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Ensuring the Proxy Process Works for Shareholders

Commissioner Luis A. Aguilar

Feb. 19, 2015

Good morning. I want to start by welcoming each of the participants here today, the audience members, and those joining us by webcast.

Today’s Roundtable on Proxy Voting is certainly timely since over the course of the next several months, thousands of America’s public companies will hold annual shareholders meetings to elect directors and to vote on many important corporate governance issues. The start of the annual “proxy season” is an appropriate time to consider the annual process by which companies communicate with their shareholders and get their input on a variety of issues. Whether it’s voting on directors, executive compensation matters, or other significant matters, the annual meeting is the principal opportunity for shareholders—the true owners of public companies—to have their voices heard by the corporate managers of their investments.[1] At these annual meetings, shareholders can express their support, or disappointment, with the direction of their companies through the exercise of their right to vote.

As today’s panelists know well, the days of shareholders coming together, sitting in a room and talking one-on-one with the directors and officers running their companies are long gone. The ownership of today’s public companies is both too widely dispersed geographically and would involve too many shareholders to reasonably attend shareholders meetings (such meetings would require football stadiums rather than typical conference rooms). Accordingly, rather than attending the annual shareholders meetings in person to cast their votes, shareholders of public companies typically submit their votes by proxy.[2] To that end, the Commission recognizes that the proxy statement process is a vital means by which shareholders and companies’ leadership communicate with one another. Consistent with this reality, the Commission’s proxy rules operate on the principle that the proxy process should function, as close as possible, to replicate the rights of a shareholder who attends the annual meeting in person.[3]

These rules are not static, however. The advent of the internet and other recent technological advances that have resulted in the rapid evolution in communications have raised tremendous possibilities, and a host of issues, related to how shareholders can engage in the proxy process.[4] This is why it is so important for the Commission, the investor’s advocate, to continue to actively monitor and improve the proxy process so that it best protects the interests of shareholders.

To that end, today’s Roundtable will focus on two fundamental issues: first, a discussion of how best to empower shareholders so that they can effectively vote for the director they want; and second, a discussion of whether the existing proxy voting process is fostering or hindering the ability of shareholders to exercise their voting rights.

Importance of the Universal Proxy Ballot

To discuss the issues of empowering shareholders to vote for the directors of their choice, today’s first panel will focus on the state of contested director elections and discuss the use of universal proxy ballots. The fundamental issue to be addressed by this panel is straightforward: shareholders who could attend the annual meetings in person, particularly in contested elections, would have the ability to “split their tickets” and vote among all of the eligible candidates—whether recommended by management or by other shareholders. The same cannot be said for shareholders who participate in contested director elections by proxy. Rather, under today’s proxy regime, shareholders who vote by proxy effectively are unable to pick-and-choose among all eligible director candidates. This is because current proxy rules effectively do not provide shareholders with a single proxy ballot that would allow them to vote on candidates nominated by both shareholder proponents and management.[5] This is one anomaly in the Commission’s proxy process rules that, when taken into account with prevailing state proxy laws, do not replicate an actual in-person meeting of shareholders.[6] As a result, these proxy rules effectively result in diminishing shareholders’ rights by limiting voting choice during contested elections—an unwelcomed result at an important time for shareholders to have their voices heard.

To address these concerns, shareholders, commenters, and others have at various times promoted the idea of a universal proxy ballot—or a proxy card that permits shareholders to choose among all eligible director candidates.[7] More recently, in 2013, the Commission’s Investor Advisory Committee (“IAC”) considered this issue and recommended that the Commission explore amending the proxy rules to provide any person soliciting proxies with the option of distributing a “universal ballot” in a “short slate” direction nomination—or a proxy contest in which the outside candidates would not control the board if elected.[8] Even more recently, other commenters have suggested that the Commission facilitate the use of universal ballot proxy cards for all director elections, regardless of any resulting change in control.[9]

The goal of these recommendations is to remove artificial barriers to shareholder nominations and thereby improve shareholder choice. The expectation is that a universal ballot proxy card would make management and boards of directors more responsive to the interests of shareholders.

I look forward to a robust discussion of the universal proxy ballot concept and a discussion of what can be done to improve the ways that shareholders can elect the directors that they want to run their companies.

Improving Informed Retail Participation in the Proxy Process

Today’s second panel will discuss possible approaches to addressing the drop in retail shareholder participation in the proxy process. This discussion is particularly important, given how Americans are increasingly relying on the capital markets for their savings and retirement. In fact, the data shows that about half of all U.S. households participate, either directly or indirectly, in the stock market.[10]

While retail shareholders are no longer the predominant owners of America’s public companies like they were in the years before 1945, they remain significant direct owners of public companies.[11] For example, one report found that as of the end of 2009, retail shareholders owned nearly 30% of the shares of America’s largest 1,000 public companies.[12] This is a significant percentage of direct ownership interests and makes it clear why the Commission must promote policies that encourage retail investors to protect their interests by exercising their voting rights.

