On January 24, 2012, the NYSE issued a notice regarding Rule 452 that establishes new restrictions on broker discretionary voting. NYSE Rule 452 regulates when brokers may cast discretionary votes on uninstructed shares. NYSE Rule 452 permits brokers to exercise their discretion to vote on “routine” proposals when the beneficial owner fails to provide specific voting instructions within 10 days of the scheduled meeting, and prohibits brokers from voting those uninstructed shares on “non-routine” matters. The NYSE notice states that they re-examined broker discretionary voting on certain corporate governance proposals in light of “recent congressional and public policy trends disfavoring broker voting of uninstructed shares.” The NYSE’s rule on broker discretionary voting has come under increasing scrutiny in recent years, as evidenced by recent amendments to Rule 452 prohibiting broker voting of uninstructed shares in the election of directors (other than for the election of directors for investment companies), and the provision in the Dodd-Frank Act directing the SEC to prohibit brokers from voting uninstructed shares on executive compensation and other “significant matters,” as determined by the SEC.
The recent change prohibits brokers from voting uninstructed shares on company proposals to amend the certificate of incorporation or bylaws to implement corporate governance changes. Previously, the NYSE previously had provided that “Brokers May Vote” on such matters. Examples of these matters include amendments to:
· De-stagger the board of directors
· Implement majority voting in the election of directors
· Eliminate supermajority voting requirements
· Provide for the use of written consents
· Provide rights to call a special meeting
· Opt out of certain types of anti-takeover provisions
The NYSE notice was issued without a comment period and is effective immediately. The change affects voting of shares by all NYSE member firms on these matters for all public companies, regardless of where the company is listed. Without discretionary voting authority, it will take much more effort to obtain approval of these types of proposals, particularly where a supermajority vote is required. Note that ratification of auditors remains a “Broker May Vote” matter, so companies that include this item on their annual meeting agendas may still use the broker discretionary vote to help establish a quorum for shareholder meeting purposes.