In a move welcomed by activist investors, the SEC overturned a rule last week that allows broker-dealers to vote on behalf of clients whom hold accounts at their firms. The longstanding rule may have prevented activist investors from influencing company performance by allowing brokers to predominately vote with management on behalf of its clients, specifically in cases when their clients have given no specific instructions to vote.
Since brokers were previously allowed to vote on behalf of clients whom hold accounts at their firms, it can be said that they had power to significantly influence governance voting. Many activist investors claimed the rule hindered their ability to remove directors and obtain seats on the board. The overturning of the rule effectively eliminates this practice.
The reversal can be seen as a display of public disapproval following the credit crisis of significant risk taking by management. In a press release, the SEC stated that the “proposal is designed to enhance corporate governance and accountability by helping assure that investors with an economic interest in the company vote on the election of directors. It also would address concerns that broker discretionary voting for directors has impacted election results.”
The new regulations are slated to take effect January 1, 2010.
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