RiskMetrics Group discusses here an NYSE rule change that will no longer allow brokers to vote uninstructed client shares in uncontested director elections. The new rule is scheduled to take effect for the 2010 proxy season, but groups such as Business Roundtable and the Society of Corporate Secretaries & Governance Professionals argue it will disenfranchise retail voters.

Corporations like broker votes on uncontested director elections because brokers tend to support management nominees. Institutional investors, on the other hand, presumably would have more power to influence director elections (and by extension, other corporate matters) if brokers cannot vote without instruction. This has become more important as more companies require nominees to obtain a majority of votes cast.

It is hard to argue that a rule against broker votes somehow disenfranchises retail investors who already have the ability to vote but choose not to. Whether or not brokers can vote on routine matters, individual holders can provide their own instructions for how to vote. “Notice and access” rules have resulted in even fewer individual shareholders voting, but the reality is small investors either vote with their feet or rely on larger shareholders to look out for their interests.