Registrar & Transfer says competition is needed to improve the proxy voting system

Registrar & Transfer Company (R&T) submitted its comment letter to the SEC on October 4.  I know R&T has been a transfer agent for a long time, but I didn't realize that they have been in the business for over 111 years.  According the letter, they currently provide transfer agent services for more than 1,050 issues (wonder how many issuers) and act in the capacity as proxy distribution agent and tabulator for more than 790 shareholder meetings annually.  R&T pulls no punches in its opening salvo:

"We have long observed that the current street proxy system provides a disservice to retail and institutional investors, generates excessive expenses for issuers and directly contributes to the decline in voting of beneficial retail shareholders."

R&T then goes on to deliver, among other things, a number jabs at Broadridge before hitting them with a hard uppercut.

Here are some recommendations R&T makes [for the most part, excerpted text from the letter]:

Over and Under Voting - Require Pre-Reconciliation. The SEC should require brokers and other financial intermediaries to produce a reconciled eligible voters list as of the record date for each shareholder meeting, in essence, a voting registrar. With today's technologies already in place, these electronic lists could easily be combined across brokers and custodians with the registered shareholder list and used by the inspector/judge of election to verify and authenticate voting. Pre-reconciliation of voting rights should be mandated before an intermediary transmits record date beneficial owner information to a centralized data aggregator (currently Broadridge Financial Services). This should occur before proxy forms are mailed and proxies not Voting Instruction Forms ("VIFs") should be distributed. 

Tabulation Accuracy and Recordkeeping - End the VIF. Every shareholder, registered or beneficial, should be allowed to vote using a registered proxy card designed by the issuer in lieu of a VIF. A proxy card, with the company's logo, larger font and a plain English description of the agenda items being voted on is far more likely to be recognized as a valuable voting form by individual shareholders. This would also facilitate end-to-end validation and vote confirmations. Shareholders, both registered and beneficial, should have the same voting rights and be able to be recognized at the meeting. A single voting register also enhances the ability of issuers to communicate with their shareholders and increase voting.

Fees and Competition - End the Broadridge Monopoly to Lower Costs.  The prices for proxy distribution and communication services for beneficial accounts are controlled by a single vendor hired by almost all brokers. [R&T for some reason doesn't name the vendor -- it is Broadridge.] Comparing fees charged by the street to issuers with fees charged by this company for comparable services indicates that issuers may realize a savings of 40% to 80%. This is not an exaggeration.  The distribution of proxy materials to beneficial holders must be opened up to free market competition where the party bearing the expenses chooses the vendor. A competitive environment would allow issuers to choose a proxy/communications agent not only on the basis of price but also on the quality of service and innovative products. Excessive cost restricts and discourages issuer communication with beneficial shareholders. To accomplish this, the current functions of beneficial owner data aggregation and proxy communications distribution must be separated. Data aggregation of shareholder information between brokers and issuers/transfer agents already exists in several forums. The Depository Trust Company and the Securities Information Center, both subject to SEC oversight, have established communication links with brokers and transfer agents and transmit shareholder information regularly. Separating these functions will provide public companies with the opportunity to select a distribution provider of its own choosing in a competitive market environment. Having a not-for-profit utility, or for profit, regulated entity, processing records at a relatively nominal cost would encourage issuers to further engage their shareholders and increase proxy voting participation.

NOBO/OBO Shareholder Designation - Eliminate OBO. Permitting the issuer to distribute a proxy card in a uniform format to all shareholders and have a single register for voters will encourage voting and permit all shareholders to vote at the meeting. The NOBO/OBO designation is outdated and many investors simply do not understand these classifications. Eliminating this enables transparency of share ownership and direct communications between issuers and their investors. Shareholders can still have the option to remain anonymous through the use of a custodial or nominee account.

Implementation - Changes Wouldn't Take Too Long.  The process can be modified within a relatively short time period. Many of the service providers are already in place providing parallel services for registered shareholders. R&T is already prepared to handle additional proxy distribution and tabulation volumes and has the proven programming and system expertise to consolidate file voting registrars. The development of a data aggregator can be accomplished through a bid process.  DTCC is also a natural repository for this service and, as a not for profit depository under SEC jurisdiction, could provide cost-effective data aggregation services.  It may be argued that the legacy expense or sunk costs incurred by [Broadridge] warrants retention of the status quo so that this firm should be the data aggregator. There is nothing that would prevent [Broadridge] from competing in a free market along with other participants for data aggregation and tabulation and, as a transfer agent, transfer and other registered shareholder services. However, there is no justification for pre-determining the vendor for this service.

Stay tuned.  I bet Broadridge has something to say about this too.