The Securities and Exchange Commission will soon announce its decision to eliminate the ability of brokers to vote on their clients’ shares in the event that individual investors abstain from voting. According to the Journal, the SEC will announce as early as next week the change to the process, with the rule to go into effect next January.
Since 1937, brokerages have been able to vote their clients’ shares—and have generally sided with existing management. Though individual stockholders have the right to vote their shares, few do, which implies to brokers that the investor is satisfied with a company’s current management and/or policies.
Activist investors have long decried the broker vote, claiming that it makes it too difficult to enact real change at targeted companies; the SEC’s upcoming policy change will certainly be counted as a significant win for activists. “This is a huge victory for the investor community,” affirmed Ann Yerger of the Council for Institutional Investors.
The rule change demonstrates new SEC chairman Mary Schapiro’s investor-friendly attitude, as broker voting was one of the first topics she addressed upon taking office. Schapiro is expected to take up other shareholder causes in the coming months, to the chagrin of company management.