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Regulation

Improving proxy-voting system discussed at SEC roundtable

A session about improving proxy voting kicked off the Securities and Exchange Commission's series of roundtable discussions Thursday on the proxy process.

The discussion, which featured 15 panelists with a range of viewpoints, touched on suggested areas to improve the current system, including universal proxy ballots, end-to-end vote confirmation and technologies, like blockchain, that could help reshape the way shareholders cast votes and receive information.

Sherry Moreland, president and chief operations officer of Mediant Communications, a proxy service provider, said implementing a universal proxy ballot would help eliminate shareholder confusion. Institutional investors have been calling for the creation of a universal proxy, which would allow them to split their vote during a contested election without having to physically attend a given meeting. Now, investors who do not attend a meeting must vote using proxy cards that do not list all board nominees. Instead they vote using management's proxy card or the dissident group's proxy card, and neither card lists all nominees.

David A. Katz, partner at law firm Wachtell, Lipton, Rosen & Katz, said a universal proxy can be helpful, but the details, such as the order in which names appear on the ballot, will be crucial.

With respect to end-to-end vote confirmation, each panelist who spoke on the issue said it would improve the system. Currently, because there is no guaranteed end-to-end confirmation, votes can be undercounted, overcounted or not counted at all, which diminishes shareholder confidence in the system, panelists said.

The biggest player in the world of proxy voting infrastructure, Broadridge Financial Solutions, does offer voter confirmation but can only do so when it acts as tabulator for a given annual shareholders meeting. "Vote confirmation would eliminate a lot of the noise, concern and make investors feel more comfortable about the process," said Robert Schifellite, president of investor communication solutions at Broadridge.

"The SEC should mandate whatever it needs to mandate to get everybody in a room and work this out," said Darla Stuckey, president and CEO of the Society of Corporate Governance, which represents about 1,000 public companies.

Ken Bertsch, executive director of the Council of Institutional Investors, highlighted the SEC 's 2016 proposed rule that would require the use of universal proxies in contested elections as something to consider.

Mr. Bertsch also endorsed looking into using blockchain technology in the proxy-voting process. The technology would ensure vote confirmation, enhance privacy and security, and reduce mailing costs, he said.

"For the participants to come together is a necessary condition for solving the issues that we face," SEC Chairman Jay Clayton said after the session concluded. "So hopefully this is not the last meeting of groups like this."