It’s no secret that retail shareholder participation in the proxy process has been falling. In fact, one of the first issues that I raised after becoming a Commissioner concerned the negative impact on retail investor voting following the Commission’s 2005 adoption of an “access equals delivery” rule.[13] I noted in February 2009 that retail investor voting, already at low numbers,[14] had plummeted at those companies using the notice and access model permitted by this rule.[15] Indeed, the reports that compiled statistics on the level of participation by investors before and after the notice and access model was put in place at their companies found decreases of over 30% for large investors, and over 60% for smaller investors.[16] Other reports find that retail response rates have declined each year since the introduction of the notice and access model, falling to less than a 13% response rate for the period from July 1, 2013 to June 30, 2014.[17]

Although the Commission has not revisited the “access equals delivery” rule to determine its continuing impact, which is something I think should be done, the SEC has taken some steps to create greater interest in the voting process. For example, in 2010, the Commission identified a need for education outreach to better inform retail investors as to the importance of exercising their voting rights—and how to exercise those rights.[18] In connection with that effort, the Commission took a series of steps designed to educate investors—including issuing an “investor alert” on new shareholder rules in advance of the 2010 proxy season, and launching a new “Spotlight on Proxy Matters” Web page at that provides investors with information on the mechanics of proxy voting, the e-proxy rules, corporate elections, and proxy matters generally.[19]

Notwithstanding the Commission’s efforts—which admittedly were limited—retail shareholder participation in the proxy process remains disappointingly low. For example, one report looking at a sample of annual meetings in 2013 found that 70% of shares held by retail shareholders were not voted.[20] Another more recent report found that by July 2014, institutional shareholders had voted 90% of their shares, but retail shareholders had voted just 29% of their shares.[21]

These dismal retail investor participation numbers have continued, despite technological advances that should have made it easier and more efficient for widely dispersed groups of shareholders to engage with other investors and their companies. For example, so-called “virtual shareholder meetings,” which allow shareholders to use the internet—not just to listen and watch, but also to vote their shares—have grown in prevalence over the past five years.[22] Yet, retail shareholder participation remains low.

Perhaps it’s not just the use of new technology but, rather, how that technology is used that will result in greater shareholder participation.

For instance, it has been suggested that the better use of 21st century technology in the proxy process may facilitate how shareholders can more effectively receive and understand how their companies are performing, and to better put that performance into perspective. Indeed, it’s only logical to expect that better informed investors would likely participate in greater numbers.

In its 2010 Concept Release on the U.S. Proxy System, the Commission stated that if issuers provided reportable items in interactive data format, “shareholders may be able to more easily obtain specific information about issuers, compare information across different issuers, and observe how issuer-specific information changes over time as the same issuer continues to file in an interactive data format.”[23] In addition, in 2013, the IAC recommended that the Commission immediately prioritize tagging important information with respect to various corporate governance issues, including portions of the proxy statement that relate to executive compensation and matters voted upon by shareholders.[24] The IAC added that tagging the voting data and results contained in certain forms could result in more informed voting and investment decisions, and would facilitate comparisons among public companies. For these reasons, the IAC suggested that data tagging could “facilitate participation in the governance process.”[25]

The end goal, of course, is not simply to increase retail shareholder participation in the proxy process, but rather to increase informed participation in this process. This is one of the fundamental concerns that have been previously raised about so-called “advance voting instructions” (sometimes referred to as “client-directed voting”). In particular, most iterations of advance voting instructions inevitably would set voting instructions for shareholders before any disclosures about the matters in question are known or even available.[26] Any serious discussion of the merits of advanced voting instructions needs to consider how these processes will comport with the basic disclosure principles of investor protection and shareholder rights that underpin the current proxy rules.

As today’s panelists discuss various ways to promote retail shareholder participation in the proxy process, the discussion should focus, not only on how to get a shareholder to technically cast their vote, but also on how best to protect the fundamental interests of shareholders in making informed voting decisions.


I expect that today’s Roundtable will go a long way in assisting the Commission in exploring how best to get shareholders to participate in shareholders meetings and, in particular, how best to give them a more effective way to vote for the directors of their choice.

I would like to thank all of our panelists for taking the time to be here today, and I want to thank the staff for organizing this Roundtable. I look forward to an active discussion about the universal proxy ballots and the ways to increase the participation of informed shareholders in the proxy process.

