“Proxy Plumbing” Issue: Solutions?

Transparency and shareholder communications are at stake in a vexing matter of increasing concern, which has come to be known as the “Proxy Plumbing” issue.  Central to the debate are the processes by which companies deliver proxy statements and other such materials to their shareholders who hold their shares through a broker.  Recently, the SEC has been reviewing the comments it has received from various interested parties on the matter.

To address potential solutions to this issue and shed light on other matters impacting corporate governance, Makovsky + Company is joining with Georgeson & Company, a noted proxy solicitation firm, to host a seminar, the details of which can be found here.

The delivery of proxy materials to shareholders has always been problematic.  Of particular interest to corporate managers are those shareholders who elect to remain anonymous and are known as “objecting beneficial owners,” or OBOs, for short.  It has been estimated that this group accounts for 60% of the shareholder universe.

Companies must deliver proxy materials to their OBOs, and do so by reimbursing brokerage firms for the fees those firms pay to third-parties, such as Broadridge Financial Solutions.  Seems a bit convoluted to me, not to mention costly especially for widely-held companies.  In addition, the present system makes it difficult for companies to effectively communicate with their shareholders… not a good idea given that transparency has become a corporate watchword these days.

The position for change is reflected in a comment letter to the SEC written by Dannette L. Smith, Secretary to the Board at UnitedHealth Group, a company traded on the New York Stock Exchange:

The Commission should be under no illusions. The current shareholder voting system is flawed and, in close elections, there are often serious doubts as to the accuracy and integrity of the voting results…  UnitedHealth routinely suffers major occurrences of attempted over-voting and under-voting in connection with its shareholder meetings…

On communications with shareholders,

… As noted recently in a report sponsored by the Council of Institutional Investors, however, "the OBO/NOBO distinction impedes company communications with beneficial owners"…

We believe that it is time for a change.  Communications must be open, honest and direct to foster true transparency and strong corporate governance.

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