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Hot Issues for Your Annual Meeting

A transcript of TheCorporateCounsel.net's March 2nd webcast, with experts Keith Bishop, Partner, Allen Matkins LLP, Carl Hagberg, Independent Inspector of Elections and Editor of The Shareholder Service Optimizer, Roxanne Houtman, Partner, Potter Anderson Corroon LLP, and Jill Whitney, VP - Client Services, Broadridge.

Randi MorrisonAssociate Editor, TheCorporateCounsel.net: Welcome to today's webcast, "Hot Issues for Your Annual Meeting." Let me go ahead and introduce our panelists for today. We have Keith Bishop, a Partner with Allen Matkins; Carl Hagberg, independent inspector of elections and Editor of The Shareholder Service Optimizer; Roxanne Houtman, a Partner with Potter Anderson Corroon; and Jill Whitney, VP of Client Services with Broadridge. Without further ado, let me turn this over to Carl to start us off.

Hot Issues for Annual Meetings This Year

Carl HagbergIndependent Inspector of Elections and Editor of The Shareholder Service Optimizer: Hi, everybody. I'm going to talk about what I think are the hot issues for 2016. I've got two that are super-hot and one that I think is super-not.

The first one may sound a little silly to you. It's getting your directors elected.

I guess this is the law of large numbers and percentages. Only about 1% of companies have had directors who didn't get elected. But that turns out to be quite a few companies in the course of the year.

There were about 70-odd companies who had one or more directors who did not get elected last year - they didn't get to 50% plus 1. Most of them resigned before the annual meeting so as not to be embarrassed publicly. You don't want to be one of those 1% of companies.

When it happens, it often takes people by surprise. Sometimes, a director has had bad press. Sometimes, there's been something about one or more directors in the newspaper. Sometimes, you can't even figure out why investors are ganging up on one or two directors to withhold votes from them.

It's not a good career builder to have one or more of your directors not get elected. These days, it's really not good if your directors aren't elected with 80% plus. It certainly is a signal that there's something wrong out there, that there's some restlessness or discontent that you need to be looking at. And directors don't want to find that out by surprise. So to me, that's probably the hottest issue for corporate citizens - and for their advisors.

The second hottest issue - it's a close second, and for some companies it may be a tie - is getting your say-on-pay resolution passed. I've been saying to people, "90 is the new 80." It used to be the case that if you got 50% plus 1, you were happy. But today, that isn't the case. If your say-on-pay resolution doesn't get 90% plus, it indicates that 10% of the voters or more are discontented about something or other. That can make you kind of nervous as your meeting approaches - and afterwards as well. 

I'll tell you the one thing that's not hot, at least in my opinion. Maybe I'm the only one in America who thinks that. And that's proxy access.

A few years ago, I interviewed Ed Durkin from the carpenters' union. He's the guy that we actually have to thank for majority voting for the election of directors. He said that proxy access is "a lot of very smart people arguing about a very stupid thing."  That's because, with majority voting, if you stiff-arm investors who say they are not happy with the board or they want to talk about nominating candidates, and if you refuse to talk to them and reach a good understanding with them, you are likely to be losing directors, thanks to majority voting standards.

So to me, this argument is kind of over. It should never have been made in the first place. Those people who really want to win a proxy fight are always going to run on their own slate. And in any event, the battle is over, like it or not. So that's one thing that is not hot - unless you are willing to fight tooth and nail against activist investors, who will win in the long term anyway.

I want to say a couple of other quick things. Mergers and acquisitions and going-private transactions are still hot. They are still going on at a pretty healthy pace. As my friends in the legal world know, about 86% or more of these transactions seem to be ending with a lawsuit. Companies have been taking extra precautions at their meetings to be sure that the votes are cast strictly according to Hoyle, that there are no surprises and that they haven't overlooked anything.

We've seen another upsurge in appraisals. After a merger is approved, there will be a class of people who want to exercise their appraisal rights. You've got to be careful to keep your records together so you can see who is eligible for appraisal rights and who is not, maybe because they voted for the deal to begin with. So that's kind of hot.

