Wednesday April 23, 2014
THE BOARDROOM GUIDE TO SHAREHOLDER COMMUNICATIONS

Getting Out the Vote

Broadridge ups ante to increase shareholder participation.

Richard S. Daly

More than a year ago, Broadridge Financial Solutions CEO Richard J. Daly addressed a National Press Club luncheon in Washington, D.C., with some sobering news: in 2010, among large segments of individual investors, just one in 20 individuals voiced their opinions about the companies they invested in by exercising their fundamental shareholder right—their proxy vote.

“Let me repeat that,” Daly said. “That’s just 5 percent—just one out of 20 shareholders from among over 40 million that received a mailed notice.”

The decline in shareholder participation, Daly continued, is happening at a time when the partnership between shareholders and management “is more important than ever, as our economy is only now emerging from a period of intense mistrust.”

A more robust corporate governance technology platform, Daly says, echoing what Broadridge asserts in numerous analyses of shareholder communication and proxy voting, benefits all constituents: corporate issuers, shareholders, the broker-dealer community and regulators. Technology can help create what Broadridge calls a “virtuous cycle.” Greater application of technology can improve transparency. Improved transparency leads to greater confidence in the marketplace. Greater confidence leads to increased participation, which, in turn, strengthens the economy and leads to job growth and wealth creation.

“My dad fixed cash registers for 25 years, but he was able to buy a nicer car because he bought 50 shares of Polaroid,” Daly said.

When Daly again took the stage in February to address the Press Club, he repeated his plea that the chief executives of the largest 1,000 public companies join in an effort to encourage employees, who number in the tens of millions, to vote their proxy ballots, whether for their employer or for other companies in which they invest. Daly asserted that the increased use of technology results in greater total cost savings for corporations in complying with regulations (electronic versus paper balloting cuts down on costs in time, materials and mailing), and for the investor community promotes greater participation in their share ownership.

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With the passage of Dodd-Frank, shareholders are also being given a say on pay and the frequency of say-on-pay votes. An analysis by Broadridge of voting statistics for the 12 months ending June 30, 2011, indicates that, when they do vote, individual investors as a group are more supportive of company recommendations than institutional investors. Voting is an important right and participation is critical to the health of U.S. markets.

Indeed, NACD’s Key Agreed Principles to Strengthen Corporate Governance, originally published in 2008, encourages boards to use technology to communicate more frequently with shareholders. These principles also encourage transparency and direct communications with shareholders.

“Receptivity to shareholder communications on topics relevant to board quality and accountability may prove beneficial in helping to improve mutual understanding while avoiding needless confrontation,” reads the NACD Principles document. “Boards should also consider reaching out and developing stronger relationships with investors through candid and open dialogue. In particular, boards should consider ways to engage large long-term shareholders in dialogue about corporate governance issues and long-term strategy issues, recognizing that the board’s fiduciary duties with respect to these issues mandate that the board exercise its own judgment.”

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The Securities and Exchange Commission (SEC) further embraced electronic communications with shareholders in 2008 by finalizing rules to encourage greater use of electronic shareowner forums to enhance participation: “By facilitating such communications on the Internet among shareholders, and between shareholders and their companies, we hope to tap the potential of technology to better vindicate shareholders’ state law rights, including their right to elect directors, in ways that are potentially both more effective and less expensive for shareholders and companies.” Twenty-one states (see map) now recognize online shareholder meetings as an alternative or a supplement to in-person venues.

Daly is committed to making the technology investment necessary to increase investor participation and simultaneously save issuers additional costs. Broadridge is a leading provider in shareholder communication and related processing. Last year the company delivered communications to more than 100 million investor accounts held in over 900 custodian banks and broker-dealers. (Over 94 percent of the shares voted through Broadridge are voted electronically.)

According to the company’s estimates, 57 percent of physical mailings were eliminated by its processing and technologies; corporations saved $508 million in total in the 2011 season.

