The 2010 proxy season will allow pension funds and other shareholders to begin to realize more fully an unquantified but nevertheless valuable asset: proxy voting.
New proxy-voting rules issued by the Securities and Exchange Commission taking effect over the next two months would prohibit broker discretionary voting for directors and speed up the reporting of proxy-voting results.
The rules likely will cause more tension between corporations and shareholders. But both rules are long-overdue necessities that will contribute to allowing shareholders to realize a valuable asset, the proxy vote.
In terms of the Employee Retirement Income Security Act, the Department of Labor declared in 1988 that proxy voting is an asset, a decision stemming from a case involving Avon Products Inc. Academic studies suggest a correlation between corporate governance and stock performance. But shareholders have been thwarted from realizing a fuller value in part because of SEC rules that have worked in favor of corporate management and against shareholder efforts to bring more accountability. But the new rules create an expectation of better corporate governance and accountability by an overdue recognition of shareholders' proper economic influence.
Proxy votes are an increasingly valuable tool in corporate governance and investment decision-making as more attention than ever is being focused on governance as a factor in the stock and debt analysis of companies.
The rule banning broker votes of uninstructed shares, taking effect Jan. 1, will ensure fairer director elections; only investors with an economic interest will cast votes, critical progress now with a majority-vote standard for election at some two-thirds of Standard & Poor's 500 companies.
In the other rule, effective Feb. 28, the SEC will require companies report proxy-voting results within four days of the meeting when the vote was held. Previously, companies were required to report results with their 10-Q and 10-K statements, often filed months after the meeting. Contentious voting on proxy issues introduces more investment uncertainty and as a result calls for the more immediate reporting of voting results.
Both rule changes, long advocated by Pensions & Investments, should help reinforce and strengthen shareholder assets in overseeing corporate governance.