In conclusion, I want to remind everyone that there will be a public comment file associated with today’s Roundtable. I look forward to receiving additional comments and input on these issues.

Thank you.

[1] Such other matters may include advisory votes on compensation, charter amendments, ratifying the independent auditors, or other matters.

[2] See Facilitating Shareholder Director Nominations, SEC Release No. 33-9046 (June 10, 2009) at 9, available at

[3] Id.

[4] See, e.g., footnote [22], infra, and accompanying text (discussing virtual shareholder meetings); see also footnote [26], infra, and accompanying text (discussing advanced voting instructions).

[5] Indeed, current proxy rules generally do not allow management or shareholder proponents to put forth a single proxy ballot that includes nominees from the other side’s ballot. This is the so-called “bona fide nominee” rule, where a solicitor of a proxy only has authority to name a candidate as a “bona fide nominee” on their ballot if the person consents to being named on that particular proxy statement. Exchange Act Rule 14a-4(d)(1). As a result, directors nominated by management only very rarely consent to being named on a proxy statement issued by dissident shareholders. See SEC Investor Advisory Committee, Recommendations of the Investor as Owner Subcommittee Regarding SEC Rulemaking to Explore Universal Proxy Ballots (Adopted July 25, 2013), available at

[6] See Richard J. Grossman and J. Russell Denton, Never Mind Equal Access: Just Let Shareholders “Split Their Ticket,” The M&A Lawyer (2009), available at (“State laws almost universally provide that the latest-dated proxy revokes any previous proxy. This means that shareholders can only vote for nominees named on a single proxy card because voting on a second later-dated proxy card will automatically revoke the prior card. The last in time rule, however, would not create a problem for a shareholder who wanted to ‘split its ticket’ if all the company’s and the dissident’s nominees for director were required to be listed on a single proxy card.”).

[7] See, e.g., id; see SEC Investor Advisory Committee, Recommendations of the Investor as Owner Subcommittee Regarding SEC Rulemaking to Explore Universal Proxy Ballots (Adopted July 25, 2013), available at In 2009, for example, a shareholder involved in a proxy contest with Target Corporation’s management sought unsuccessfully to have the retailer employ a universal proxy ballot for its direction elections. See The Deal: Universal Proxy Battle Fight Gathers Steam at SEC, The Street (Sept. 20, 2013) available at

[8] See SEC Investor Advisory Committee, Recommendations of the Investor as Owner Subcommittee Regarding SEC Rulemaking to Explore Universal Proxy Ballots (Adopted July 25, 2013), available at

[9] See Comment Letter from the Council of Institutional Investors, Petition for Rulemaking to Amend Section 14 of the Securities Exchange Act of 1934 to Facilitate Use of Universal Proxy Cards in Contested Elections (Jan. 8, 2014), available at

[10] The data shows that the percentage of American families collectively invested in the capital markets, directly or indirectly through mutual funds and/or 401k funds, has increased from roughly 32% in 1989 to nearly 47% by 2010. One survey found that share of households owning stock was 31.7% in 1989, peaked at 51.9% in 2001, and slightly dipped to 46.9% by 2010. See Share of households owning stock, 1989-2010*, Economic Policy Institute (updated Aug. 22, 2012), available at Another survey by the Federal Reserve found that the level of stock ownership among families peaked in 2007 at 53.2%, and had declined to 48.8% by 2013. See Federal Reserve Bulletin, Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances (Sept. 2014), available at

[11] Marshall E. Blume and Donald B. Keim, Working Paper, Institutional Investors and Stock Market Liquidity: Trends and Relationships, The Wharton School, University of Pennsylvania (Aug. 21, 2012), available at, at p.4 (finding that retail shareholders directly held roughly 95% of public company equities in the years prior to 1945.) Since World War II, the proportion of U.S. public equities directly owned by retail investors has gradually ceded to the exponential growth of institutional investors, with institutional ownership reaching 67% by 2010. See id.

[12] See Arthur H. Kohn and Julie L. Yip-Williams, The Separation of Ownership from Ownership: Concerns Arising from Institutional Investors as Intermediaries, The Conference Board (Nov. 2013), available at The discussion in these remarks are focused on retail investors’ direct ownership of equity interests in operating companies, as compared to retail investors’ indirect equity ownership interests in such companies through other companies, including mutual funds.

