Council of Institutional Investors

Market Systems & Structure

End-to-end vote confirmation

As shareholder voting is a core and essential element of corporate governance, shareholders have a keen interest in a reliable, transparent and cost-effective system for voting proxies. Yet the U.S. system of proxy voting is extraordinarily complex and inefficient. Many CII members lack confidence that their shares are always fully and accurately voted. Since 2010, market intermediaries have worked to develop a system to provide vote confirmation on request. But vote confirmation is not routine, easy or efficient. CII believes the SEC should explore steps it could take to require the various intermediaries that process proxy votes to cooperate to ensure that shareholders’ votes are counted accurately, and that proxy voters can confirm vote execution with a few clicks on a keyboard. 
 

Universal proxy cards in contested elections for board seats

On rare occasions, corporate director elections involve more candidates than available board seats, typically over a dispute about the company’s direction between incumbent board members and an activist investor. In these proxy contests, it makes common sense that shareowners should be able to support whatever combination of nominees they wish to represent them.

But under current rules, shareholders generally have that choice only if they vote in person. Shareholders voting by proxy (the vast majority of investors), have no practical ability to "split their ticket" and vote for the combination of shareowner nominees and management nominees that they believe best serve their economic interests. That is because neither company management nor dissidents are required to include all bona fide candidates on their proxy cards.

To fix this, CII sought and supported amending director election rules to require universal proxy cards that ensure “full flexibility” on both management’s and the dissident’s card. The SEC proposed a universal proxy rule in 2016 but has not finalized the rulemaking. CII continues to advocate for the adoption of a final rule to get this sensible reform across the finish line.
 

Stock exchange operations and governance

CII members and other institutional investors depend on effective market regulation. Long before the creation of a securities market regulator in the United States, stock exchanges were the leading guardians of investor protection. But that is no longer the case. The exchanges have morphed from nonprofit gatekeepers to for-profit entities that compete for primary listings and seek to monetize trading data that is critical to high-functioning capital markets.

We are concerned that the exchanges, rather than upholding high-quality listing standards, are engaged in a global race to the bottom. At various times, CII engages actively with exchanges to press for listing standards that we believe protect investors and promote liquidity.

For-profit pressure has also intensified arrangements with brokers to attract order flow. CII supported an SEC pilot program to shed light on the degree to which certain rebates exchanges pay to brokers encourage them to send trade orders to exchanges that pay favorable rebates rather than to those that offer the best results for investors. A court later invalidated the pilot as exceeding the SEC’s authority.

The digital revolution has strengthened exchanges’ ability to monetize trading data, both in terms of speed and completeness. CII has joined with other investor organizations to petition for transparency that would promote a better understanding of how exchanges use the fees they collect to enhance the quality of core market data, as opposed to investing in supplemental data services that deliver superior trading data to those who are able to pay. For background, read more here.