Friday, February 03, 2012

NYSE Tightens Rule 452 Broker Voting of Corporate Governance Proxy Proposals

In light of legislative and regulatory action, as well as trends disfavoring broker voting of uninstructed shares, the NYSE will no longer continue the practice under Rule 452 of allowing member organizations to vote on corporate governance proxy proposals without specific client instructions. Thus, in a Memo to members, the NYSE said that proposals that the Exchange previously ruled as “Broker May Vote” including proposals to de-stagger the board of directors, majority voting in the election of directors, eliminating supermajority voting requirements, providing for the use of consents, providing rights to call a special meeting, and certain types of anti-takeover provision overrides, that are included on proxy statements going forward will be treated as “Broker May Not Vote” matters.

Rule 452 governs when Exchange member organizations may vote customer shares without specific client instructions. In the past, the Exchange has ruled certain corporate governance proposals as “Broker May Vote” matters for uninstructed customer shares when the proposal in question is supported by company management. But recently, the approach to broker voting of uninstructed shares has narrowed through changes in Exchange rules as well as through legislative action. For example, the Exchange amended Rule 452 in 2010 to prohibit brokers from voting uninstructed shares in the election of directors (other than directors of an SEC-registered investment company); and the Dodd-Frank Act codified this approach. In addition the Dodd-Frank Act specifically prohibited brokers from voting uninstructed shares on executive compensation.