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May 24, 2013
High Profile Proxy Season Reveals the Plumbing
    by Robert Kropp

A proxy distribution service abruptly reverses policy and refuses shareowner access to preliminary vote totals at JPMorgan Chase, and Institutional Shareholder Services settles charges that an employee sold voting data.

This week's proxy voting at JPMorgan Chase has been widely claimed by mainstream media as a victory for Jamie Dimon, which ignores the implications of one-third of shareowners supporting a resolution that called for the separation of the positions of board chair and CEO. The vote followed what The New York Times described as an "unusually proactive" campaign by board members to convince shareowners to vote against the resolution.

It turns out that the "unusually proactive" campaign by JPMorgan may have sought to upend accepted forms of shareowner communication as well. In a letter to the Securities and Exchange Commission (SEC), the Council of Institutional Investors (CII) objected to a sudden reversal of long-standing policy by Broadridge Financial Solutions, a proxy distribution service that distributes and tallies voting instructions for more than 95% of US companies.

According to CII, Broadridge recently decided "to refuse to disclose voting tallies to proponents of shareowner proposals." The proxy distribution firm's services are paid for by corporations, and the Securities Industry and Financial Markets Association (SIFMA), a Wall Street trade group of which JPMorgan is a member, requested that it stop providing shareowners with information on vote tallies. JPMorgan continued to receive updates.

"Broadridge's decision…raises deeply troubling questions about the fairness and impartiality of the proxy system," Executive Director Ann Yerger wrote in the letter. "The timing of the decision raises particular concerns: Not only was it made abruptly in the middle of proxy season without any opportunity for investor or public input, but it came only a few days before the conclusion of a highly publicized and contentious exempt solicitation at a company whose affiliates are SIFMA members."

The letter requested that the SEC "do all in its power to put an immediate stop to this patently unfair and arbitrary change in practice," and consider whether regulatory action is necessary to prevent it from happening again.

In another area of the proxy plumbing, Institutional Shareholder Services (ISS), agreed to settle civil charges that an employee had sold proxy voting data to an unnamed solicitor. ISS is the largest proxy advisory service in the US.

The SEC alleged "that an employee at ISS provided a proxy solicitor with material, nonpublic information revealing how more than 100 ISS institutional shareholder advisory clients were voting their proxy ballots," the Commission reported. "The breach was made possible in part because ISS lacked sufficient controls over employee access to confidential client vote information."

ISS agreed to settle the charges by paying a $300,000 penalty and retaining an independent compliance consultant. "The consultant will evaluate whether ISS's procedures are reasonably designed to ensure that its proxy voting services business complies with" the Investment Advisers Act of 1940, the Commission stated.


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