The proxy voting system needs to be updated and reformed in order to enhance shareholder confidence and reliability, as well as give equity investors more options in contested ballots, industry stakeholders said. "There's a consensus by all involved that the proxy voting system has to change," said David A. Katz, partner at the law firm Wach-tell, Lipton, Rosen & Katz in New York. "It's antiquated, it's out of date, it doesn't help anybody."
Members of the Council of Institutional Investors lack confidence that their shares are always fully and accurately voted, said Ken Bertsch, the group's executive director in Washington.
Aeisha Mastagni, a portfolio manager in corporate governance for the $228 billion California State Teachers' Retirement System in West Sacramento, echoed Mr. Bertsch's sentiment. "Right now, because there's so many different players, there's no way to actually know that the thousand shares that we voted were actually counted through the tabulator and incorporated in that final vote," she said.
The lack of certainty surrounding cast votes was an issue brought up repeatedly at the most recent Securities and Exchange Commission Investor Advisory Committee meeting on Sept. 13, which was the same day the SEC also rescinded two staff letters on proxy advisers issued in 2004. The letters were issued to Egan-Jones Proxy Services and Institutional Shareholder Services, and were aimed at assuring mutual fund managers that they could rely on their recommendations.
At the Sept. 13 meeting, SEC Chairman Jay Clayton voiced his support of calls to update and reform the current proxy system. "It's clear there is room for improvement," Mr. Clayton said. "And there's enough room for improvement where we should do something." The following week, the SEC announced it would host a roundtable discussion on the proxy voting system on Nov. 15.
The last major push the SEC made on proxy voting was in 2010 when it solicited public feedback. But by then the agency and industry focus had shifted to the Dodd-Frank Wall Street Reform and Consumer Protection Act so nothing came of it, Mr. Bertsch said. The system in use today has been roughly the same for decades, he added. "Shareholders overall, as well as companies, have an interest in an accurate and efficient system and better use of technology, which has developed a lot since our current system was structured," he said.
With that point in mind, Mr. Bertsch added: "We don't presently have an efficient and universal way of getting vote confirmation."