Wed Jul 11, 2012 4:02am IST
* Moxy Vote launched in 2009, drew 200,000
users
* Co-founder Schlegel cites
fees and complex voting rules
By Ross Kerber
July 10 (Reuters) -
Shareholder voting service Moxy Vote said it will shut down on July 31,
ending a pioneering effort to give ordinary investors more say in how
companies are run.
The West Chester,
Pennsylvania, company said on Tuesday it was losing money amid complex
rules governing how companies interact with retail shareholders.
In the wake of the financial
crisis, governance specialists hoped mom-and-pop investors would press
companies to become more accountable. Along with Moxy Vote, other new
on-line efforts include proxydemocracy.org and sharegate.com.
All aim to help small
investors become better overseers of their assets, such as allowing them
to track the annual proxy elections where corporations chose directors and
seek approvals for executive pay. Frustrated shareholders staged several
revolts in the just-ended spring proxy season, such as rejecting the pay
package of Citigroup Inc Chief Executive Vikram Pandit in April.
But now the on-line efforts
look challenged themselves. In an interview, Moxy Vote co-founder Mark
Schlegel said his 10-person startup faced two main problems as it tried to
make its website as a place for investors to vote their shares.
First, some brokerage
companies would not pass along shareholder ballots, saying they would do
so only when required by U.S. Securities and Exchange Commission rules.
Also, proxy agents have charged Moxy Vote significant fees that public
companies would not reimburse.
Both problems became too
much for the three-year-old company, Schlegel said, even though it had
about 200,000 registered users and was growing quickly.
"The headwinds were too
strong for us. Until the regulatory environment changes, it's going to be
a tough go for anybody like a Moxy Vote," he said.
CLOSE-KNIT SECTOR
Large brokers that worked
with Moxy Vote included E*Trade Financial Corp and TD Ameritrade Holding
Corp, Schlegel said. He declined to name the brokerage firms that did not
pass along ballots and said Moxy Vote received a lot of help from the
close-knit proxy industry, where Moxy Vote's shutdown quickly drew notice.
"It is no easy matter to
engage large numbers of retail investors in corporate governance and proxy
voting and Moxy Vote is to be commended for its efforts," said Chuck
Callan, senior vice-president at Broadridge Financial Solutions Inc. It is
the largest provider of proxy services for investors who own shares
through brokerage accounts.
Broadridge's role can put it
at odds with transfer agents that help companies communicate directly with
investors. But Charles Rossi, president of a transfer-agent trade group,
also praised Moxy Vote's efforts.
"Because of the system we
operate under, it's unfortunate to see Moxy Vote fail," said Rossi, who is
also an executive vice-president of services firm Computershare in
Massachusetts.
Proxy voting has various
overseers, including the U.S. Securities and Exchange Commission, stock
exchanges and FINRA, and several reviews are under way on how to improve
the cumbersome system.
An SEC spokeswoman did not
respond to questions about Moxy Vote. Current rules left Moxy Vote in
limbo and unable to pay bills it ran up processing votes, said James
McRitchie, publisher of the corpgov.net website and an informal adviser to
Schlegel.
"The more successful Moxy
Vote was at getting people to vote on their platform, the more money they
lost," he said.
KEY SWING VOTES
Retail shareholders often
own less than 20 percent of a typical company's stock, but they can
provide key swing votes in close proxy contests.
Backed by private investors,
Moxy Vote aimed to gather small investors to help them study up for
corporate contests.
To make money, Moxy Vote
charged institutions with an interest in reaching smaller investors, such
as to lobby for their votes. Clients included public companies, activist
hedge funds and pension funds.
The company's website,
moxyvote.com, grew quickly from just 5,000 registered users a year ago and
attracted some advertising. But it failed to gain the scale to pay its
bills, Schlegel said. The shutdown decision was hard after investors put
$4.5 million into the company, but inevitable because of the slow pace of
regulatory change, he said.
Some venture-capital backing
came from principals of TFS Capital, a registered investment adviser,
according to Moxy Vote's website.
Schlegel said the firm might
continue some aspects of its service and praised other online efforts
still under way to engage shareholders.
"Everybody has pushed the
ball a little further down the field and I hope we've done that as well,"
he added.
©2012 Thomson Reuters.
