Yesterday the Securities and Exchange Commission announced a roundtable on proxy voting to take place on February 19. The roundtable is to focus on two key questions: (1) whether to facilitate use of universal proxies, and (2) increasing retail shareholder participation in the proxy process.
The universal proxy idea would be a useful reform, depending on how any proposal would be implemented. The current "short slate" exceptions to the "bona fide nominee" rule are unnecessarily cumbersome for those attempting to seat a few nominees on a board and invite excessive strategic manipulation. A simple proxy form with all the names of nominees clearly indicated would give shareholders the best opportunity to select the mix of nominees they prefer.
The issue of promoting retail proxy participation is an interesting one. Presumably, by "retail" shareholder the SEC means non-institutional shareholders. These shareholders have much lower rates of participation in the process than do institutional shareholders, in part because of the rational apathy that derives from holding an infinitesimal stake in the company.
Any initiative to increase retail shareholder participation in the proxy process needs to confront the basic fact of rational apathy head on, rather than taking the approach that more investor "education" is necessary. Retail shareholders don't have the economic incentives to research individual companies' nominees to determine whether or not to support them, and that's true no matter how educated or "civic-minded" the retail shareholders are. Indeed, even if one tried to determine which nominees to support, information is rarely available as to how individual directors (as opposed to the board as a whole) voted on particular matters, so they have to throw the whole slate out or keep all of them.
The only solution that would allow retail shareholders to have a meaningful participation would be to have "political parties" for corporate directors. This is the reason voters are able to make up their minds on obscure political races. Each party has a set of principles that nominees (more or less) support, enabling voters to cast ballots in political races without detailed research on each individual.
Likewise, directors could disclose which "platform" they identified most with, whether it's the ISS approach (pro-shareholder), the Business Roundtable (pro-management), or one of the employee pension funds (mixed and complicated). At least with this information retail shareholders would have an opportunity to meaningfully evaluate candidates. Without an approach like this, it seems that trying to increase retail participation in the proxy process is a lost cause.