We'll talk about this later, but there is also an issue around going-private transactions. In some situations, a company might need a so-called "majority of the minority" of holders to approve the transaction. In those situations, you have to get not only a majority of all the shares or of all the voting power, but you also need to get a majority of the unaffiliated investors. Often, in closely-controlled companies, the affiliated investors may be the majority. So people (and sometimes the articles of incorporation or bylaws) have been calling for a "majority of the minority" - in other words, a majority of the unaffiliated investors - to approve a deal.

There are a number of logistical issues that you need to be aware of and be ready to spring into action on should that be the case. We'll talk about that later.

I also wanted to mention that a huge number of voting agreements seem to be surfacing at annual meetings. This is particularly true in newly public companies, especially in high-tech companies, where the founders want to keep control. Often, especially where companies have made numerous acquisitions along the way, there are numerous voting agreements that have been entered into. Again, there are some very important logistical issues that you have to figure out if you have voting agreements, to be sure that people are honoring those agreements.

The last thing I wanted to mentions - and I think we have a section on this - has to do with notice requirements. I have to say I'm puzzled by how many companies have been amending their notice requirements and have been, in my opinion, making it easier for people to bring matters to the meeting without prior notice, and allowing so-called "floor votes."

My personal view is that is very bad governance. You shouldn't be calling for a vote from the floor on matters that haven't been exposed to your entire universe of shareholders. I've attended at least two meetings where that ended in a bad surprise, and the floor vote people actually carried the day.

I'll turn it over to Roxanne and Keith to talk about those issues.

Legal Requirements Governing Annual Meetings

Delaware

Roxanne HoutmanPartner, Potter Anderson Corroon LLPGenerally speaking, I think the requirements for holding an annual meeting for a Delaware corporation are fairly well known. So I'll just touch on them very briefly.

Under Delaware law, you have to hold an annual meeting for the election of directors. You have to deliver notice of the meeting to your stockholders. That notice has to set forth the date and the location for the meeting. Those meetings can held remotely, although I think it's fair to say that is certainly the exception and not the rule. The notice must be delivered at least 10 but no more than 60 days in advance of the meeting, subject to certain longer periods that may be needed if there is an extraordinary corporate action that's going to be considered at your annual meeting.

In terms of the content of the notice, not much is required under the Delaware statute. The place, the date and the time of the meeting are all that's needed, as well as any instructions on accessing the meeting via remote communication. The notice can be sent via first class mail or electronically, if the stockholders have opted into that.

Getting into the actual conduct of the meeting, there is, surprisingly, very little statutory or case law. There is a requirement for public companies to appoint an inspector in advance of the meeting. The inspector has certain obligations, which are clearly spelled out in Section 231 of the Corporations Act. The polls have to be formally opened and closed, although there are no precise requirements as to who has to open them and close them and how long they have to be open.

That's really it for the statutory requirements for an annual meeting for Delaware corporations.

Hagberg: Roxanne, while we are talking about Delaware, can you address what happens if a company doesn't have a meeting?

In Delaware, a company is required to have a meeting every 13 months. If you go without a meeting for 13 months, anybody can petition the court to call a meeting. Or they could call a meeting themselves and decide on what the agenda will be. And at that meeting, the majority of the people who are actually there at the meeting will decide the matter. I think this is true in a number of other states besides Delaware.

At smaller companies, sometimes people lie in wait for companies that have not had their annual meeting, maybe because they had filing issues or regulatory issues. And then they pounce on them using this provision. In those cases, management starts off from behind the 8-ball. If they didn't have a meeting, it looks like there must be something wrong.

This doesn't happen a lot. But it's something to think about in terms of giving adequate notice.

Houtman: Actually, there is a process that enables a stockholder or director to petition the Court of Chancery to have a meeting called. I think that, by and large, public companies aren't going to have that issue. It's mostly the companies that are struggling. We often see cases come up where companies are insolvent or in bankruptcy. But it's not likely to be the case with the large public company.

California and Nevada

Keith BishopPartner, Allen Matkins LLPI'll jump in with some discussion of California and Nevada. The meeting mechanics under both the California general corporation law and the Nevada Revised Statutes are generally similar to Delaware. One thing I want to emphasize, which can be a real trap, and something that I sometimes see in my practice here in California, is that companies pull up a Delaware template for a meeting notice and a proxy statement and apply it to either a California or Nevada corporation, or to a class of what we call "pseudo-foreign corporations" in California, without recognizing the sometimes subtle, sometimes significant differences between California and Nevada law and Delaware law.

