DealLawyers.com Blog

In a recent blog about UPC, we discussed the language from corporates and dissidents stressing that their proxy card be returned — despite the fact that all sides’ nominees are presented on all cards. We noted that vote visibility limitations were one of the reasons for preferring which proxy card is used.

This HLS blog from Paul Washington of The Conference Board and Broadridge discusses this vote visibility issue.

[S]ystems for processing and reporting votes of shares held “beneficially” in accounts at custodian banks and broker-dealers, are accurate, transparent, and fair. This is critical: When it comes to the largest proxy contests, the votes of beneficial shareholders can represent upwards of 95% of the total shares voted. In most contests, the outcome is known at the close of the polls.

However, when it comes to the remaining 5% of the votes, those held in “registered” form directly on the books of companies (or their transfer agents), the process is largely manual and opaque. Opposing sides count their own votes without providing the daily status reports that all sides receive for votes of beneficial shareholders. Therefore, in the closest cases, final tabulations by election inspectors can be delayed for weeks while attorneys for each side examine the votes of registered shareholders in a “snake pit.” Moreover, in contrast to systems for processing beneficial shares, there are no independent audits of the process or votes by an internationally recognized certified public accountant firm.

In terms of best practices for avoiding vote counting issues in contested elections, the post discusses Broadridge’s Standard Operating Procedures for Contested Meetings. In addition to those standard procedures, the blog notes that Broadridge implements additional steps in certain contested meetings, such as the recent contest at Disney.

For example, for the first time since the universal proxy rule went into effect, a pending contest (at The Walt Disney Company) involves three soliciting parties – one, management, and two soliciting persons other than management — with each providing its slate of director nominees. The very large size of the company and its shareholder base—and the potential additional and novel complexity of three slates—led Broadridge to undertake certain enhanced procedures:

First, for the Disney proxy contest, Broadridge is performing early reconciliation by comparing its custodian banks’ and broker-dealers’ reported positions to entitlements assigned either by the DTCC or by omnibus proxy.

Second, the Broadridge Vote Audit and Control Department is auditing each voting instruction form representing 250 shares or more, so that there is a “100% confidence level in a projected vote accuracy of 100%” for these votes. Sampling will be used to audit voting instructions representing less than 250 shares to achieve a projected vote accuracy rate of at least 99.9%.

Third, Broadridge has engaged an additional, internationally recognized, independent audit firm to undertake a real-time audit as votes are received and processed. The results of this review will be available shortly after the meeting date.

– Meredith Ervine