Fixes eyed for rickety proxy voting system

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Huge Industry Around Proxy Votes

Proxy problems often draw comparisons to the infamous Florida recount in the 2000 US presidential election.

Yet in many ways corporate contests already include some of the technical features that public election specialists say improve voting accuracy.

At most of the roughly 7,000 U.S. public companies that hold elections each year, shareholders can vote by mailing back a proxy form, calling an automated phone system or via the Web.

When quorums have not been reached, many companies hire outside firms to call individual shareholders for their votes. They also rely on firms like Broadridge Financial Solutions Inc to gather lists of shareholders.

Broadridge runs a distribution centre in Edgewood, New York -- a cross between a printing plant and a massive post office. During its busy season in the spring, the firm processes more than 6 million documents a day. Envelopes and financial statements zip along conveyor belts where they are stuffed together and shrink-wrapped for mailing. It sends out even more materials electronically.

As the largest shareholder communications company Broadridge may have the most to lose from changes the SEC could implement. Its chief executive wrote in a Dec. 4 letter to the SEC that the current system works by relying on independent firms like itself.

So far, there have been relatively few complaints about election results, although critics, like Delaware corporate attorney Gil Sparks, worry that errors are far more common but not reported. Sparks said any vote tally with a margin of less than 10 percent could be incorrect. "There's just slippage in the system," he said.

Votes Gone Bad

A few high-profile problems have cropped up already. For instance, votes for a director had to be revised at Yahoo Inc in 2008 because of a counting error at Broadridge. An American Funds manager realized the vote total that Yahoo announced did not add up. Broadridge said the error was unique to that year's complex Yahoo contest.

In a separate matter, Apple Inc initially said a say-on-pay resolution in 2009, similar to the one at Waddell & Reed, had failed. But several days later the company said it had passed after what it called a counting error. An Apple spokesman declined to provide more details.

Some investors have improvements in mind. A popular one would be the creation of an audit trail system to show shareholders their votes were correctly cast and counted.

"It would help shareholders and issuers alike," said Michael Garland, a director at CTW Investment Group, which leads voting campaigns for union pension funds.

Some, including members of the professional group for corporate secretaries, and The Business Roundtable, want to be able to obtain full lists of company shareholders in order to make it easier to find those who had not voted.

But the idea is controversial among privacy advocates and activists like CTW's Garland worry it could allow companies to control communications to shareholders and block dissident campaigns.

Whatever fixes the SEC settles on need to reinforce confidence in the system, said Edward Rock, a professor at the University of Pennsylvania. Rock coauthored a paper about proxy problems, "The Hanging Chads of Corporate Voting."

There is too little evidence that the votes are accurate, he said. "If you're going to give shareholders so much to vote on, you better make sure the system works," he said.