It's particularly a trap for smaller public companies that are not listed on Nasdaq or the NYSE. Section 2115 of the California Corporations Code generally says that if more than half your holders of record have addresses in California and most of that corporation's business is in California, then various provisions of California's general corporation law will apply to those corporations, to the exclusion of the law of the state of incorporation. I know that's surprising to a lot of folks outside of California.

Delaware does have the Vantage Point decision. But the California Court of Appeals upheld the constitutionality of Section 2115. So there is no California authority for ignoring the statute.

One of the things that get picked up in terms of the annual meeting is the requirement to hold an annual meeting. Carl mentioned that in Delaware, you're required to hold an annual meeting once every 13 months. Well, in California, it's 15 months. In Nevada, it's 18 months.

A long time ago, I wrote an article about the ITT Sheraton takeover battle, where the fact that the corporation was incorporated in Nevada gave them an extra few months to get an alternate defensive plan in place. In a takeover fight, the difference between 13 months and 18 months can be significant.

Other big requirements that apply under Section 2115 are cumulative voting, and a requirement of an annual election of directors. Those requirements can lead to some choice-of-forum battles, because the requirement to hold an annual meeting can be enforced in California Superior Court even if it's a foreign corporation.

There are number of other California laws that I'll mention quickly that apply to all foreign corporations, whether or not they are subject to Section 2115.

For example, if you're a foreign corporation, based in Delaware, Nevada, Minnesota or wherever, and you have your annual meeting in California, there is a California statute, Section 709, that allows you to go to Superior Court in a summary proceeding involving a shareholder or a person who's been denied the right to vote and test the validity of that election. In fact, just this morning, one of my partners was at a Section 709 hearing.

The California stockholder inspection statute also applies to foreign corporations. We also have a requirement, which probably won't cause too much many foreign corporations problems given the SEC requirements, that they, for a 60-day period after the annual meeting, inform stockholders of the results of the voting. That applies to foreign corporations that are qualified to transact intrastate business in California, or which have a subsidiary that's either a California corporation or a subsidiary qualified to transact business here.

So there's a lot there. And in my practice, I do see these issues come up. I've been aware of at least two proxy fights involving publicly-traded California corporations.

Floor Votes

Hagberg: Keith and Roxanne, can I ask you about floor votes? Have you had any experience with this or seen this at all?

I'm always astonished when I see it. And it's happened at quite large companies. It sounds to me as if they sort of reached an agreement with an activist investor. Often, they are "social issue" investors. But sometimes they are activists trying to wrest control of the company away from current management. And the company says, "Even though you missed the deadline, we will let you bring your issue up from the floor."

Companies seem to think that giving stockholders an opportunity to voice their issue is a kind of safety valve. But they may not realize that the person on the floor may have enough votes in their pocket to carry the day.

Another issue has to do with the "all other business" situation. As an inspector, I contend that, unless you have a VIF that lets you check the box on "all other business," the proxy committee doesn't have the authority to cast the votes.

They often say in the proxy statement that the proxy committee has the authority to cast the votes. But that authority often hasn't been properly delegated to them by the holder if there's no box for them to check.

A proxy is a little different, because you have the opportunity scratch that authority out on the back of the card. And smart voters know to do that if they don't want to give authority to the proxy committee.

I've been to at least to two meetings where management allowed a floor vote thinking, "We have this in the bag," when they didn't. In one situation, they literally lost control of the company, because a dissident group had enough votes to carry the day at the meeting. In the other situation, the dissidents didn't quite carry the day, but it was such a close call that it gave everybody the willies.

So the issue is, unless you have tabulated the votes on all other business, you have no number to write down. I know there are several prominent law firms that don't agree with me. At least one did change their mind when it was time to write the numbers down, and no one knew what to write.

They were trying to say, "What's the lowest vote that management received on any matter? That's the number we'll use." To me, that is really a stretch.

