In October, the New York Stock Exchange unveiled moves to eliminate broker discretionary voting on the election of directors.

The proposal called for the amendment of NYSE Rule 452, to be effective for all shareholder meetings held on or after Jan. 1, 2008.

The proposal followed recommendations made by the Proxy Working Group (PWG), created in April 2005 by the NYSE and gathered from a diverse range of industry experts, to review the proxy voting process.

NYSE Rule 452 allows brokers to vote on certain “routine” proposals if the beneficial owner of the stock has not provided voting instructions to the broker at least 10 days before a scheduled meeting. The NYSE has amended Rule 452 a number of times since its adoption in 1937, and the new rule identifies a number of items that are considered “non-routine”.

“The goal of the NYSE has been to not allow the broker to vote on any proposal that substantially affects the rights of shareholders,” explained NYSE President and co-COO, Catherine R. Kinney at the time. She continued:

“As mentioned in the report, today the election of directors is simply too important to ever be considered routine, even where the election is uncontested. Shareholder voting on the election of directors is a critical component of good corporate governance.”

Commenting on the matter at the recent conference in Washington, Mr Schott Stevens explained that:

"The Big Board would change the treatment of uncontested director elections, eliminating brokers' ability to vote proxies on behalf of the substantial majority of fund investors who hold their shares in street name. Our research on this issue shows that only about a third of these beneficial owners return their own proxies. Most funds would not be able to muster a quorum to conduct routine but important corporate business without discretionary broker voting."

He continued:

"Our economists estimate that funds' costs of soliciting proxies will more than double - from $1.65 per shareholder account to $3.68 - under the NYSE proposal. The proposal could add between 1 and 5 basis points to funds' expense ratios. And the benefit? Well, since we're talking about uncontested elections, the same directors will be elected whether funds bear these costs or not. It's hard to see any benefit at all."

"I could cite other examples as well. But the basic point is this: Rules impose added costs - and, ultimately, investors bear those costs. In return, investors should receive an equal or greater benefit."