Broker Discretionary Voting
The “voting” theme within Dodd-Frank’s executive compensation provisions continues with §957: Broker Discretionary Voting. The advent of this section effectively eliminates the practice of broker’s voting on behalf of the actual owner’s of company shares – a right they are entitled to as shareholders in an issuing company. This section logically follows the earlier Dodd-Frank provisions for “Say on Pay” and “Say on Golden Parachutes” (§951, 953) because it would be pointless to effectuate those “Say on” provisions if the vote were simply cast in large swaths by holding brokers, instead of the intended party: the shareholders.
This provision is careful to avoid being too cumbersome in that it allows brokers to continue their “discretionary voting” powers for non-significant matters such as uncontested board of directors member elections, etc. However, for matters that are deemed significant (a category that will be further refined by the FSOC and SEC in the future) brokers may only vote if they are doing so on behalf of the expressed and informed will of the share’s true owner. Such matters are sure to include contested director elections, executive compensation provisions, and the like.
The drafters of this provision were also explicit in ensuring that section 957 did not impinge on the rules of proxy voting. Proxy voting allows a shareholder to delegate their vested voting power to another shareholder in whom they wish to vest that power. The logic behind not disturbing proxy voting is sound – because a proxy vote laterally transfers the voting power between shareholders, not to an outside broker, as prohibited by this section. Therefore, the decision-making power is still vested in the rightful owners of the company and is only delegated with explicit authority to do so. This section artfully eliminates third-party non-interested parties from influencing BOD elections or executive compensation matters without disturbing the vital proxy system upon which so many shareholders have relied.