The COVID-19 pandemic has caused no end of disruption, but it instigated a few positive developments. For the proxy voting industry, one such outcome is the much-improved process of validating beneficial owners for admission into a virtual shareholder meeting (VSM). The collaboration among industry participants that enabled this change may point the way to concluding another effort that has been underway for more than a decade.
A way forward on end-to-end vote confirmation – a systemic way for beneficial holders to confirm that their votes were accurately cast and counted at a shareholder meeting – was agreed on by a roundtable of industry participants in 2011. The group set out four recommendations for how end-to-end vote confirmation could be delivered, which are listed at the end of this post.
Efforts moved slowly until the formation of the End-to-End Vote Confirmation Working Group, which restarted discussions in November 2019. Then the COVID-19 pandemic arrived in the U.S. and stalled the working group’s efforts.
A Happy Irony
As the pandemic took hold, listed companies faced the challenge of hosting shareholder meetings right at the time when restrictions made travel and physical events impossible. A rapid transition from in-person meetings to VSMs enabled the 2020 proxy season to go ahead, but the pace of change and lack of familiarity with VSM platforms led to problems with meeting access, prompting complaints by shareholder groups.
The End-to-End Working Group had the ideal assembly of industry participants to address this issue. Transfer agents, brokers, proxy service providers, including Mediant, and other stakeholders collaborated on several internet-based mechanisms to facilitate validation of beneficial shareholders for participation in a VSM. One mechanism, developed by Mediant, was to create a Digital Legal Proxy (DLP), a secure digital process using an application program interface, or API, to validate a beneficial owner’s attendance and voting rights.
In about six months, this industry collaboration accomplished solutions that are now employed in the 2021 proxy season. The pace of progress revealed how much can be achieved in a short time frame when the industry turns its collective will on finding a solution. In a happy irony, the distraction of the pandemic has proven that the industry is capable of the kind of collaboration that is necessary to achieve the original purpose of the working group.
Mediant firmly believes that the U.S. proxy voting system will benefit by the increase in accuracy and transparency that will come with real end-to-end vote confirmation. It will increase shareholder confidence in the system, whether the shareholder meetings are physical or virtual.
Most of the recommended changes are achievable through revised and aligned processes. A more creative endeavor will be needed to deliver an electronic system for vote confirmation, but the development of the DLP has shown that this too is achievable.
The Four Recommendations
The Roundtable on Proxy Governance gave four recommendations for providing end-to-end vote confirmation in its August 2011 report. There is considerable detail behind its proposals, but here is a brief summary.
- Early-Stage Entitlement Confirmation
The introduction of early-stage entitlement confirmation by all parties that anticipate submitting votes for a shareholders’ meeting to minimize difficulties for tabulators in reconciling voting entitlements. This change would require a process for parties to confirm their voting entitlements with the meeting tabulator within a defined period, suggested to be six business days.
- Encouraging Early Voting
All shareholders, institutional and retail, to be encouraged to cast their votes early in the solicitation period and no later than three business days before a shareholder meeting. This would address late-stage voting, which hampers analysis and reconciliation by tabulators and nominees and is a major cause of potential voter exclusion.
- Enhancements to Exception Processing
Prompt communication from tabulators to vote-reporting entities about the reasons why vote reports have been rejected. This would facilitate the timely processing of exception items, which comes under pressure at the height of proxy season as large numbers of reports are transmitted from nominees to tabulators. The introduction of a standardized rejection slip was also recommended to further aid the reconciliation process.
- Vote Confirmation
The development of a new feature in the proxy voting system to enable an investor to confirm whether their shares have been voted as instructed. While the voting outcomes from many shareholder meetings are not close, this would improve confidence when matters are contested. It was suggested that the process should take place electronically, with appropriate protections for confidentiality and security.
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