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Counting Shareholder Votes: Avoid Common Mistakes

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March 14, 2019 | Jennifer Namazi

Counting Shareholder Votes: Avoid Common Mistakes

It’s proxy season and for many companies, this is the time of year when various proposals are put forth to shareholders for their vote. It all seems straightforward – the proposals are outlined in the proxy statement filed with the SEC, votes are cast and counted, and the proposals pass or fail. What happens, though, when a company makes a mistake in counting the shareholder votes? As it turns out, errors in tabulating votes may be more common than we think.
 
A recent NASPP podcast, “#66: Issues and Mistakes in Counting the Vote with Keith Bishop from Allen Matkins,”covers some of the mistakes companies are making in interpreting both voting standards and counting the votes.  

Mistake #1: Description Mis-Match. The description of the required vote in the proxy statement does not match up to the company’s corporate bylaws and/or articles of incorporation, applicable stock exchange requirements, and/or tax/securities laws.

Mistake #2: Using last year's description or copying someone else's. Believe it or not, some companies may just use a prior year’s language to describe the voting requirements for a proposal – or find what looks to be a relevant description in another company’s proxy (to copy/paste) that may fit the bill. Both of these practices are discouraged, because the company needs to take into account the applicable requirements for the particular proposal that is on the table. Depending on the type of proposal, voting requirements from varied or muiltiple sources (stock exchange, tax and securities law, and corporate bylaws/articles of incorporation) may need to be considered. 

Mistake #3: Improper handling of abstentions and broker non-votes. An abstention is where a shareholder shows up to vote (either in person or via proxy vote) but withholds their vote. A broker non-vote is where the shares are typically held in a street name type account with a broker (shares not explicitly registered to the beneficial owner) and the broker must either obtain the account holder’s vote, or is not authorized to vote their own discretion if a vote is not obtained. If the broker cannot or does not get the vote from the account holder, then this is a broker non-vote. In many cases, abstentions and broker non-votes are counted differently for voting purposes, so it’s important to know how to handle these in tabulating votes.  

The entire podcast with Keith Bishop is less than 14 minutes long and is full of excellent information on common mistakes and how companies can make sure they are accurately counting their shareholder votes. Our Equity Expert podcast series is free and available to everyone. If you like what you hear, be sure to subscribe to get notifications about future episodes.

-Jennifer
 

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