LET’S PUT THE WORST BEHIND US FIRST: The return of those perfectly awful “floor votes” - led this season by the equally awful “Burn More Coal” lobby at meetings of at least four electric utility companies. We’ve warned annually about the foolishness of allowing floor votes, since (a) they fly in the face of a company’s invaluable Notice Provisions (b) companies are downright wrong about thinking they can automatically cast opposing votes for street-name voters - unless, that is, they have added a box to be checked (or not) that will allow such votes to be tallied, with actual numbers to be reported and (c) we have seen several instances where floor-vote sponsors were able to quietly generate enough votes from supporters via an “exempt solicitation” to actually oust company directors and take control of the company!
But this year’s saga has had a pretty happy ending: At two companies - Ameren (which had added a box to check to give the company the authority to vote on “all other business”) and at Southern Company - where there was no time to do so, but which prompted a fresh and careful new look at meeting admission criteria - the proponents failed to show up…so no votes were tailed for them. At Exelon, the proposal from Burn More Coal fans garnered a mere 1.6% of the votes cast. And Southern took our advice, we’re happy to say - and was able to amend its bylaws to drop the ill-considered floor-vote provision - without the need for a shareholder vote to do so.
Dear readers, please DO check your bylaws and if you have a provision to allow “floor votes,” try to eliminate it ASAP…even if it does require a shareholder vote.
NEXT, LET’S CELEBRATE AND LEARN FROM THE BEST THINGS WE’VE SEEN THIS SEASON…Bank of America is the hands-down winner again this year, continuing to grow its retail investor vote - and its quorum too - from largely pro-management voters - by donating $1 to charity for each shareholder account that casts its votes. Over three years, with gifts to the Special Olympics, Habitat for Humanity, and this year, the American Red Cross, BofA has increased the number of retail voters by well over 50% - a truly amazing feat. This year, its quorum of “actual voters” grew yet again - despite a move to reorganize and simplify its Employee Plans, where they decided to eliminate proportional voting (more kudos for them!) This had the effect of reducing the number of votes that were formerly “represented” when Plan Trustees used proportional voting provisions to fully vote the shares in the Plan, even while the voters had, in many cases, chosen NOT to vote. But, happy day, new voters in 2019 more than made up the difference!
Readers: Be sure to review the BofA Annual Report and Proxy Statement with special care as you start your own engines for 2020 to see how and why it is so effective at getting out the vote. As we did so ourselves, we realized that it was not just the charitable donations that did the trick - though WOW, BofA donated over $1 million this year: It was the way their materials “set the table” for voters to vote - and made them feel that it’s a company that “gets it” - and made them feel that the strong and diverse management team and board - AND their values - and a strong social conscience - make it a company that deserves a vote of confidence. And, P.S. - BofA did another very smart thing this year: Within two minutes following adjournment of the meeting, Chairman Brian Moynihan e-mailed a 20-second video, thanking investors for their interest - and for voting in time for the meeting: An easy and inexpensive thing to do - and, as we have been advising for years, a fast and gracious Thank You is one of the best ways ever to acknowledge - and to reinforce desired behaviors…Take it to the bank!
NOW FOR ONE OF THE WORST - AND THE WEIRDEST THINGS WE SAW THIS SEASON –
A court-ordered vote at small-cap Harbor Diversified:
It’s always a bad thing for a company when a shareholder goes to court and successfully petitions for a court-ordered meeting because the company has not had one within the state designated guidelines - often as little as 13 months. But here’s the first weird part: Normally, the successful petitioner has the right to put any proposals he or she wishes to propose on the ballot - and the quorum is literally “whatever votes show up” - no matter how few they might be… But here, the Delaware Chancellor - normally one of the court’s brightest lights - missed a beat in our opinion - maybe because he did not understand the many “proxy-plumbing” issues - and instead of allowing the proponent to put one or more candidates on the ballot, allowed them to have a “write-in line” om the proxy cards and VIFs where holders could not only write in a name (or names) but express a “vote” on a proposal to resume annual meetings. But Oops…it may have been because the proponent shied away from the costs of a full-blown proxy fight and thought they’d found a better, cheaper way forward. But then…and one of the weirdest things we’ve ever seen, the proponent’s lawyer managed to garner a very significant number of votes by contacting a few large registered holders - and somehow gathering votes from clients of large “retail brokerage firms” - like Ameritrade, Charles Schwab and others! Four people wrote in their own names, but most took the time and the trouble to write in the name of the proponent’s candidate! Interestingly, the proponent’s lawyer may well have won at least one of the three open board seats, had she launched a “regular” proxy fight…and included the candidate’s name on the card. After all, shareholders of companies that have “gone dark” - and where they have not issued updates for more than three years, - and where the business results were not terribly encouraging, it seemed - could easily be persuaded to vote for one new board member. But as we told her when she called to challenge the results, she had only herself to blame since (a) and largely because she did not understand the proxy plumbing system, she failed to win a plurality, as she herself admitted, and (b) she failed to know and to understand and observe the “rules of proxy” in that (c) she failed to show up at the meeting to cast the votes that ran to her - a fatal breach - and (d) we, as the judge of elections considered that any rights she may have had to challenge the results were lost in our view, when she failed to show up at the meeting, or to send a “proxy” of her own.