In 2010, the SEC published a concept release on the U.S. proxy system that requested comment on process efficiency, voting accuracy and other matters. For years, the SEC has tried to reduce the number of paper-based mailings. Under the so-called Notice and Access Rule adopted in 2007, companies can mail shareholders a notice that their proxy materials—a proxy statement, annual report and proxy card—are available online. As a result of Broadridge’s processing of notice distributions, issuers saved more than $200 million last year alone.

The next frontier involves finding ways to increase shareholder participation that generate greater efficiencies in both cost and time while also facilitating greater dialogue. Daly argues that private-sector investment and innovation will continue to help achieve these goals.

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Technology Driven
From the beginning of his career, Daly has seen technology not only as a competitive advantage but as a way to generate more efficient proxy voting and shareholder communication. He started a proxy services company in his home over 30 years ago and sold it in 1989 to Automatic Data Processing when he went to work for the acquirer as senior vice president of its brokerage services group. In 2007, when ADP spun off the unit into a separate publicly traded company under the Broadridge name, Daly, by then co-president, became chief executive.

“I built the field of dreams,” Daly said in a recent interview, “with the belief that they would come.”

Having spent more than $1 billion over the past 10 years to build a secure technology platform, the challenge for Broadridge is to continually add value to that platform—which, in addition to proxy statement distribution and voting facilitation, is now being used for virtual shareholder meetings (see “Adopting a Virtual Approach to the Annual Meeting,” NACD Directorship, January/February 2012), shareholder forums and new technologies to survey and monitor shareholder sentiment.

Shareholder forums are being facilitated in an online venue where validated shareholders can submit questions, vote and answer surveys in advance of the annual meeting and year-round. Broadridge’s Daly reasons that the forums improve transparency and transform communication by instantly delivering shareholder input, perspectives and ideas. As a result, management and the board of directors receive important feedback.

The Opportunities
The technologies Broadridge has put in place with custodian banks and broker-dealers provide numerous ways for issuers to communicate with shareholders, regardless of their privacy designations. For example, over 75 percent of the shares of U.S. publicly held companies can be reached electronically on a same-day basis. Companies can choose to electronically send certain communications to a share range. Platforms such as ProxyEdge, mobile ProxyVote.com and an investor mailbox (accessible directly from a broker’s website) afford shareholders greater functionality and convenience. The benefits to corporations include:

  • Improved investor outreach efforts by increasing the volume and type of shareholders involved, including retail shareholders.
  • The ability for executive management and the board of directors to communicate online and deliver customized messaging to validated investors.
  • Investor feedback to the executive management team and board of directors through a secure online platform.
  • Higher levels of shareholder interaction, engagement and understanding.

Meanwhile, monitoring shareholder sentiment promises directors the ability to assess shareholders’ beliefs on a variety of topics. Noting that it is impossible for directors to meet with all of a company’s largest shareholders or institutional investors, a snapshot of shareholder beliefs on key issues could be provided, much like a “heat map.” For example, validated shareholders can be surveyed and their responses tabulated and reported based on ranges of shares held. In addition, there are options in the forum for shareholders to submit questions or comments.

Many companies have indicated they want to be able to distinguish the opinions of their shareholders from public opinion. “They are not always the same… and there are times when it is critical for company boards and managements to know the difference between those two sets of opinions,” Daly maintains.

Consumers spend more time accessing information online related to their leisure pursuits— shopping, travel, connecting with friends and family—than they do taking care of their personal investments. Daly cites as an example his own wife, who five years ago, following a class reunion, signed up for Facebook and now routinely shares stories and photos of friends and their children. Just like the interactivity that brought his wife into the social media dialogue, Daly sees a similar platform where investors and management could engage in a secure environment. The upshot for investors will be easier access to the views of management; conversely, one benefit for management is the opportunity to engage in conversations with shareholders.

What Daly and his team at Broadridge need to do is create awareness of the importance of voting. One of the most important points for directors to know is that retail investors historically are the most supportive of management by what Daly calls a dramatic factor. “It’s unusual to have less than 90 percent vote against company recommendations. But unfortunately, many retail investors do not exercise their right to vote. In surveys asking why they don’t vote more, they indicate that they do not have useful information on who the directors are, that it is not convenient to vote or that their votes don’t make much of a difference.”