The answer, however, is a simple one. If you think you're going to have to adjourn your meeting, or you think you're going to have something come up where you will need to have the vote, for heaven's sake, be sure you have a box for people to check.

I don't like this idea of floor votes at all. And they seemed to be particularly popular, Keith, on the West Coast. You guys always like to do "new age" things. But to me, these are terrible innovations. I don't know if either of you any thoughts about this at all.

Houtman: I have not come across a situation where there's been an insurgent or a dissident that's blown past the requirements of the advance notice bylaw, where they have missed the deadline and are now trying to negotiate for some sort of access at the meeting.

I'm seeing the opposite. Whether we're representing dissidents or companies that are faced with insurgents, there's a real recognition that these advance notice bylaws are in place, and they've got to get their notices in within the prescribed period of time. Typically, they are following the requirements that are set out.

Hagberg: I'm with you 100%, Roxanne. But trust me when I tell you that a lot of companies are allowing people to "backdoor" their way onto the floor. I don't know whether they are just trying to seem like reasonable people or not. But I've seen probably six or eight of these a year. And it's not just little companies - I've seen a couple of larger companies do it, too.

So I guess it's just something to be wary of.

Bishop: We've seen this a little bit in California. If it's a special meeting, then only the matters that are specified in the notice of the special meeting may be voted on at the meeting. I don't think there is leeway for voting on other matters, even if the company wanted to open things up.

Hagberg: I'm with you 100%, too. I don't know why people are trying to bend the rules here.

I know in at least one case a company did it with a "social issue" investor. The investor agreed to withdraw his proposal if the company let him present the issue from the floor. It seemed like a harmless thing.

But I think it's bad governance to put something to a vote that 99% of your voting power has never even seen or heard of before.

So it's a word to the wise, I'd say. Randi, what's next?

Morrison: I think we can go ahead and talk about how to handle meeting attendees that act inappropriately. This always a great topic, if someone wants to start in on that.

Handling Disruptive Attendees

Houtman: I can start on handling disruptive stockholders. First, it's important to distinguish between a stockholder who is making an unscheduled proposal, which is what we've just been talking about, and a stockholder acting inappropriately at the meeting, such as by speaking out of turn.

Where you have a stockholder that's trying to make an unscheduled proposal, there's very little statutory or case law in Delaware on how to address that. From a practical perspective, we think it's important for the Chair of the meeting to first try and aid the stockholder, to explain to him that the proposal that he's making is out of order, and that it's inherently unfair to the stockholders that are not present, as they haven't had an opportunity to consider the proposed.

It may be that the proposal itself is out of order because it's not appropriate under applicable law. For example, the stockholder may be proposing a charter amendment, which requires prior board action.

For the truly disruptive stockholder, who is making a scene, again, there is little instruction from the Delaware courts and the Delaware statutes on how to handle that. I recommend is that companies plan for this possibility, that they have a script prepared, and that they have a process in place to address these kinds of stockholders.

Generally speaking, we think it's a good idea for Chairs to first try and convince the stockholder to sit and to quiet himself. If need be, the stockholder or the insurgent may have to be removed. There are no definitive rules for this, but you should act honestly with an eye towards keeping good investor relations PR, etc.

Bishop: California is similar to Delaware in that there is not a lot of law on the exact subject. I think preparation and practical thinking are important.

What I like to do is prepare, with the script of the meeting, several alternate scripts. This way, the Chairman of the meeting can flip to it if somebody is talking too long or out of turn or being disruptive, and he knows what to say.

If you anticipate or have a history of problems, having security, paying a person such as an off-duty police officer or a private security person to serve as a sergeant-at-arms might be a solution. Also, you might prepare meeting rules that spell out the procedures, including the time limits for each speaker.

Another practical approach is to have a kill switch for the mic. If have somebody who's roving with the mic, they should never hand the microphone over to the stockholder. They hold the mic so that if the stockholder doesn't want to sit down and stop speaking, the microphone can just be walked away. Obviously, you don't want to create bad press for the company, or do something that results in liability for the company for assault or other things.

I also like to be prepared so that if necessary, if a situation gets out of hand - which has never happened, thank goodness, to me - you have procedures to adjourn the meeting and just tally the votes and announce them after the meeting, after everybody has gone home.