Readers; a very important set of points to note - especially if you have not held a shareholder meeting in 13 months or more - which can sometimes happen at solvent and otherwise compliant companies that have had technical or other delays in filing a 10-k. on time. Also, we felt sure that the proponent’s lawyer - a very bright and charming lady - is bound and determined to learn more about the rules of proxy AND to make a career out of finding and pursuing and often taking full control companies whose meetings are way behind-times…. a fairly easy thing to determine…
MORE WEIRDNESS: THE CASE OF THE NON-RESPONDING - THEN OVER-RESPONDING “RESPONDENT BANKS”: At one of the meetings where a member of our team served as the Inspector of Election this season, the company - a fairly small-cap one - had a proposal to effect a reverse-split, and another for a name change - plus two other proposals deemed non-routine on the ballot - but no “routine proposal” at all. As a result, with no “broker votes” eligible to be cast, they were more than ten percentage points short of a quorum on the meeting date. So they adjourned the meeting and set another date for thirty days later. While their proxy solicitor was beating the bushes for more votes, the company remembered that they had a German investor with nearly half a million shares, so they reached out to him directly and asked him to contact his local bank or broker and instruct them to cast his votes, which he was perfectly willing to do. But his local custodian was unable to help him: They did not know where the shares were held, much less who to call for the answer. Brilliantly, we thought, the company asked the Inspector of Elections if he would consider accepting a sworn statement, with a power of attorney from the investor, swearing to his ownership and authorizing the company to cast his votes for the four proposals. And the investor promptly filed his statement in German and in English! And yes, why would an Inspector disenfranchise a sworn bona-fide owner? And then - in another helpful development - the NYSE agreed to rule that two proposals (but not the two critical ones) could be considered “routine” ones - so broker-votes came in that put the tally much closer to a quorum, but still not there. So another adjournment had to be teed up.
Meanwhile, the proxy solicitor reported that they had “votes in hand” that would put the proposals over the top…So, as the company, the tabulator and the IOE asked, “Where are they?” The independent tabulating agent had searched the un-voted accounts - but when they checked every one of the “respondent bank” positions, they were unable to identify a single un-voted position of that size. (What IS a “respondent bank”? one may well ask. It is a foreign banking or custodial institution that can’t justify the expense of direct membership in DTCC - so they hire a US. entity - usually Bank of New York - but sometimes State Street, and sometimes a client of tiny Mediant - to hold their shares in the U.S. and to be their clearing agent and proxy distribution/voting agent.) But, as the unhappy issuer soon discovered, “respondent banks” - and their non-U.S. clients - who rarely if ever respond to anything as a rule - seem to have “over-responded” - i.e. over-voted - since no open positions could be found! Everyone accepted that the German citizen owned the shares in question, but no account could be found from which to cast the votes! So yet another adjournment was needed.
Ten days or so later, more broker votes came in, and it was agreed to count the 400,000+ shares toward the quorum - but, from an excess of caution, to vote them for the two routine proposals only. It is also worth noting that votes against the two tough proposals were minimal - and - since only a majority of the quorum was required - the two main proposals squeaked by on the third try.
