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Wall Street Journal, October 22, 2010 article


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BUSINESS     |  OCTOBER 22, 2010

Proxy Issues Step to the Fore



WASHINGTON—People who feel overwhelmed by the shareholder ballots mailed to their homes could issue standing instructions to their broker under a proposal by U.S. businesses that is drawing fire from labor groups.


BIG BOO: In an issue separate from individual investors' proxy rights, IBM challenged the role of proxy adviser ISS in institutional voting.


The businesses were responding to a request for public comment by the Securities and Exchange Commission, which is reviewing the mechanics of shareholder voting.

Many retail, or individual, investors don't bother to vote on the election of directors and other issues that require shareholder approval. All sides agree it would be good to improve participation.

Businesses say one way to do so is to let individual investors give their brokers instructions ahead of time that could be overridden if necessary. For example, an investor could tell his or her broker to always vote in line with management recommendations.

When they vote, individual investors typically side with management and can be a counterbalance to large institutional investors that tend to take a case-by-case approach.

"There should be a level playing field between institutional and retail investors to ensure that the interests of retail investors are adequately represented," U.S. Chamber of Commerce Vice President Tom Quaadman wrote to the SEC.

Labor unions and other institutional investors expressed concern about the idea.

"A simplistic approach to client-directed voting will not be able to respond to evolving corporate governance issues that shareholders are asked to vote on," wrote Daniel F. Pedrotty, director of the AFL-CIO's office of investment.

The Council of Institutional Investors, which represents the largest U.S. public and private pension plans, said that if the model were too rigid, it might fail "to fully capture shareholders' preferences."

The council cited the example of a model that forced participating shareholders to choose among always voting for or against management, abstaining or always voting in accordance with a third party.

The American Business Conference, which represents about 100 midsize businesses, asked the SEC to start a pilot program to test the model with a large brokerage firm.

"This is the only way we can think of for the commission to demonstrate substance behind its rhetorical commitment to raise the level of individual shareholder participation in the proxy process," wrote John Endean, the group's president.

The public comment period on a wide-ranging SEC report about shareholder voting ended Wednesday.

On a separate issue, businesses attacked the role of Institutional Shareholder Services, a unit of MSCI Inc. that advises institutional investors how to vote on shareholder ballots.

International Business Machines Corp., in a letter to the SEC, argued that institutional investors, who are required to vote their shares, essentially outsource the responsibility to ISS. IBM said ISS "has no economic stake in the company and has not made meaningful public disclosures about its voting power, conflicts of interest or controls."

ISS spokesman Gary Hewitt said some of the corporate comments were "inflammatory and misleading." The company, in its letter, said it effectively manages potential conflicts and has a rigorous process for developing policy recommendations.

Write to Jessica Holzer at

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