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On July 1, 2009, the Securities and Exchange Commission approved an amendment to New York Stock Exchange (NYSE) Rule 452 that eliminates broker discretionary voting in uncontested director elections. The amendment was approved by a 3-2 vote of the SEC Commissioners and, particularly when combined with other shareholder-rights initiatives, such as majority voting, could affect the election of public company directors. The SEC's approval of the amendment to NYSE Rule 452 is one of a series of actions the SEC has taken, or is contemplating, related to the proxy and shareholder voting process.Brokers holding shares in street name for their clients must furnish those clients with all proxy materials distributed with respect to the shares and allow the clients to direct the broker on how to vote those shares. Currently, if a broker does not receive voting instructions from its client by the 10th day before the date of the shareholder meeting, NYSE Rule 452 allows the broker to exercise its voting discretion with respect to matters deemed "routine" by the NYSE. Brokers may not exercise discretion to vote on matters deemed "non-routine" by the NYSE, which currently include contested director elections. The amendment to Rule 452 provides that all director elections, whether contested or not, will be considered "non-routine."
The amendment will not apply to director elections for companies registered under the Investment Company Act of 1940. The amendment is effective for shareholder meetings held on or after January 1, 2010, except for meetings originally scheduled to be held before January 1, 2010 and then adjourned to a later date.Implications of the Amendment:
In approving the amendment to NYSE Rule 452, the SEC indicated that it plans to evaluate other "plumbing" elements of the proxy voting process, such as "empty voting" (voting by shareholders as of the record date who no longer hold shares as of the meeting date) and the treatment of "objecting beneficial owners" (retail shareholders who object to the disclosure of their contact information to the corporation in which they own shares).
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