Following a change to New York Stock Exchange Rule 452 in July, brokers for investors who do not provide voting instructions will no longer be able to cast discretionary votes in uncontested director elections. Prior to the change, uncontested director elections were considered “routine” matters, and shares held in street name could be voted by brokers, at their discretion, if the beneficial owners failed to instruct the brokers how to vote. The new rule characterizes all director elections, including uncontested elections, as “non-routine” and applies to all annual meetings held after January 1, 2010. The rule affects all public companies because it applies to all brokers regulated by the NYSE.
One significant effect of the rule change will be increased difficulty in obtaining a quorum. If uninstructed brokers do not vote because all matters presented to the shareholders are non-routine, shares held in street name will not be treated as present for quorum purposes. Broker non-votes are only counted toward a quorum if stockholders will be voting on a routine matter.
The solution to the quorum problem appears to be including at least one routine matter on the proxy to ensure brokers vote. The most routine of all routine matters is auditor ratification, a proposal that many companies have abandoned but will likely revive.
