Obtaining Shareholder Votes (#120)
/In this podcast episode, we discuss the effects of NYSE Rule 452, and how to obtain more shareholder votes. Key points made are noted below.
NYSE Rule 452
This episode is about the New York Stock Exchange Rule 452, regarding allowing brokers to vote for directors. The situation is that the New York Stock Exchange has adopted Rule 452, which basically keeps brokers from voting for company directors on behalf of their customers – or at least, without specific instructions from those customers. This rule has been in effect for all shareholder meetings since January 1st of 2010.
In the past, investors have almost always let their brokers vote for them, because it saves time and they really can’t be bothered to do it themselves. The problem now is that brokers nearly always send in their votes, whereas only about 30% of individual shareholders send in their votes.
Problems with Rule 452
This is a massive problem, because you used to be able to rely on getting in far more than half the votes, because brokers are reliable voters - but now you’re lucky to come anywhere near 50% – so you may not even have enough votes to approve the directors.
And it’s worse that you think, because this rule applies to ALL brokers. That means it affects the shares of all publicly held companies, not just the companies listed on the New York Stock Exchange.
The National Investor Relations Institute sent in a comment letter on this, which very nicely stated that they were a bunch of blithering idiots for even considering it, and which I completely agree with.
But now it’s been approved, so we have to deal with it. If you’re with a company with a really high proportion of institutional investors, you may not see too much of a decline in votes, because there’re only a few investors, and they’re pretty reliable. On the other hand, if you have a small proportion of institutional investors, you are completely and thoroughly screwed, because that means you have lots of individual investors, and they don’t vote.
How to Deal with Rule 452
So what can you do? Well, the first step is to create the longest possible gap between the mailing date for sending out proxy materials and the date of the shareholders’ meeting. By giving the shareholders a long time in which to send in their proxies, you might get a few additional votes in. Though, to be realistic, nearly everyone either votes as soon as they receive their proxy materials, or they throw them away. Nonetheless, give yourself some time.
The next step you can take is to have your stock transfer agent hire an outside firm that investigates bad shareholder addresses. A “bad address” is when the last mailing to a shareholder came back in the mail. And if you have a decent stock transfer agent, they should be keeping track of these bad addresses. You want to fix this, so as many shareholders as possible receive their proxy materials.
If you only have a small number of bad addresses, you might be looking at paying $2 per bad address for a search – and that price can go down if you have lots of them. The search firm needs to get the corrected addresses to your stock transfer agent as soon as possible, so that they go into the proxy mailing. This means that if you’re going to do a bad address search, you need to do it very early – in fact, a good best practice for investor relations is to do a bad address search once or twice a year, just to keep the address list up to date.
And by the way, it’s pretty tough to correct an address where the recipient is in another country. You might be out of luck on that one.
Another step is to set up an on-line voting system, so that shareholders can go to a secure web address and enter their votes. There’s two reasons for doing this. First, you can eliminate the mail float for any proxies that would otherwise be mailed back to you, so you get an early feel for whether you’re going to have enough votes. And second, if you’re running late on getting in votes, you can get a shareholder to enter his votes right up until the last second before the shareholders’ meeting by doing so online.
And other step you can take is to hire a proxy solicitor. If you hire a proxy solicitation firm, they’ll review your shareholder base to see what type of shareholders you have, and then come up with a method for contacting them. They normally use outbound solicitation, which is a fancy term for calling your shareholders from a call center.
To do that, they have to use address databases to locate investor phone numbers, since that’s not something you normally have in your shareholder database.
The best proxy solicitation firms are located in New York City, and you can expect to pay quite a bit for this service. But if the votes are really in doubt, you might want to try them.
And if you want to use a proxy solicitor, you should get them involved up front. If you have a couple of days to go before the shareholders’ meeting and you don’t have a proxy solicitor, then your only choice is to contact them yourself.
Which, in fact, is the final option. You should be checking with your stock transfer agent every few days to see how many votes have come in, and you should start calling investors as soon as you see that there’s even a chance of there not being enough votes. To keep your work load down, this does not mean making 500 calls to all of the investors with 1,000 shares or less. If you’re lucky, there may be just one or two investors with a whole pile of shares, and those are the ones to concentrate on.
And that covers the steps you can take to bring in the votes for a shareholders’ meeting. This used to be a complete no-brainer, but now, because of our friends at the New York Stock Exchange, it’s a major pain.