ANOTHER INCREASINGLY COMMON HURDLE FOR ISSUERS, PROXY TABULATORS and INSPECTORS IMPACTED OUR TEAM OF IOEs THIS SEASON: First, a meeting where 77 investors had signed voting agreements at the time of the IPO, but where proxy cards and VIFs had been mailed to them. How to tell if they’d honored the agreements or not? As we’ve written before, situations like this require a SWAT Team to spring into action pronto - to identify all the signers of such agreements - and how and where they hold their shares - and here, to back out the votes that were cast - and to have the owners execute ballots that conform to the voting requirements. A momentary panic ensued at the company when Broadridge backed out the restricted votes that had already been tallied - and the numbers dropped well below the quorum. But the IOE was able to assure everyone that she had enough votes in hand - on ballots - that would indeed be “present at the meeting” - and more than enough for a quorum.
Readers; please note that when retail investors fail to vote, many proposals fall short of the required margins, and fail. And, despite the often sky-high fees for “emergency proxy solicitation efforts” many shareholder proposals, where companies recommend a Vote-No, often pass. This is especially true were there are a lot of Abstentions, and even more true when there are 30% or more “Broker Non-Votes” - and where a proposal needs a majority of the quorum - or harder yet to get - a majority of the outstanding shares. Do remember that institutional investors cast their votes 100% of the time … so if there are a lot of Abstentions - and Broker Non-Votes - retail investors will often be your only way to eke out a victory. Please re-read the second section, above, on how to cultivate your retail voters and get them to vote!
At another meeting - where the company itself and any other holders of 5% or more - were limited by the Bylaws from voting more than 9.9% of their holdings, with the rest to be voted pro-rata, based on the final votes of all other investors. This required complex and last-minute calculations - by the tabulator, since all the votes needed to be in to do the pro-ration, and each director had different numbers of For, Against and Abstain votes - and the Inspector - who often has to do these calculations on his or her own - and, at a minimum, needs to double-check them, to honor his or her Oath. And YIKES! The first set of numbers appeared to be off! Turned out the company had handed the IOE an “evening-before-meeting” report instead of the Day of Meeting Report, so on the second go-round on the math, all the calculations were A-OK.
“PHANTOM VOTES” - ANOTHER SCARY FINDING FROM TWO OF THE MEETINGS MENTIONED ABOVE: At both of the meetings with “quorum concerns” the same proxy solicitor claimed to have “votes in hand” that the inspector should count in. But when pressed for the source of the votes, and for the actual voting instruments, they “came up short.” Shades of the bad old days! Readers beware!
Here’s another weird development: At a Fortune-100 Company where we Inspected, Glass Lewis changed its recommendation at the very last minute, to endorse the company position. And quite a few vote-changes were filed the day of the meeting. But Oh, woe for Glass Lewis and its clients – By the time the changes were received, the polls had closed, and the meeting was over - at about 8:15 a.m. (No harm was done, since the company position was upheld handily without the late votes…but Glass Lewis really should have known and done better!)
ONE LAST LOUSY PRACTICE ONE OF OUR IOEs SAW THIS YEAR: A meeting where the required certified list of shareholders was not only out-of-balance with the numbers in the Proxy Statement, but where the list was neither officially signed - nor “certified” by the Transfer Agent! Just as bad, if not worse, some T-As - who lose the tabulating job to a rival firm - completely fail to deliver any list at all….unless the issuer specifically instructs them to do so! Stay alert, dear readers, since a certified list of holders is required to be at your meeting, - and available for inspection by shareholders!
Readers; if you have any voting agreements with specific investors - or if you have rules that call for vote-cutbacks - and/or proportional voting on certain types of proposals - start your engines early. And do NOT mail proxies or VIFs to these folks at all: Send them the info they need to honor the agreement(s) and a ballot, as we did in this case. Lastly, make sure your IOE knows what he or she is doing - and does it!
HOW’S THIS FOR A GRAND FINALE - THE MAN WHO LOVES VOTING PROXIES: At the Verizon meeting, the IOEs were handed a proxy from a voter who “dances” while he “Raps his Palace of Peace” by voting on line - and who neatly printed the following poem, and laminated the entire form, front and back:
“Do not pervert my Mecca; my remaining Temple Wall/ I need to text some friendship & I need to make a call/ I step aside the chaos & connect with brotherhood/ A cyberspace to give me a true place of grace and good/ Escaping Helter-Skelter & the twisted life I face/ With silicon my shelter, I rebuild my carbon base/ Do not prevent my Mecca; my remaining Temple Wall/I need to text some friendship; I need to make a call”.
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