Hagberg: Let me slip in a couple of things here. There was a long discussion on the Society's website where one of the members was hoping he could find a way to exclude a stockholder from coming into the meeting room on the basis of bad behavior in previous years.

Some people thought maybe there was a way, short of getting an injunction or a court order, to keep the stockholder away. But there's no way that I could think of to deny a legitimate stockholder entry to the meeting.

I would second and third the motion that your strongest defense is to have very well-written rules of conduct. And you hand these rules of conduct to everybody.

I don't like putting the rules on the chairs. I'd hand them to people as they come in and say, "Here are the rules of the meeting. Please read these before we start." If somebody acts out, you can give them a warning and then one more fair warning. And then you really do need to be prepared to escort them out of the room.

There seems to have been a modest upsurge in this kind of behavior. Years ago, it was quite common for people to be really disruptive, and they would get forcibly removed regularly. A few years ago, when that "pay your fair share of taxes" and "down with the 1%" movements took hold, many large companies had to eject several large groups of people from their meetings.

The number one rule for dealing with disruptive shareholders, as has been mentioned, is to have good, very strictly written rules of conduct. And then be prepared to enforce them.

Another tip that I've given every year is to always be sure that you have at least one woman security officer. When I started going to meetings, you never would have thought that a lady would be so disruptive she would need to be ejected. But that is no longer true.

One other tip that I think is a really good one is having an overflow room. Most larger companies have increased their scrutiny of people who come to their meeting. They ask for picture ID and proof that they are stockholders. Most companies are very strictly enforcing those rules. If you're not a stockholder, you don't belong in the room or, at least, you can't speak. But if somebody brings her grandchildren, what do you do?

I think you do need to be prepared for this kind of thing, if you expect more than a handful of people to show up. An overflow room is often a way of dealing with uninvited guests or people who don't have the proper credentials. It gives them a place where they can listen. But they can't speak unless they can prove that they are stockholders or have a proxy from a stockholder.

Sad to say, this seems to be something that people should really be planning for with more care than perhaps they did in years past

Bishop: Another danger is that now everybody's got their cell phones. So whatever happens may end up on YouTube.

Hagberg: Some companies are actually requiring you to check your cell phones. I think that's a little extreme, but I do understand and sympathize with the concern.

I have some model rules on my website. You can look there if you are interested.

One of my model rules is that all recording devices and photographic devices, including cell phones, are to be turned off, and they are not to be used in the meeting space. Another rule is that you can't distribute material. And you can't wave signs.

Many companies could get by with six to seven rules. Some companies may need eight or nine rules. In some states, you have to have rules that there are no handguns allowed in the room.

The meeting rules are something that companies are, wisely in my opinion, paying more attention to and looking at every year. You can have a 50-year history of "love fest" meetings. And then in year 51, you can have some sort of an altercation that will really not be good.

So look at those rules of conduct. But you don't want the rules to be too strict. That might lead your stockholders to think you are trying to hide something. You want to find the right balance.

If you're going to have security, you usually want something in between the uniformed police officer and what somebody from The New York Times called the "beefy greeters." And if you expect any public people to come, I think you absolutely need to have a security officer - and sometimes people in uniform are a good idea.

"Majority of the Minority" Vote Thresholds

Morrison: Let's move on to "majority of the minority" vote thresholds.

Delaware

Houtman: I can start that. The impact of an effective "majority of the minority" vote has some pretty significant consequence under Delaware law. Under certain circumstances, thinking of the procedural posture in litigation, it can result in an application of a more deferential standard of review under the business judgment rule in evaluating claims. It can, under certain other circumstances, result in the shifting of the burden of persuasion.

The key is to figure out whether you have an effective majority of the disinterested stockholders. In looking at that, you need to exclude shares that are held by the affiliated or the interested stockholders. You're going to need to exclude shares that are held by directors and the controlling stockholder. Under certain circumstances, you may need to examine whether you have "crossover" shareholders, who are sitting on both sides of a transaction.

