An embarrassing vote-counting error revealed after Yahoo Inc.’s high-profile annual shareholder meeting earlier this month has renewed concerns about the way investor votes are tabulated in the U.S. — and raised questions about the company with a near-monopoly on the business of processing shareholder votes: Broadridge Financial Solutions Inc.
A printing error led most Yahoo shareholders to believe embattled CEO Jerry Yang had received the support of 85% of shareholders, when in fact a recount revealed only 66% supported him. After Broadridge was notified of the glitch, it fixed it within minutes, according to the company, but news of the slipup raised more than a few eyebrows. Indeed, if executives at a large hedge fund hadn’t made a stink after the 85% figure was released, the error might not have been noticed at all.
Some big investors have noticed, though. “We believe the system needs to be carefully inspected to determine what other errors could occur and increase transparency,” the Florida State Board of Administration, Tallahassee, said in a statement. “We hope the Yahoo voting error was an anomaly, but without further ability to confirm the votes cast, investors and companies are left without recourse.”
Chuck Callan, senior vice president of regulatory affairs at Lake Success, N.Y.-based Broadridge, said the mistake reflected a confluence of highly unusual factors, including one large shareholder submitting a huge number of dissenting votes for a single nominee. As a result, the eight digits typically allotted for tallies of dissenting shareholder votes were not enough to catch the total votes cast against Mr. Yang.
No similar errors have occurred in the last five years at Broadridge, Mr. Callan insisted, adding the company has taken steps to ensure similar slipups are avoided.
Nevertheless, several corporate governance and investor relations experts say they’ve been burned by Broadridge in the past.
“What we have now doesn’t work,” observed Meagan Thompson-Mann, a visiting research fellow at Yale University’s Millstein Center for Corporate Governance, who authored a paper in June criticizing the company and calling for a public commission on proxy modernization. “You sit at a desk, you press a button, and you put a lot of faith in Broadridge. (But) a lot of times these problems aren’t caught.”
When she served as corporate governance counsel at the Railways Pension Trustee Co. Ltd., London, from 2003 to 2007, Ms. Thompson-Mann said, Broadridge mistakenly stated the U.K. fund could vote shares on loan to other parties, even though regulations there forbade it.
Other critics, including New York University professor Marcel Kahan and University of Pennsylvania professor Edward Rock, say Broadridge has too much power in the U.S. In an August 2007 paper, the duo said Broadridge is “an accident waiting to happen” and suggested it be removed “from its position as the key, monopolistic actor at the center of the spider web,” noting the firm has “a very profitable business” and would likely “oppose any substantial reform.”
Big investors seem to have complaints, too. At a February voting standards round table convened by the Millstein Center and attended by institutional investors, several participants reportedly complained that Broadridge did not have a good way to verify how votes are cast.
Officials at the Council of Institutional Investors declined to comment for this story, as did executives at the $232.4 billion California Public Employees’ Retirement System, Sacramento, both of which sent representatives to the February event. But a Florida pension official described how Broadridge had mistakenly split the votes from that state’s fund, even though the fund always voted its shares unanimously, alleging that Broadridge was unable to verify the votes and explain how the problem occurred.