June 10, 2025
The SEC’s Investor Advisory Committee met last Thursday. As Dave
shared,
the major agenda topics included pass-through voting/engagement with
beneficial owners and non-GAAP financial disclosures. Here are some of
the most interesting tidbits I took away from the commentary on
pass-through voting by panelists Jill Fisch of University of
Pennsylvania Carey Law School, John Galloway of Vanguard, Will Goodwin
of Tumelo, Katie Sevcik of EQ Shareowner Services, and Paul
Washington of the Society of Corporate Governance:)
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– The challenges with offering true voting choice (not
just policy choice) for retail investors are largely
engagement-related, not due to technology limitations.
– For institutional investors, the biggest issue with the
traditional system is that there’s often a discrepancy
between how their shares are voted in their separate
account and how their shares held in pooled vehicles are
voted, which dilutes their input. Pass-through voting can
solve this discrepancy.
– There are more options when pass-through voting is
offered to institutions, including true pass-though voting
(voting their own individual ballots), creating a tailored
voting policy or choosing among policies.
– Pass-through voting may present some challenges for
issuers that need to be addressed. Those include: (i)
identifying, communicating and engaging with upstream
investors, (ii) educating retail investors about the
choices offered, (iii) difficulties getting a quorum, (iv)
implications for loaned shares and (v) other proxy
plumbing considerations.
– There are many hurdles to
greater retail investor participation. Those include: (i)
access to information/information overload, (ii) limited
time, (iii) intermediation issues (for example, that
beneficial owners can’t attend a meeting without
documentation from the broker), and (iv) the need for
nuanced analysis on a proposal by proposal basis.
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Law Prof Jill Fisch also pointed out that the voting instruction forms
sent by brokers sometimes inadequately describe proposals, presenting
another hurdle to retail investor participation because they have to
do more digging. For example, a voting instruction form might just
list “racial equity audit” or “health and safety governance” with no
explanation of what the proposal is actually seeking to accomplish.
The panelists didn’t necessarily agree on the best outcome or path
forward, but they seemed to acknowledge the importance of each other’s
‘must-haves’ and ‘need-to-haves’ as the proxy voting system evolves.
Those include strong turnout, an informed voting base, that the system
is cost-effective and efficient, that voting outcomes are accurate,
and that there’s a democratic process for beneficial owners.
– Meredith
Ervine
Posted by
Meredith Ervine
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