And On Calculating, Reporting On And Describing Those Say-On-Pay And Say-When-On-Pay Results….
Whenever he participates in one of Broc Romanek’s Corporate Counsel webcasts, your editor’s emails and phone calls spike dramatically. This year’s discussion on “Planning for the Annual Meeting” – which starred Kathy Salmas of Northrop Grumman, Peggy Foran of Prudential, John Seethoff of Microsoft, Bret Dimarco of Coherent Corp. and Broc himself – and where your editor had a small “supporting role” on the subject of “tabulating and reporting issues” – drew more calls than ever…several of them, literally in the nick of time to pre- vent a mess.
The webcast transcript is up on our website – and on Broc’s – so we’ll hit just a few of the tabulating high-spots and focus mostly on the questions that have come in since.
The first email – from outside corporate counsel in Chicago – was about our often repeated but still often ignored advice on being sure you have the authority to adjourn the annual meet- ing if you need to do so because you do not have enough votes in hand to pass a proposal you want to pass: In a nutshell, you can not assume that the company has the necessary authority from its street-side voters unless they have specifically asked to have it, and provided For, Against and Abstain boxes, so the number of votes can be tabulated and reported.
“How is the VIF different than a proxy card? And why isn’t the same authority to vote on “all other business that may come before the meeting” conveyed in exactly the same way as it is conveyed by the proxy?” our e-mailer asked.
Here’s the difference: On a proxy card, recipients have the ability to strike out the “all other business” language on the card itself – and a small number of savvy old-timers actually do this. So in a pinch, the Inspector of Election can examine the cards, count the votes that do not run to the proxy committee for an adjournment, and count the rest as allowing the proxy committee to vote FOR it. But currently, there is no procedure to record or tabulate such instructions on VIFs – unless there are For, Against and Abstain boxes on the form. Plus, the Inspector does not have the ability to examine the VIFs. Clearly, there is no way that an Inspector can make a “leap of faith” and simply assume that say, all the votes for directors, or for some other matter can be cast FOR adjournment.
As it turned out in round-two – the company that asked this question actually had both a potential “adjournment issue” AND a totally separate “all other business” issue: A share- holder had given notice that they had a matter to put before the meeting. Apparently, it was not timely, and not in good order…and thus, not in the proxy statement. But nonetheless – as often happens in our experience – the company did not want to exclude the motion on procedural grounds. They wanted to have the votes in hand to vote the motion down. “Well, guess what…you probably need both an adjournment box – to be absolutely sure of your authority to adjourn and continue to solicit proxies – AND an ‘all other business’ box too” we told them “unless, that is, you are sure you will have enough votes from registered holders in hand, where the “all other business phrase” has not been struck through.”
We have also had several inquiries about Say-When-On-Pay vote counting – and on what it takes the Say When choice to “pass”: A lot of companies have language in their Bylaws that specify what it takes for specific kinds of proposals to pass – then go on to specify that “all other matters will re- quire a majority of the shares present in person or by proxy” (the Quorum). Well guess what? With four choices to be made – for 1, 2 & 3 years plus an Abstain box – and with more voters marking abstain on ALL matters than ever be- fore, it is often a mathematical impossibility to get a majority of the Quorum in favor of anything…And especially when there are “lowish” quorums. But good news! Since these proposals are precatory, the board can simply decide on its own which frequency to adopt. And unless they are total dummies, or are just spoiling for a fight to have their own way, which is dumb too – they will adopt the frequency that gets the highest vote.
We also got a question about that perfectly awful phrase that has found its way into so many proxy statements, that “abstentions will have the same effect as votes against the proposal.” A blogger was questioning whether the company’s Say-On-Pay vote actually passed, given this phrase. “Yes, abstentions have the same “effect” as a NO vote we advise – but only to the extent that they do not contribute to the YES votes that are needed for a proposal to pass. They are NOT the same thing as a NO vote – as Apple Computer initially concluded in 2009 – to its great chagrin. So in this instance, the S-O-P proposal was “approved by shareholders” because it got more YES votes than NO votes….which, by the way, is not the same thing as its having “passed”…since THAT is up to the Board.
But if the company bylaws had required a majority of the Quo- rum – or worse yet, of the shares outstanding – it would NOT have been approved, because of the high number of Abstentions…and broker non-votes on that matter. So folks, get out your Bylaws we advise – yet again – and consider re-writing them to require a simple “majority of the votes cast” and please add, to avoid any ambiguity, “on the matter being voted on”… in order to pass basically routine proposals.
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