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

CII scored a major victory on Nov. 17, 2021, when the SEC approved final rules requiring universal proxies in contested elections for seats on public company boards. The origin of the new rules dates back to a 2014 CII rulemaking petition that reflected CII’s member-approved policy endorsing universal proxy cards in contested elections at U.S. public companies. Since filing that petition, CII has drafted more than 20 letters and testimony in support of universal proxies.
 
Under the new final rules, universal proxy cards must include all director nominees presented by management and shareholders for election at shareholder meetings held after Aug. 31, 2022. To facilitate the use of these cards, the commission amended the current proxy rules so each side can list the other side’s director candidates.
 
The rules also prohibit companies that have not adopted a true majority vote standard from including an “against” voting option on their proxy card because such votes have no legal effect. Companies that use a plurality standard must indicate a “withhold” option and disclose the treatment and effect of this vote in the election. CII had pressed the SEC on this mislabeling vote options since 2015, when it submitted a rulemaking petition on the matter.

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.