Rules for proxy voting also demand oversight

WE WON'T soon forget the difference between a chad that's hanging and one that's merely dimpled. The minutiae of voting are critical to the democratic process, as the 2000 election proved.

After years of investor losses and scandals, shareholder democracy is asserting itself.


"It's going to be a very active season in terms of the type of dialogue that companies and their shareholders have," said Bruce Goldfarb of the proxy solicitation firm Georgeson Shareholder Communications.

"Oddly, there's very little regulation of the back end of the voting process," said Patrick McGurn of Institutional Shareholder Services.


But shareholder advocates care more about their reform proposals than about voting practices. "It's not something that I deal with at all," said Carol Bowie, director of governance research at the Investor Responsibility Research Center.

Proposals on proxy ballots for this spring's round of annual meetings include separating the jobs of chairman and chief executive officer, capping CEO pay, barring non-audit work by the company's auditors and requiring super majorities of independent directors.

Proxy voting is more serious this year, in part because of a new federal regulation. Mutual funds must disclose how they voted on proxy issues. The fund industry fought the rule, but a few funds now embrace the idea.

Carol Robinson of ADP Investor Communication Services said eight fund families have signed up for a new ADP Web service that posts the history of proxy votes by fund managers.

"Some of those fund managers who had publicly said they were reluctant are now going the other way," she said.

But the rules for voting demand oversight as well. For example, some companies are extending the blackout period between the so-called record date for determining which shareholders may vote at the annual general meeting and the date of the meeting.

Delaware law, which governs most public companies in these matters, allows a window of 10 to 60 days.

Although proxy voting has become automated through such intermediaries as ADP and ISS, most companies impose blackouts of about eight weeks. Hewlett-Packard this year increased its blackout period to 58 days from 43 days last year.


Bermuda-based Tyco International is asking shareholders to approve bylaw amendments that would enlarge its blackout period to 80 days from zero (currently, all shareholders as of the meeting date are eligible).

Tyco said the extended period relates to its fiscal year-end date of Sept. 30 and the desire to hold its annual meeting in March. A Hewlett-Packard spokeswoman responded by saying, "No reason, really."

On the one hand, longer blackout periods enable companies to distribute proxy materials and retrieve proxies. On the other, extended blackouts enable companies to lobby shareholders to change their votes.

Longer blackout periods also increase the likelihood that shareholders of record will have sold their shares by the meeting date and have no economic stake in the outcome of the vote.

"In terms of corporate governance, it looks like authority without responsibility," said William Fries, a top-rated mutual fund manager at Thornburg Investment Management.

Bill Barnhart is a financial columnist for the Chicago Tribune, a Tribune Publishing newspaper. E-mail him at