Broker Nonvotes and Abstentions on Proxy Cards of Colorado Corporations

• Publication year: 1996
• Pages: 69
• Citation: Vol. 25 No. 11 Pg. 69

25 Colo.Law. 69 Colorado Lawyer 1996.

1996, November, Pg. 69. Broker Nonvotes and Abstentions on Proxy Cards of Colorado Corporations

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69

Vol. 25, No. 11, Pg. 69

Broker Nonvotes and Abstentions on Proxy Cards of Colorado Corporations

by Lyle B. Stewart

In 1992, the Securities and Exchange Commission ("SEC") adopted a requirement that proxy statements disclose how the corporation will treat abstentions and broker nonvotes.(fn1) There is no standard procedure for dealing with abstentions and broker nonvotes on shareholder proxy cards because the procedure for each corporation must be considered in light of its articles of incorporation and bylaws and the laws of its state of incorporation. In addition, the rules of stock exchanges, the NASDAQ Stock Market ("NASDAQ"), or the SEC may require that the approval of certain matters by shareholders receive a specific percentage vote calculated in a specific manner

Broker Nonvotes

Broker nonvotes occur because most publicly held securities today are held in "street name." A broker, as a nominee holding shares for a beneficial owner, cannot vote on proxy statement proposals unless it has discretionary voting power with respect to such proposals or has received instructions from the beneficial owner. Brokers normally have discretionary power to vote on routine matters such as uncontested director elections and selection of accountants.(fn2) Thus, brokers return executed proxy cards containing votes on certain proposals but not on others (these are the "nonvotes") if they received no instructions from the beneficial owners.(fn3)

Abstentions

Abstentions occur when the person granting the proxy checks the abstention box on a proxy card for a particular proposal. In the election of directors, most proxy cards contain a box entitled "withholds authority," which is equivalent to an abstention.

Differences in Counting Votes

The different treatment of abstentions and nonvotes arises from different voting requirements under state corporation law and SEC, stock exchange, and NASDAQ rules. Applicable laws or rules for shareholder approval in some cases require that "the votes cast favoring the proposal exceed the votes cast opposing the proposal," or "a majority of shares present at the meeting are voted in favor of the proposal," or "a majority of the outstanding shares are voted in favor of the proposal." Each of these separate formulations of an affirmative vote by shareholders leads to a different view of the impact of nonvotes and abstentions.

Quorum Requirement

Colorado law generally requires a majority of the votes entitled to be cast be present in person or by proxy before voting can take place at a shareholders'...