Council of Institutional Investors The Voice of Corporate Governance

As much as 85 percent of all shares in U.S. public companies are held in "street name," meaning they are held of record in bank or brokerage accounts for the ultimate beneficiary owners. New York Stock Exchange Rule 452, adopted in 1937, lets brokers vote the shares on certain “routine” proxy proposals if the beneficial owner has not provided voting instructions at least 10 days before a scheduled meeting. The uncontested election of directors is among the proposals that the NYSE considers to be routine.

The Council has long opposed the broker-may-vote rule and has pressed repeatedly for it to be abolished. Allowing brokers to cast votes for uninstructed shares skews voting results and is akin to stuffing the ballot box for management as broker votes almost always are cast in favor of management’s proposals and candidates for board seats. Experts estimate that typically about 20 percent of "street name" shares are voted by brokers without instruction.l

Since the fall of 2006, the NYSE has twice proposed abolishing broker votes in director elections. In October 2006, the NYSE submitted for Securities and Exchange Commission approval a plan to redefine director elections as “non-routine,” in effect eliminating uninstructed broker votes from director elections. The SEC responded to the proposal with comments. On May 23, 2007, the NYSE board resubmitted the original proposal with an amendment excluding board elections at investment companies (mutual funds). The SEC took no action. In a September 24, 2007 letter to its listed companies, the NYSE reported that its plans to eliminate uninstructed broker votes from director elections had been sidelined by the commission. The SEC intended to consider broker voting as part of a broad range of issues relating to shareowner communications and proxy access, the NYSE said.  The SEC has not announced when it will act on the proposal to eliminate broker votes for uninstructed shares in director elections.

The April 15, 2008 board elections at Washington Mutual raised fresh concern about the way broker votes can taint elections. One director resigned after Washington Mutual reported that shareowners had withheld 49.9 percent of votes for her. Some Washington Mutual shareowners, however, suspect that one or more directors running for re-election would not have received majority support if uninstructed brokers had been excluded from the tally. CTW Investment Group, which had led a withhold campaign against two Washington Mutual directors because of risk management and executive compensation concerns, called on the board to demand the resignation of any directors who failed to win majority votes. The Council sent a letter to Washington Mutual asking the board to clarify the preliminary vote totals for the director elections by promptly disclosing the results excluding uninstructed broker votes. The Council also wrote to SEC Chair Christopher Cox expressing concern that the commission has not acted on the NYSE’s proposal that would eliminate uninstructed broker votes in director elections. Council members also have sent similar letters to Washington Mutual and the SEC

2007 - The May 9, 2007 board elections at CVS/Caremark Corp. were a case study of the way broker votes can skew elections. Read more about the elections and Council and member actions in response here. Please click below for other 2007 action on broker voting.

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