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New York Times DealBook, February 25, 2009 posting


The New York Times




DealBook. Edited by Andrew Ross Sorkin

A Surprise at the Ballot This Proxy Season?

FEBRUARY 25, 2009, 1:48 PM

As the 2009 shareholder meeting season kicks off in sterile hotel ballrooms across the country, company directors may find themselves fighting harder than usual to keep their comfy seats on the board.

That’s because, according to the proxy solicitation firm Okapi Partners, brokerages are increasingly changing the way they allocate shares held for customers who don’t give them voting instructions.

Historically, in the absence of instructions from the shareholders themselves, brokers almost always voted their shares in lockstep with the board’s recommendations. More and more, however, brokers are divvying up the undirected votes proportionally, to reflect how their voting clients chose to cast their ballots.

Directors have long counted on broker votes to give them an advantage on matters that were designated as “routine” by the Securities and Exchange Commission.

But times are changing, according to a recent guidance note from Okapi, which was formed in early 2008 by two former senior managing directors from proxy solicitor Georgeson.

In recent years, amid sometimes heated discussions about changing the current rules on broker voting, brokers such as Schwab, Ameritrade, Morgan Stanley, Merrill Lynch and Goldman Sachs have changed to a proportional voting system, Okapi said.

The shift could alter the landscape in director re-elections: “The net result of this change is that retail investors who provide voting instructions to their brokers have an opportunity to disproportionately influence the outcome of a proxy vote — with their votes sometimes effectively counting twice as much,” Okapi said in the note.

To make sure their slate gets re-elected, companies may need to work harder to drum up support from their investor base, the note said.

The uncertainty adds another layer of drama to what will be a highly charged proxy season for many companies. With equity values down sharply from where they were last year, many shareholders are angry and could demand sweeping changes.

For activist funds and disgruntled investors, this environment may provide a much better chance than in the past to affect major change.

For board members, though, it could mean they will have to actively campaign just to keep their seats.

Cyrus Sanati



Copyright 2009 The New York Times Company




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