank as a custodian. (Corporate Secretary’s Answer Book; pp 3-22; 2009.)
  4. John Gullotta, Chief Technology Officer at Broadridge, highlighted recent Broadridge efforts for continuous deployment for cloud enablement, proxy & ICS Online enhancements, open architecture, new API framework, as well as indirect security enhancements, such as additional staff training around phishing and new quality assurance software for coding, among other efforts. Readiness initiatives include load testing, server and database patching, network reboots, local site failover testing, and disaster recovery (DR) testing.
  5. This voluntary framework consists of standards, guidelines and best practices to manage cybersecurity risk. (www.nist.gov/cyberframework).
  6. CSA STAR Attestation is a collaboration between Cloud Security Alliance (CSA) and the American Institute of Certified Public Accountants (AICPA) to provide guidelines for CPAs to conduct SOC 2 engagements using criteria from the AICPA (Trust Service Principles, AT 101) and the CSA Cloud Controls Matrix. STAR Attestation provides for rigorous third party independent assessments of cloud providers. (cloudsecurityalliance.org/star/levels)
  7. ProxyPulseTM: 2019 Proxy Season Review. ProxyPulse provides insights into key corporate governance and shareholder voting data for the 2019 proxy season, as well as the five-year trends. It covers the results of the data collected from the 2019 proxy season.


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