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Ask ISS to Focus on Vote-Counting

Ask ISS to Focus on Vote-Counting

There is not an issue of concern to an aware investor that is not being systematically harmed by variant vote-counting practices.

Investor Voice submitted this week a comment / request in favor of fair vote-counting to Institutional Shareholder Services (ISS), the country’s largest proxy advisory service (ISS is an MSCI company).

You too may comment on fair vote-counting by clicking the link:  ISS Survey Link  (whether or not an ISS client)

One can take the survey anew, or easily append a comment on vote-counting to an already-completed survey by e-mailing the additional comment to: policy@issgovernance.com  (2 sample comments are included below)

Once on the survey:  Enter your name or organization’s name, answer as many of the other questions as you wish, but be sure to visit the last page and enter your request for fair vote-counting in question #18.

The deadline for doing so is 5pm Eastern on Friday, Sept. 4, 2015.

This is important and time-critical.

Please copy-and-paste (or modify) one of the comments below, and either:
  • E-mail it to ISS at policy@issgovernance.com, or
  • Enter it into survey question #18

The survey link is at: https://www.surveymonkey.com/s/2016_ISS_Policy_Survey

1. Sample SHORT FORM Comment:

We strongly request that ISS recommend a vote FOR proposals that seek a simple majority vote-counting standard.  Thank you.

2. Sample LONG FORM Comment: (you may use or edit all, or portions, of what appears below)

We would like to see ISS support shareholder proposals that seek a simple majority vote-counting standard – whether in the form of not including abstentions in the formula, or in the form of removing supermajority requirements that are not either approved by shareholders, or mandated by regulation.

The harmonization of vote counting and vote reporting is a straightforward good governance issue that matters to our organization.

Under the status quo:

      (1) Voter intent is unknowable, but management is permitted to use abstentions to diminish, if not entirely disregard, shareholder input – even to the extent of subverting true majority votes and portraying them as having failed.

In our estimation, there is no valid argument to support such gamesmanship.

It should be noted that under a simple majority standard shareholders are able to cast an ‘Abstain’ vote, and thus fully retain the ability to ‘send a message’ to management.

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      (2) Results are confusing – because there is one outcome that the company reports to shareholders and the press, but an entirely different outcome mandated by the SEC for determining resubmission eligibility.

The company figure is presented at shareholder meetings as being definitive when it is not, and when neither shareholders nor the press are able to ascertain differently until well after the fact (and even then only by conducting specialized research).

There is not an issue of concern put forward by shareholders that is not systematically diminished by the use of vote-counting formulas which universally count abstentions as ‘Against’ votes.

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      (3) There is no level playing field.  This hampers our role as an asset owner in portfolio management, because issues of concern voted on at an array of companies we own are not reported on consistently.

Harmonization makes logical sense, and is the only practical way to consistently and accurately portray voting results.

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      (4) Companies often claim to count all management and shareholder items the same.  But in every case examined this has proved to be factually inaccurate, because the board of directors vote (management proposal #1) does not include abstentions in the formula.

ISS has many times repeated these erroneous management claims in its research reports, thus misinforming clients.

Besides being factually inaccurate, such claims also imply equivalence of outcome, when including abstentions in the formula creates a 7.6 times larger negative impact on shareholder proposals than on management items – which seriously erodes the ability of shareholders to provide input and guidance.

This disparity has been reported on by the WSJ and Corporate Secretary magazine:

http://www.investorvoice.net/wp-content/uploads/2015/07/Vote-Counting_Article_Corporate-Secretary-magazine_2015-0318.pdf

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KEY FRAMING ELEMENTS:

      (a) Voter intent for an abstaining shareholder is unknowable.  Thus, there is no compelling justification for counting all abstentions as if ‘Against’ an item.

      (b) Institutional Shareholder Services has itself written that: “a simple majority of voting shares should be all that is necessary to effect change regarding a company and its governance provisions.”

      (c) The Council of Institutional Investors states in Governance Policy 3.7 that: “Uninstructed broker votes and abstentions should be counted only for purposes of a quorum.”

      (d) A CalPERS / GMI Ratings study found that 48% of the S&P 500 and Russell 1000 use a simple-majority standard, making it a mainstream practice.  Harmonizing this to become 100% is in the best interest of shareholders, companies, and the markets.

      (e) Roughly a third of companies presented with a simple majority vote-counting proposal (to eliminate abstentions) have adopted simple-majority as an enhancement to their governance policies.  These companies are all from the S&P 500, and half have been Delaware-chartered.

From 2012-2015, shareholders voted 89 times on a similar simple-majority proposal that sought to replace supermajority requirements with a simple majority standard.  In each instance shareholders voted overwhelmingly in favor of a simple-majority standard, with vote tallies ranging from 62.3% up to a unanimous 100%.

Across-the-board, shareholders clearly appreciate the accuracy and fairness of simple-majority voting, and prefer it as the default standard.

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IN CLOSING

Shareholders deserve a harmonized, fair, and consistent voting system – not a 2-tier system that creates multiple outcomes, disproportionately impacts shareholders, and tends to favor management at the expense of shareholders.

We strongly request that ISS recommend a vote FOR proposals that seek a simple majority vote-counting standard.  Thank you.

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