While We Are At It, Has Your Company’s Inspector Of Election Been “Duly Appointed?” And Is It Clear To You – And To Your Inspector – Exactly What The “Duties Of The Inspector” Actually Are?

Here is our own model template for the Inspectors Final Report on the Voting that has been widely used and adapted to changing circumstances over the years, but where a few ”slips” have slipped in at many companies whose own forms we review when our IOEs are newly appointed to serve:

I, the undersigned, having been duly appointed as the Inspector of Elections for the Annual (or Special) Meeting of Shareholders of XYZ Corporation held on (date and time) at (address or “as a virtual meeting”) and having sworn to perform the duties of Inspector with strict impartiality and to the best of my abilities hereby certify as follows:

Here are a few important “practice points” that should be observed  – but often aren’t at many companies:

Have your Inspectors been “Duly Appointed”? The Articles of Incorporation and/or Bylaws of most companies usually spell out whose duty it is to appoint Inspectors, often designating it to the Chairman, or to specific officers – or to “the Board” – which then, properly, should review and ratify the appointment as many companies still do. When we are officially asked to serve as Inspectors we assume we are ‘duly appointed’ – but really, the company should assure itself that this is so. And yes, to be completely proper, the IOE should receive a notice, or a copy of a corporate resolution to that effect, that should also be kept with the minutes of the Meeting.

Only a person – or two and sometimes more persons if bylaws require it – can legally serve as Inspector(s) – since it takes a person to swear (or ‘affirm’ if the IOE insists) and sign an oath. A surprising number of companies still designate a company, rather than one or more persons – which is ‘sort of OK’ but not really the best practice, since a person must take the oath - and sign it. Merely adding “BY… (name of the service provider’s IOE plus signature)” significantly waters down the premise behind having a “sworn” and “duly-appointed Inspector” in our book.

The “strict impartiality” phrase also requires a much more careful look, we say, than many companies seem to give it: Having an officer of the issuer swear and sign the Oath really would not pass a sniff-test for “fairness” or “strict impartiality” if a shareholder should protest the outcomes and legally “challenge” the Final Report. Even worse, we say, asking an officer of a proxy solicitation firm to “Inspect” and to certify results of votes that have been “rounded up” by the Inspectors own firm - often with bonuses for nice majorities – is a highly questionable process – and one that likely would not withstand a formal challenge. We say the same thing about having ANY “proxy tabulator” certify to the Final Vote – partly because it seems to present a clear conflict of interest – but even more so, because “checking one’s own work” is simply a bad idea when accuracy is critical.

It should also be noted with special care that the “duties of the inspector” are not spelled-out in any of the sample oaths we see circulating- which we think should leave companies – and their Inspectors of Election – in a very uncomfortable position where a legally required document is concerned. Our own Team members agree to adhere to written Guidelines for Inspectors and carefully written Presumptions as to the Validity of Proxies in each client’s state of incorporation. These have been carefully designed and drafted - not just to protect the company from legal challenges but to protect ourselves against charges that we have failed to carry out “the duties of Inspector” in a proper manner.

One last but important point: Every year we see a few companies whose lawyers have been using or suggesting outmoded language to describe “the duties of Inspectors” – most commonly cribbed from old-time documents that specify the Inspector has “examined (or ‘reviewed’) all of the proxies that have been presented to the Meeting.” While this was indeed the practice when all proxies and ballots were presented on paper, the overwhelming majority of votes cast today have been scanned by machines – with an inherent presumption as to the validity of the signatures thereon - with only obvious outliers presented for review – or, far more commonly, cast over the Internet or via telephone voting systems by the investors themselves. As a result, Inspectors should indeed investigate the accuracy of such systems – and ideally obtain current outside auditor opinions as to their overall reliability – or make such assessments themselves as part of their due diligence. And, of course, in an official proxy contest – or where voting outcomes are extremely close - added due diligence on the part of the Inspector is a must. But promising to review each and every item in a “routine meeting” is neither necessary nor advisable.