There is not much case law as to what is an "affiliate" under Delaware law. But it's certainly something that needs to be considered. More importantly, I think you need to make sure that in your proxy statement it's very clear as to which shares are being excluded from the calculation of the minority.

Under Delaware law, in terms of calculating the appropriate percentage of the minority shareholders, you look at all of the minority shareholders outstanding and not just those that show up at the meeting and vote. ThePNB case, which is a reported case from a couple years ago, made that very clear.

California and Nevada

Bishop: In California and Nevada, there is just a lot less on the whole subject of entire fairness and majority of the minority. Both California and Nevada have statutes that address specifically approval of interested or common director transactions.

In California, Section 310 of the Corporations Code requires approval of the shareholders, which is a little bit of a tricky term. It's a majority of the shareholders present and entitled to vote under the statute, and an interested director is explicitly not considered entitled to vote. There's a further proviso that the approval has to be a majority of the required quorum, which is also a little tricky to understand.

The Nevada statute is 78140. It requires a good faith majority vote of the stockholders holding a majority of the voting power. Interestingly, it says in the statute that the votes of the common or interested directors must be counted in any such vote.

This just underscores the fact that things could be suddenly and sometimes significantly different in different states. It's very important to look at particular state statutes.

Hagberg: Right. And there are significant differences among companies too. Sometimes there are provisions in the bylaws. A lot of these provisions seem to be arising from an excess of caution, so that there won't be lawsuits saying the vote was rigged. Even if you don't have any of these provisions in the applicable state statutes, or in your bylaws, it seems that companies are fearful that someone will come forward and say, "The deck was stacked. You had insiders, etc."

I'll offer a few important logistical tips here. When you have these situations, it actually is quite difficult, as both of you said, to figure out who the "interested" stockholders are, and how many of their shares are covered. Some may be covered because of previous voting agreements.  And some may be shares held jointly with the spouse or as guardians for children. It's very important to know who the "interested" stockholders are and how many shares they have.

You also want to know where those shares are. Sometimes they are in registered form, although usually not that many. Other times, they are at a brokerage account, and you can't look through to see those people. So you need to identify who those people are and where their shares are.

Then you need to interact with our good friends at Broadridge, who will usually be the go between, between the investor and his broker, to ensure that the votes are cast correctly. It's still the custodian who needs to cast the votes.

So those are the things that you need to do to be sure that you have correctly identified the interested stockholders, rounded up the proper number of votes, attributed them properly and done your math right. It can be a little tricky.

I have a meeting coming up in a month where they have voting agreements.  Two founders originally had 60% of the voting power between them, 30% each. They were supposed to vote together on everything.  Then one of them died, and his shares got distributed to children and grandchildren. And it isn't clear who's covered by this voting agreement or even who's got the voting power, and where they are. There can be a number of logistics issues when you have a situation like that.

This may be a good lead in to Jill, who's going to talk about VIFs, which are really different animals than proxies. Maybe she could tell us what's happening there.

Voting Instruction Forms ("VIFs")

Jill WhitneyVP - Client Services, Broadridge: Voting instruction forms, commonly called VIFs, are the voting instructions given by the underlying holders to their broker or custodian, which allows that broker or custodian to pass that vote on to the tabulator and ultimately to the meeting. The act of returning a piece of paper certainly is diminishing as we've had enhancements in electronic and mobile voting and all these other avenues that easier or quicker to use for most of us that are carrying our phone next to us. But Broadridge is still processing over 15 million vote returns a year.

Let me walk through how that works. On every outgoing package, there is a voting instruction card, which lists out the proposals as they were stated on the proxy card. The voting instruction cards are distributed to the underlying holders who make their elections on how they want their votes to be cast. The underlying holder returns the VIF to Broadridge in a postage-paid return envelope we provide.

As I mentioned, we have 15 million VIFs a year. Off season, we're getting one delivery a day from the post office. But during proxy season, we are getting three or four deliveries a day.

That voting instruction form includes 2D barcodes, which cover information such as how many shares are being represented on the instruction and the meeting date. Those all get sorted as they come back from the post office through sophisticated machinery that opens the envelope, extracts the instruction form, scans that 2D barcode and puts them into priority order.

