FOR THE past two years, Broadridge Financial Solutions Inc. (NYSE:BR) CEO
Richard Daly has been talking to analysts about the promise of his pet
project – the company’s proprietary Investor Network shareholder
forum that has failed to gain market acceptance.
Now he is ratcheting up the rhetoric and angling to have the U.S. Securities
and Exchange Commission (SEC) issue a mandate that all companies be required
to offer a shareholder forum, for which his company would
conveniently be the only service provider, at fees ranging between
$20,000 and $50,000 per company per year.
In an unusually direct and strongly worded
news release yesterday, the Broadridge CEO “called on the SEC to
give public companies the right to social media technology to
communicate with their shareholders.”
That apparent right for public companies is little more than spin for giving
investors a universal right to shareholder forums — and giving
Broadridge the exclusive role of gatekeeper and the ability to print money
due to its monopoly access to brokerage client records.
has already approved shareholder forums, networks
Broadridge CEO Richard Daly is seeking an SEC mandate to save his pet
As things stand, nothing prevents companies from sponsoring a shareholder
forum or using Broadridge’s Investor Network. They already have the “right”
because on January 18, 2008, the SEC adopted new Rule 14a-17 and an
amendment to Rule 14a-2 under the Securities Exchange Act of 1934
to “facilitate the use of electronic shareholder forums by public companies
and their shareholders.”
In fact, it was following the adoption of that rule that Broadridge
proprietary Investor Network, using expensive software from white label
social networking provider
Telligent Systems in Dallas, Texas.
However, the Investor Network has never taken off. Only a handful of
companies have used the shareholder forum feature as part of their full or
virtual annual meetings. And investors have never taken to the service
in any meaningful way. In fact, as I write this, there has only been
one comment on the public Investor Network site in the past 3 months.
The Investor Network’s failure to gain organic adoption is most likely
because it is created to serve Broadridge’s proprietary interests,
which run counter to the fundamental principles of a successful social
Mandate strategy discussed in 2008 call with analysts
Now Broadridge’s Daly is acting on a strategy he first discussed more than
two years ago in a conference call on August 14, 2008. In
the call, he made it clear that if the Investor Network did not take off via
an “opt-in” process, then an SEC mandate would be his other option.
To quote from
a transcript of that conference call (emphasis added): “The activity
here is really going to be driven by, is the SEC going to deem that this is
something that shareholders need to have the right
to. And if that was the case, then I can’t imagine it
getting done any other way than through the plumbing we have in place,
and again that’s a chasm between us and any one else, no one else is
close to connecting every investor to every public company.”
Note the difference in emphasis between yesterday and two years ago. While
Daly was yesterday talking about companies having a right, what he
was telling investors two years ago is that the SEC would need to give
shareholders the right — and if they did so, Broadridge would have the
market almost to itself.
conversations with every Commissioner, and, of course, Mary”
In the release and a speech yesterday at a conference held by Hofstra
University’s Frank Zarb School of Business, Daly made it clear that he
want’s the SEC to mandate shareholder forums.
“Some believe we can wait and see. They believe these developments, if they
have merit, will take hold by themselves,” he told a crowd of business
people. “But the truth is that changing the paradigm rapidly for all
investors will require regulatory support. ”
Previously, the Broadridge CEO has let it be known that he has been talking
about this at the highest levels of the SEC.
Last month in
an earnings call with analysts, he said: “I have actually had
conversations directly… I am relatively certain with every
commissioner and, of course, Mary, the chair, Mary
It would be a big mistake for the SEC to mandate a forum anything like
Broadridge’s Investor Forum. The success of any social network or forum is
driven by market dynamics. It cannot be created by regulators, no matter how
good their intentions.
Anonymity on Investor Network undermines accountability
What is clear is that without a regulatory mandate from the SEC,
Broadridge’s Investor Network will never be successful because it fails to
recognize fundamental social media principles.
Broadridge has built its system around anonymous participation.
Using its monopoly access to Street Name shareholder records, Broadridge
validates that individuals are indeed shareholders, but it permits them to
be nameless by default.
This reliance on anonymity, which helps to protect Broadridge’s exclusive
access to the shareholders’ information, is a fundamental flaw
in their approach to social networking.
public version of the Investor Network has had one comment in the past
Anonymity is widely recognized as the root cause of what causes traditional
chat message boards to be so unreliable and unruly. Anonymity
undermines accountability, trust and confidence. When someone
attends an annual meeting, they cannot be totally anonymous. That lack of
anonymity is what gives the proceedings legitimacy.
The only aspect of an annual meeting that requires anonymity is the actual
voting process. Discussion, questions and conversation cannot be conducted
with any legitimacy in an anonymous forum.
The reason social networks like Facebook and Twitter work
is because they promote personal accountability by creating
disincentives for people to be anonymous. Indeed, Facebook does not permit
users to be anonymous. And while people can be anonymous on Twitter, such
accounts rarely gain much influence.
Investor Network is not a neutral venue
In an anonymous forum, especially one paid for by companies and controlled
by their agent Broadridge, opportunities for abuse are
real. Company employees can influence the forum without shareholders having
any idea who they are.
As things stand, Broadridge’s shareholder forums are typically held
in private and are not accessible to the public at large, even as
observers. This further undermines their legitimacy and leaves them
vulnerable to abuse.
Another fundamental flaw is that Broadridge’s system
classifies participants based on the size of their ownership stake.
This exacerbates retail shareholders’ perceptions that
their participation in the annual meeting process is meaningless
because they have little economic or voting influence.
Real social networks are level playing fields, where identifiable
participants have a reasonably equal say and are judged by the
substance and coherence of their arguments, not by the size of
their bank accounts.
Yet, Broadridge’s Daly wants regulators, investors and company executives to
believe that his Investor Network is the answer to dwindling retail
participation in the annual meeting process. It’s a hollow
The fact is, nothing prevents companies and their directors from directly
engaging with shareholders and other stakeholders in
neutral venues like Facebook or Twitter if they are willing to abide by
the SEC’s rules and the community’s expectations.
The only time Broadridge needs to validate a shareowner is when it comes
time for them to cast their ballots. Based on
recent problems at the company’s own annual meeting, that’s where Daly
and Broadridge’s board should focus their attention.
Copyright © 2010 IR Web Reporting International Inc.