The “get out the vote” campaign being waged by Broadridge includes an educational website on the mechanics of proxy voting and the letter-writing campaign to company CEOs. In his speech to the Press Club, Daly noted that Broadridge makes no more or no less money from the increased exercise of proxies. He believes the ultimate solution “to increasing individual shareholder voting lies largely in the use of technologies that are available today. Increased transparency enabled by technology benefits all stakeholders.”

A New Kind of Mailbox
Today, companies can quickly and easily engage with shareholders—and the options for doing so continue to increase almost at the speed of communication, which has been reduced to under 24 hours between the receipt of information from a company (or issuer) and electronic delivery to a shareholder. In addition, a number of communications platforms are now offered by Broadridge to address overall retail shareholder participation. They include:

  • Virtual shareholder meetings: These provide shareholders and others with the convenience of online participation at annual meetings. “Validated” shareholders may submit questions and vote online in real time.
  • Mobile proxy voting: This service, launched in March 2011, provides secure voting on mobile devices to allow street and registered shareholders to vote their shares on the Internet. ProxyVote.com is compatible with most mobile devices including the iPhone, BlackBerry, Android, Microsoft tablets and other smartphone platforms.
  • End-to-end vote confirmation: For years, Broadridge has provided vote confirmation to institutional investors using ProxyEdge. Recently, a pilot was launched to provide confirmation to individual investors as well. Investors can access a site to see that their votes were included, as instructed, in the final tabulation.
  • Enhanced broker Internet platforms: A direct connection to proxy voting from the account holder’s online brokerage account has the potential for greater education and interactivity in the future. Currently, about a dozen brokers provide a direct connection to voting.
  • Shareholder forums: In contrast to traditional webcasts, certain e-forums have been developed to provide access to validated shareholders in a secure environment.
  • QR codes: Those funny little squares of black and white patterns found on some ads and product boxes are being implemented on mailed proxy notices. By scanning these codes with a tablet computer or smartphone, a shareholder can easily access a company’s proxy information and ballot.

A Framework for Board Practices
The Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies, originally published by NACD in 2008, is intended to guide corporate leaders. These Principles are the cumulative effort of many organizations to find a truly shared set of ideas to improve the internal functioning of America’s boardrooms. It has often been said that “one size does not fit all” when it comes to corporate governance.

The Principles are intended to help directors test their current practices, rather than check “a required box” on a mandated evaluation form, and help corporate boards make governance decisions in the context of their own corporate strategy. NACD recommends that directors use the Principles as a framework for determining board practices on an ongoing basis.

The Key Agreed Principles are:

  1. Board Responsibility for Governance Governance structures and practices should be designed by the board to position the board to fulfill its duties effectively and efficiently.
  2. Corporate Governance Transparency Governance structures and practices should be transparent— and transparency is more important than strictly following any particular set of best-practice recommendations.
  3. Director Competency & Commitment Governance structures and practices should be designed to ensure the competency and commitment of directors.
  4. Board Accountability & Objectivity Governance structures and practices should be designed to ensure the accountability of the board to shareholders and the objectivity of board decisions.
  5. Independent Board Leadership Governance structures and practices should be designed to provide some form of leadership for the board distinct from management.
  6. Integrity, Ethics & Responsibility Governance structures and practices should be designed to promote an appropriate corporate culture of integrity, ethics and corporate social responsibility.
  7. Attention to Information, Agenda & Strategy Governance structures and practices should be designed to support the board in determining its own priorities, resultant agenda and information needs, and to assist the board in focusing on strategy (and associated risks).
  8. Protection Against Board Entrenchment Governance structures and practices should encourage the board to refresh itself.
  9. Shareholder Input in Director Selection Governance structures and practices should be designed to encourage meaningful shareholder involvement in the selection of directors.
  10. Shareholder Communications Governance structures and practices should be designed to encourage communication with shareholders.

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