[13] Under the newly-adopted Securities Act Rule 172, a final prospectus would be deemed to precede or accompany a security for purposes of Securities Act Section 5(b)(2), as long as certain conditions are satisfied. Under this so-called “access equals delivery” model, investors are presumed to have access to the Internet, and issuers and intermediaries satisfy their delivery requirements if the filings or documents are available on the SEC’s website. See Securities Offering Reform, SEC Release No. 33-8591 (July 19, 2005), available at

[14] See SEC Website, Roundtable on Proxy Voting Mechanics (May 23, 2007), available at (noting that in a 2007 Commission briefing paper for a roundtable on proxy voting mechanics, broker-dealers estimated retail voting rate averages at roughly 30 to 40 percent.).

[15] See SEC Commissioner Luis A. Aguilar, Increasing Accountability and Transparency to Investors (Feb. 6, 2009), available at

[16]See Fabio Saccone, E-Proxy Reform, Activism, and the Decline in Retail Shareholder Voting, The Conference Board (Dec. 2010), available at

[17] Telephone interview by Giles Cohen, Counsel to Commissioner Luis A. Aguilar, with Chuck Callen, Senior Vice President, Regulatory Affairs, Broadridge Financial Solutions (Feb. 10, 2015) (and Broadridge Financial Solutions, Inc. report titled “Discussion of Retail Shareholder Participation” (dated 2012) received from Mr. Callen in connection with such interview). In addition, studies by Broadridge, AARP, and the NYSE found that prior to the notice and access model, over 85% of respondents looked at proxy information at least some of the time. Following implementation of the notice and access model, a study conducted between 2008 and 2009 found that the viewing rates of over 21 million investors indicated that less than one-half of one percent of those who received notification by mail visited the URL and chose to view the disclosure information. See Comment Letter from Broadridge Financial Solutions, Inc., File No. SR-MSRB-2009-02 (May 5, 2009), available at

[18] See Concept Release on the U.S. Proxy System, SEC Release No. 34-62495 (July 14, 2010), available at (“[The Commission believes] that improved investor education may help dispel some of these potential misunderstandings and create interest in the voting process.”).

[19] See SEC Press Release No. 2010-23, SEC Announces Efforts to Educate Investors About Participating in Corporate Elections (Feb. 22, 2010), available at; see also SEC Website, Spotlight on Proxy Matters (May 30, 2012), available at

[20] A 2013 Study by Broadridge Financial Solutions, Inc. and PwC’s Center for Board Governance found that 549 annual meetings that it analyzed between January 1, 2013 and April 23, 2013 had “low rates of retail shareholder participation left 70% of retail shares un-voted.” See Broadridge and PwC Announce New Data on 2013 Proxy Voting Trends (June 4, 2013), available at

[21] See Mary Ann Cloyd, 2014 Proxy Season Mid-Year Review (July 17, 2014), available at

[22] In 2009, four companies used some form of virtual shareholder meeting, while in 2014 that number increased to over 90 companies. See Mary Ann Cloyd, 2014 Proxy Season Mid-Year Review (July 17, 2014), available at; Donald Ainscow and Harva Dockery, Top Ten Things To Remember When Considering Virtual Shareholder Meetings, Association of Corporate Counsel (Dec. 23, 2014), available at Some other ideas to increase retail participation at low or no cost to issuers include, among other things, (i) use of smart phones and tablets to access materials and vote; (ii) digital delivery and voting platforms for retail investors; (iii) enhanced broker internet platforms that would permit a direct connection to voting on brokers’ websites; or (iv) using “big data” analyses for improved engagement between issuers and their retail shareholders. Telephone interview by Giles Cohen, Counsel to Commissioner Luis A. Aguilar, with Chuck Callen, Senior Vice President, Regulatory Affairs, Broadridge Financial Solutions (Feb. 10, 2015) (and Broadridge Financial Solutions, Inc. report titled “Discussion of Retail Shareholder Participation” (dated 2012) received from Mr. Callen in connection with such interview).

[23] See Concept Release on the U.S. Proxy System, SEC Release No. 34-62495 (July 14, 2010) at 99, available at

[24] See SEC Investor Advisory Committee, Recommendations of the Investor as Owner Subcommittee

Regarding the SEC and the Need for the Cost Effective Retrieval of Information by Investors (July 25, 2013), available at (describing recommendations to include tagging revisions in the proxy statement on Schedule 14A, in Form N-PX filed by mutual funds (where such forms include the registrant’s proxy voting record for the most recent 12 month period), and voting results filed with the Form 8-K.).

[25] See id.

[26] See Council of Institutional Investors, Client Directed Voting: Selected Issues and Design Perspectives, prepared by Alan L. Beller, Janet L. Fisher, and Rebecca M. Tabb of Cleary Gottlieb Steen & Hamilton LLP (Aug. 2010), available at

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