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New Action Expected In The Drive For “Universal Ballots”: An SEC “Tilt” To Favor Activism? We Say It Does Not

“SEC Chief Tilts Again to Activists” the WSJ headline screamed, on page-1 of the June 26 Money & Investing section, reporting on Chairman Mary Jo Wight’s remarks at the Society of Corporate Secretaries conference where she endorsed the universal ballot idea, and urged companies to adopt one voluntarily in a proxy fight. It is perfectly permissible to do so now if both sides agree – but she also promised to study rule-making on the subject.

“This is not “tilt to activists at all” say we…Think again WSJ – and you too, M-J: At first blush, a “universal ballot” that would give all investors in a proxy contest the ability to choose among all the candidates, and vote on all the other issues up for a vote, seems like the best and fairest way to do things.

It makes it less likely, for example, that shareholders will accidentally cast votes for all the management candidates – and all the opposition candidates too – or for more candidates in total than there are seats at stake – thereby voiding all of their votes on directors.

It also allows voters to vote on all the items up for a vote – since, very often, the opposition takes no position on, and does not solicit or record votes on things like the ratification of auditors, or other items of business that are not directly related to “the fight”.

Smart Inspectors of Election also urge the use of a “universal” or “combined ballot” at the meeting site when there is a contest…although they are not in control here: Both sides need to agree – and they usually do. A single consolidated ballot is quicker and easier to pass out to the audience – and it does provide the ability to remind voters to “Be Sure to Vote for No More than X Directors” …and it should also, out of simple fairness to all investors, have a place for attendees to vote on all matters before the meeting. Also worth noting, we have never seen the contestants disagree about clearly identifying and separating the management nominees from the opposition nominees, which is a help we find, in helping people make up their minds if they haven’t already done so… and is perfectly “fair” to all concerned.

But this is not to say that a ‘universal ballot” is needed – much less is a cure-all for shareholder confusion – or pure carelessness. One can have the same reminder as to the maximum number of directors that can be voted upon on the two competing ballots – and really…why should dissidents NOT offer voters the opportunity to vote on all other items…if they want to, and as they really should?

The really important thing to note here is that in a proxy fight, having separate cards, whether to avoid confusion (?) and to say “Vote the green card…or the gold card…or the white card NOW! Is actually a GOOD thing in a fight – where both sides want to make their own best case – and NOT to inadvertently help to drum up opposition votes, It also allows both sides to “hide their votes” as long as possible…just as one does in a card game, where none of the parties want to tip their real hand or to give up even the slightest tactical advantage. This, by the way, is also why NO SERIOUS PROXY COMBATANT WILL EVER USE THE COMPANY’S OWN PROXY CARD TO LAUNCH A PROXY FIGHT…UNLESS THEY ARE SERIOUSLY MIS-ADVISED!

There is another valuable take-away here regarding fight- strategy that even the most sophisticated proxy advisors often fail to note: In a proxy fight – where, say, there are 13 candidates for 10 seats – the really smart thing is for the opposition to list its own three candidates, then the seven management directors they least dislike – leaving three management directors out entirely…and effectively running a “Vote No” campaign against the “weakest” or most vulnerable three. Remember; in a proxy  contest, it’s the candidates that get the highest vote totals that get elected…so this is a way for dissidents to target and thus to minimize the number of votes that are cast for three “bad guys.” And this creates a bigger and better opportunity for the three dissident “good guys” to win, vs. what otherwise may be a near dead-heat where the two opposing slates are concerned, where individual directors tend to be invisible in or indistinguishable from ‘the herd.’

So Mary Jo, we hate to mess with you – and your friends (?) at the Council of Institutional Investors…but you are all seriously misguided, misinformed – and actually, your “universal ballot” is not a good tool for activist investors to use at all…except at the meeting site, and solely for the sake of meeting logistics…If they want to WIN that is.