VIFs representing 50,000 shares or more, or for a meeting being held within five days, are processed the same day. VIFs representing fewer than 50,000 shares or with a meeting 6 to 18 days out are processed within 48 hours. And anything with a meeting 19 or more days out is processed in 72 hours.

I would say that, the majority of the year, almost everything is processed on the same day. But that is the order of priority during our busiest time of year.

Not everything will go through the scanners systemically. There are instances where the VIF was eaten by a dog or mutilated, or what we call "multimarked," where somebody can't make up their mind among "for," "against" or "abstain." Those VIFs are put in an exception pile, which are viewed by a data entry team. If it is clear that the extra mark was just somebody not picking up their pen, the VIF will be processed manually and keyed into the system.

If there is a true multimark on a proposal, that is, somebody voted both for and against, they're affectionately called the "invalid" votes. We don't know what the shareholder's intention was. Those invalid votes are, twice a day, forwarded to the brokers for resolution. Ultimately, the broker or custodian will reach out to their shareholder, either directly or through their advisor, in order to clarify the given vote instruction.

All votes for 50,000 shares and above are audited not only internally at Broadridge through our audit team but also by one of the Big Four accounting teams. We currently have a vote accuracy of 100%. The process itself is also covered by an SSAE 16 Type 2, which basically is just supporting an unqualified opinion on the suitability and effectiveness around the controls of the process and procedures we have around the VIF collection.

Carl, were there any questions that may come up around VIFs that I haven't touched on?

Hagberg: I'll give you one that is actually funny.

When someone says "proxy plumbing," all our eyes glaze over. But proxy plumbing issues are actually becoming more and more important all the time.

Last year, we had a large company - maybe a Fortune 500 or 600 company. The chairman owned 30% of the shares. And he hadn't sent in his VIF - he had his shares in street name. And five minutes before the company convened the meeting, they found that all of the company's proposals were failing, and the proposal that they didn't want to pass was passing. Suddenly somebody realized that this was because the chairman hadn't voted his shares.

So there was a mad scramble. Broadridge did ride to the rescue - they managed to get the chairman in touch with his broker, who got in touch with Broadridge. The shares were voted, and the company's proposal passed.

You never want a meeting to go badly because somebody didn't know or didn't obey the rules of the road, or there was a plumbing issue, or there was some big oversight.

So it does pay to bone up a little bit on the proxy plumbing issue. It's not that Broadridge isn't doing a terrific job of counting and checking. But sometimes, the voters themselves are not paying attention.

I have one other story. A lawyer called me last year and said, "We had a dissident investor, and we settled with him. He signed a voting agreement that he would vote with us for three years. But when we looked at our daily reports, we saw a vote against us for 77,763 shares. And we know it's got to be this guy. What should we do? Would we be in trouble for snooping?"

I said, "No, not at all. In my opinion, this was the company's information. And you came by it honestly. You should fire up a letter to the shareholder, informing him that he did not abide by his voting agreement with the company, and the company needed to have this immediately reversed. And by the way, we're going to bring this up if you come after us again because you're acting in bad faith."

People think that because a company has a voting agreement with a shareholder, the shareholder will vote in accordance with that agreement. Sometimes, they don't. That may be because they're not voting at all. But the voting agreement usually gives them an affirmative obligation to vote with management on certain types of issues.

So when you have those agreement, you really do need to get a little deeper into the proxy plumbing to make sure that people are doing what they committed to do.

Whitney: To add on to your first scenario, Carl, if you recognize that one of your affiliates or insiders hasn't voted yet, certain you should seek out your inspectors. They know how to contact Broadridge.

If you are dealing with Broadridge directly, reach out. In that case, it's just a matter of getting the voting instruction, either via a legal proxy or taking it out a name of the broker, and either passing it on to the entity at the meeting or writing up a manual vote - which can be done, it just takes a little time.

But reach out. Help certainly will be there for anybody that needs it.

Hagberg: I'd like to mention one other quick thing. Last year, I had three companies where large institutional investors changed their vote on the day of the meeting. They either had a change of heart, or the company convinced them that they should change their vote.

