I was recently asked to share my thoughts on client directed voting (CDV). I’ve written them in question-and-answer format, available at votermedia.org/publications.
I’ve been advocating and looking forward to this reform for many years, so am pleased with the recent increase in interest and momentum toward CDV! Your comments welcomed…
NOTE: This early draft has now been superseded by a revision linked here.
This shareowner proposal is an enhancement of my previous Proxy Advisor proposals, based on what we have learned from implementing this idea for the past four years at the University of British Columbia. The main idea is in section 3 of “Proxy Voting Brand Competition”, and the UBC implementations are described in “Global Voter Media Platform”, both at votermedia.org/publications. See also the current UBC ballot.
WHEREAS many shareowners lack the time and expertise to make the best voting decisions, yet prefer not to always follow directors’ recommendations;
WHEREAS shareowners could benefit from greater competition in the market for professional proxy voting advice;
THEREFORE BE IT RESOLVED that XYZ Corporation shareowners request the Board of Directors to hold a competition for proxy advisors giving public advice on the voting items in the proxy filing for next year’s XYZ annual general meeting, with the following features:
* The competition will be announced no more than six months after this year’s annual general meeting. To insulate advisor selection from influence by the Company’s management, any proxy advisory organization can enter by paying an entry fee of $20,000, and providing their name and website address. Each entry will be announced publicly, promptly after it is received.
* The competition will award a total prize pool no less than the lesser of $100,000 and the sum of entry fees received. For example, if three advisors enter then the prize pool is at least $60,000. If seven advisors enter then the prize pool is at least $100,000, and the extra (at most) $40,000 in entry fees is revenue to XYZ.
* Prizes will be determined by shareowner vote on next year’s XYZ proxy. The proxy will show this question: “What percentage of the prize pool should we award to each of the following proxy advisors? (Your votes need not sum to 100%.)” Then the name and website address of each advisor entered will be listed in chronological order of entry, with the following voting choices for each advisor: 0%, 10%, 20%, 30%, 40%, 50% if there are three or more competing advisors; if there are fewer than three advisors, then the voting choices will be 0%, 20%, 40%, 60%, 80%, 100%.
* If there are two or more advisors competing, then a cutoff number of votes (i.e. shares voted) will be determined such that the sum of awards will be 100%, where each advisor is awarded the highest percentage such that the sum of its votes for that percentage or higher is greater than the cutoff. (In the case of a tie at the cutoff, the discontinuity will be divided equally among the tied advisors.)
* If there is only one advisor entered, then that advisor will receive 100% of the award pool, regardless of how XYZ shareowners vote. The vote will simply serve as shareowner feedback on the quality of advice provided.
* The XYZ filing that reports the final voting results will show the total number of shares voted for each percentage level, for each advisor.
* It is expected that each proxy advisor will publish advice on its website regarding next year’s XYZ proxy, but there will be no formal requirement to do so. The incentive to win shareowner voting support and to maintain the advisor’s reputation will be considered sufficient motivation for giving quality advice.
(Further information at http://votermedia.org/publications.)
It’s written so that awards can be funded entirely from entry fees, although it leaves the board discretion to sweeten the pot with corporate funds if desired. This may seem unattractive to proxy advisors, but their reputations can benefit from the advertising exposure. Once the concept demonstrates its value to shareowners, it should spread to more corporations and get corporate funding.
I have no immediate plans to submit this proposal, but I think it would greatly benefit shareowners and improve corporate governance. I recommend anyone to submit it. Feel free to change it as you wish.
Your comments welcomed!
The Securities and Exchange Commission has posted the agenda and schedule for the Investor Advisory Committee meeting in DC this coming Monday, May 17. Webcast should be linked from here or here.
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