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Institute Reiterates Concerns on NYSE Proxy Voting Proposal
Washington, DC, February 22, 2007 -The Institute has expressed concern over an NYSE proposal to eliminate discretionary broker voting for the uncontested election of directors, in a letter to SEC Chairman Christopher Cox.
In June 2006, an NYSE working group issued a report that recommended changes designed to create a more efficient and effective voting system for investors. Specifically, the report recommends that NYSE Rule 452 be amended to make the election of directors a “non-routine” matter. Accordingly, brokers would no longer be permitted to vote the shares of beneficial owners who do not give specific voting instructions with respect to any election of directors.
In its most recent correspondence on the proposed changes, ICI discusses the significant cost implications of the proposal for funds and their shareholders and states that, at least as applied to funds, the proposal has no demonstrable benefits, and certainly none that come close to offsetting its costs. The letter notes that the Institute is not aware of any fund shareholders who have voiced dissatisfaction with the current proxy voting process as it relates to the uncontested election of directors, nor is ICI aware of any detrimental effects of the current process on funds or fund governance. For these reasons, the letter recommends that funds be exempted from the NYSE proposal.
The letter addresses several alternatives to eliminating discretionary broker voting that have been suggested by NYSE staff, including adopting a proportional voting system, lowering quorum requirements, or adding the shareholder ratification of auditors to fund proxies. The letter concludes that all of these alternatives have serious shortcomings and should be rejected in the absence of any compelling reason to change the current system.
Finally, the letter discusses the process by which the NYSE has advanced its proposal. The letter states that the NYSE conducted little or no analysis of the proposal’s impact on funds. To avoid this problem in the future, the letter urges that the SEC require that the NYSE (and all other self-regulatory organizations) perform an appropriate cost/benefit analysis prior to submitting any regulatory proposal to the SEC.