As the first end-to-end proxy vote confirmation project in Europe is underway, it’s clear that the focus on corporate governance and vote transparency in capital markets around the world is becoming sharper. Market participants, for the most part, are driving initiatives to improve the ways markets function, particularly the ways in which investors engage with the companies in which they’ve invested.
As the first end-to-end proxy vote confirmation project in Europe is underway, it’s clear that the focus on corporate governance and vote transparency in capital markets around the world is becoming sharper. Market participants, for the most part, are driving initiatives to improve the ways markets function, particularly the ways in which investors engage with the companies in which they’ve invested. Right now, market-driven initiatives are reshaping proxy voting and helping bring greater transparency—and restored investor confidence—to the process.
In the three years since the phrase was first coined in the US Securities and Exchange Commission (SEC) Concept Release, end-to-end vote confirmation has become prevalent on corporate governance agendas and an important focus of capital market participants around the world.
The SEC presented its Concept Release on the US proxy system in July 2010. It contained a number of items for which the SEC requested comment, including the advisability of providing beneficial and registered shareholders with a facility to confirm that their voting instructions had been received, and accurately tabulated, as cast. By one tally, more than 60 comment letters mentioned ‘end-to-end’ vote confirmation, and virtually all were unanimous in support.
In December of the same year, the University of Delaware, Alfred Lerner College of Business and Economics, Corporate Governance Center hosted a roundtable to explore an industry-wide solution for end-to-end confirmation for shareholder votes. The roundtable group consisted of 35 industry experts in the proxy process arena, including issuers, institutional investors, regulators, brokers, custodial banks, regulators, intermediaries, transfer agents, solicitors, and attorneys, and in August 2011, the group published its recommendations on the provision of end-to-end vote confirmation, stating “corporations and shareholders alike have expressed the need for shareholder elections to be unimpeachably accurate”.
Recommendation to reality
Roundtable group member UnitedHealth Group (UHG) expressed interest in piloting end-to-end vote confirmation for all shareholders at its annual meeting on 23 May 2011. Broadridge worked with UHG to develop the technologies and processes. Maryellen Andersen, vice president of corporate and institutional investor relations and corporate governance officer at Broadridge Financial Solutions, and co-chair of the roundtable, explains: “The facility for UHG’s meeting was successfully developed to afford all shareholders the opportunity to access a website, either directly or via Broadridge’s internet voting website, proxyvote.com, and by entering a control number receive confirmation that their votes were recorded as instructed. The system functions for all shareholders whether they are retail or institutional or, for that matter, whether their shares are held in registered form, beneficially in street name, or in employee plans.”
Building on the success of the pilot done with UHG in 2011, the end-to-end vote confirmation programme was extended in 2012 to a larger number of issuers. A total of four issuers—UHG, Science Applications International Corp (SAIC), Starwood Hotels and Resorts, and American Express—participated in the end-to-end vote confirmation programme. More than 1.5 million institutional and retail shareholders were provided the opportunity to access a website, either directly or via the Broadridge proxyvote.com website, and upon entering a control number received confirmation that their votes were recorded as instructed. The interest continues to grow and several issuers, including Disney, offered their retail and institutional investors end-to-end vote confirmation during the 2013 proxy season.
Out of the University of Delaware roundtable group, the End-to-End Confirmation Working Group, comprised of policy and operational representatives from Broadridge, transfer agents, intermediaries, brokers, issuers and The Depository Trust Company (or DTC, the US depository), have been meeting monthly to work on industry standardisation and testing of technological solutions for end-to-end vote confirmation. Andersen explains: “Broadridge is providing the facility for end-to-end confirmation because we believe it adds integrity to the total proxy process. The pilot with UHG demonstrated that end-to-end vote confirmation processes can be offered without change to current SEC rules and with minimal inconvenience to industry participants.”
Going global—end-to-end vote confirmation pilot in Spain and beyond
Outside of North America, the challenge in providing an efficient and transparent voting process is even more pronounced. The greater number of individual markets means that the complexities of voting under these circumstances are increased since each market has its own local rules. In addition, the propensity to hold cross-border securities increases the chance that those securities are held under a nominee arrangement with a bank or broker. Broadridge has been able to mitigate these challenges by providing online voting for approximately 90 markets through its ProxyEdge platform. This allows investors the opportunity to vote their shares from anywhere in the world.