Even if you have an 8 a.m. or a 9 a.m. meeting in New York City, and the money manager in California is willing, say at 5 a.m.,  to change his vote on the day of the meeting, as I've seen happen several times, that can be accomplished with a little scurrying around and good will. I think it's perfectly appropriate to give people time to work their way through the system. You can't give them forever. But I think giving people a reasonable period of time to change their vote or amend their vote is something that can and should be done.

We see more and more of that too, because, I think increasingly, people don't understand the mechanics of how these votes are done.

End-to-End Vote Confirmation

Whitney: You raised a good point, about a situation where a company noticed that a particular vote could be tied to a particular shareholder. Let's talk a little bit about how Broadridge and the whole industry is working towards greater vote transparency and what we call end-to- end vote confirmation.

By way of a little context, industry leaders among the issuers, the brokers, the tabulators and other participants in the proxy process, including solicitors and inspectors, got together in 2011 and said, "Short of trying to get the SEC to change its rules around vote transparency, as leaders within the proxy business, could we get together and decide what the items are needed in order to have end-to-end vote confirmation?" What that means is that any shareholder, from a retail investor to an institutional investor, could get confirmation that their vote was effectively recorded, not only at Broadridge, but also subsequently recorded and accepted at the meeting.

We got started on a white paper in 2011 which said, "Here are the items that need to take place in order to have end-to-end vote confirmation." We did not want to necessarily influence regulatory change around this, which typically is slow, and may come with a lot of stipulations.

In 2013, the industry ran its first pilot, where tabulators actually brought issuers to the table and said they were going to do end-to-end vote confirmation. In order to facilitate vote confirmation, we needed to make sure that the vote entitlement as stated by the Depository Trust Company determined which shares were entitled to be voted by each bank and broker. If the broker votes at or below their entitled shares, all those votes could effectively be counted, or what we're calling "confirmed."

We had a successful pilot in 2013. There were 25 issuers who participated. We and the other industry participants learned that there were probably some things we needed to draw best practices around, for example, in the communication that takes place around resolving some of what I'll call the "out balances."

After initiating those best practices, ran another pilot in what we called the "mini-season," from September to November 2015. We chose jobs that had some nuances, for example, issuers that had registered shares or book-entry shares.

Again, I would say that it was a successful pilot. All of the parties that were brought to the table around end-to-end confirmation agreed that it was is a success. In essence, we as an industry group have been able to facilitate end-to-end confirmation on shares voted without regulatory change.

Going forward, any issuer wishing to provide end-to-end confirmation to their shareholders should know that it's available. I would reach out to your tabulator, your Broadridge representative or anyone else.

Internet Voting Platform

Whitney: As some of you know, proxyvote.com is the Internet website where shareholders can enter their voting instructions to be counted at the meeting. That proxyvote site has been in effect for 17 years. There was a slight change in 2010, when we added a mobile version.

Not much change had been effected on the site up until this year. You enter the control number, and you're presented with the same sort of agenda you're receiving on your voting instruction card. You fill that out and then enter it. Two-thirds of the investors actually are using proxyvote.com.

Broadridge has rolled out for this proxy season, 2016, a revised and refreshed proxyvote.com.

We hired design firms who watched people actually vote on our current site and asked them questions.

You will see a brand new look and feel which is more intuitive and easier to use. It addresses questions such as "How do I obtain the legal proxy?" The vote at the meeting, which I would say was not quite as clear as it could have been in the past, is spelled out explicitly. We believe somebody not part of the proxy process could easily interpret it.

There is also the opportunity, on the new site, both from a broker and an issuer standpoint, to be able to put their name, make it clear who it's coming from and what this is all about. So now, both the issuer and the broker are sharing some of that space, where in the past it was anonymized and didn't really represent either constituency. It showed to the shareholder that the request was coming from a banker or broker. But now it is much clearer that the request is on behalf of a particular company, making it, I would say, a little less ominous for some of the unsophisticated investors who may not be savvy on the proxy plumbing process.

So that's my update on two of the changes that we've made here. I would certainly open it up to my colleagues if they thought there was anything else should cover from a Broadridge perspective.

Morrison: That's great. Do anyone have any last thoughts or topics you wanted to cover or points that you wanted to make?

I'd like to thank the panelists very much for their time and insight. And have a great day.