Broadridge is now looking at opportunities to introduce end-to-end vote confirmation in markets outside of the US. The company has been working with registrars to develop individual market solutions for some time now. In Spain, Broadridge and market participants are piloting an end-to-end project this proxy season. Broadridge secured the participation of several custodian clients to test the confirmation process with a registrar and three of their issuers. By providing local level account voting activity to the registrar on the vote deadline date, the registrar is able to perform a reconciliation of voting received through the intermediary chain against the voting processed and submitted through Broadridge. Generally speaking, the results of the pilot are showing that if an efficient model to transmit the right level of data as defined by the market can be agreed, confirming voting to the registered shareholder can be achieved.
Elizabeth Maiellano is senior director for product strategy at Broadridge, and is leading the global team building the transparency solution. She explains: “We feel that this is an opportunity to break through some of the challenges that are currently being faced in the industry—primarily that the registrars are unable to provide final confirmation. In some jurisdictions, market barriers can be restrictive, however, we’re looking for opportunities to augment the level of transparency available through our solutions. Wherever possible, Broadridge is committed to implementing solutions that support market requirements and remove ambiguity around the vote status until there is wholesale provision of vote confirmation.”
In addition to this pilot programme, Broadridge is examining this concept in four other markets in Europe and Asia. “We would like to understand how end-to-end vote confirmation could work from operational, contractual and legal perspectives in each of the local markets, and ultimately apply that understanding to the development of end-to-end solutions in other jurisdictions,” says Maiellano.
Broadridge has already implemented proxy voting programmes in Asian markets. The company has been engaged in a joint venture with the Tokyo Stock Exchange (TSE) and the Japan Securities Dealers Association (JSDA) since 2005. The initiative is called Investor Communications Japan (ICJ) and is built on Broadridge’s ProxyEdge voting platform. ICJ has delivered significantly enhanced efficiency to local institutional and cross-border investors by working directly with the local transfer agents to establish the legal framework for electronic processing and removing paper from the process. This collaboration has extended voting deadlines for ICJ companies up to Meeting Date-1 (MD-1), a major advance from the MD-10 cut off that institutional investors had been forced to work with under the prior system. Voting is delivered electronically and securely directly to the transfer agents, and appropriate checks are in place ensuring successful delivery and receipt of those votes. While one step short of a post-meeting confirmation, it is a major step forward in providing shareholders assurance that their votes have been correctly processed and counted.
To date, 431 Japanese companies are utilising ICJ’s shareholder communications and voting service. This includes almost all of Japan’s leading blue-chip listed companies, representing more than 80 percent of the market capitalisation of the TSE 1st Section. ICJ is working to extend its reach across a broader spread of Japan’s listed companies.
Patricia Rosch is president of investor communication solutions international at Broadridge. She says that the next logical step in the Japanese market is to extend the process to post-meeting vote confirmations, and explains that Broadridge will be engaging with agents there to encourage them to take that final step, as well as seeking to extend comparable efficiencies out to the retail investor population. Responsibility for retail asset servicing and final vote tabulation sits firmly with Japan’s transfer agents. Rosch draws parallels with the US market, where Broadridge supports proxy communication and voting for both institutional and retail shareholders and has been able to draw on its transaction processing expertise in order to support large volumes in tight timeframes when delivering shareholder materials and processing votes.
Japan is eager to continue to drive improved standards for investor communications, and embracing a solution for both institutional and retail shareholders comparable to that offered by Broadridge in North America will support that agenda. Rosch says: “The Japanese experience exemplifies how an efficient, centralised and collaborative vote management process can fundamentally transform a market and elevate corporate governance and transparency to the standard expected by both domestic and cross-border investors. Meeting or exceeding these standards can play a key role in attracting capital.”
The application of end-to-end vote confirmation solutions in North American and European markets is gaining momentum. Despite the need to tailor solutions to comply with rules in each local jurisdiction, Rosch points to the efficiency that is attainable by building on Broadridge’s existing platform. “Tailoring a local market solution is both efficient and cost-effective. By eliminating the need to build from the ground up, we’re removing significant barriers to the evolution of the global capital market. This is incredibly exciting, and suggests that in established, emerged and emerging markets, investors can participate in company ownership with greater effectiveness and confidence than ever before”
