CtW Investment Group Commends the SEC for Approving Change to Broker Vote Rule in Director Elections

Says Agency Action Protects Fundamental Shareholder Rights 


WASHINGTON, July 1  /PRNewswire/ -- The Securities Exchange Commission strengthened shareholder rights by approving a rule change prohibiting stock brokers from casting uninstructed shares in director elections at companies traded on the New York Stock Exchange.  In a letter to SEC Chairman Mary Schapiro, the CtW Investment Group commended the Commission's 3-2 decision today as reasserting "its critical role as an investor advocate." The CtW Investment Group has pressed for this rule change for several years, and noted recent instances where directors at CVS Caremark (NYSE:CVS) and Washington Mutual (NYSE:WM) were able to retain their board seats solely on the basis of now prohibited "phantom votes."  The text of the letter follows:

  July 1, 2009

  Chairman Mary Schapiro
  Securities and Exchange Commission
  100 F Street, NE
  Washington, DC 20549

  Dear Chairman Schapiro:



We commend the Commission under your leadership for approving the New York Stock Exchange (NYSE) Rule 452 disallowing uninstructed broker voting in director elections. The proposed changes to NYSE Rule 452 will help protect the authentic expression of shareholder will in deciding who will oversee the management of publicly traded corporations, eliminating the effective ballot-stuffing that has enabled failed directors to remain in positions of extraordinary responsibility despite widespread shareholder opposition.  In approving this new rule, the Commission affirms that the election of directors cannot be viewed as a routine matter, reduced to rubber-stamp approval of management's slate by brokers.

The CtW Investment Group works with pension and benefit funds sponsored by unions affiliated with Change to Win, a federation of unions representing six million members, to enhance long-term shareholder returns through active ownership.

As you know, the CtW Investment Group has long sought the reform promulgated in NYSE Rule 452. We have appealed to the SEC multiple times before your tenure as Chairman, urged Congressional attention, and worked with organizations such as the Council of Institutional Investors to promote changes in treatment of broker voting for director elections.  Most recently, we sent letters to the SEC and the NYSE regarding the election of directors at Bank of America, where strong shareholder opposition to Chairman and CEO Ken Lewis and lead director O. Temple Sloan raised the possibility that uninstructed broker votes - or so-called "phantom votes" - could have determined the outcome of the elections.

These appeals stemmed from repeated episodes in which uninstructed broker votes allowed boards to effectively disenfranchise shareholders and thwart shareholder opposition efforts led by the CtW Investment Group and other shareholders. Most notably:

  --  In 2008, following the near-collapse of Washington Mutual, the CtW
      Investment Group urged shareholders to vote against the directors most
      culpable for the board's failures of risk management oversight.  While
      one director, Mary Pugh, stepped down at the outset of the annual
      meeting of shareholders, directors James Stever and Charles Lillis
      were re-seated on the board only because uninstructed broker votes
      were counted towards their totals, having failed to garner a majority
      of votes cast by economically-interested shareholders. Washington
      Mutual subsequently went bankrupt.

  --  In 2007, following the Caremark, Inc board's failure to protect
      Caremark shareholders' interests in merger negotiations with CVS
      Corporation, the CtW Investment Group urged shareholders to withhold
      votes for the election of Caremark's lead director, Roger Headrick. 
      Mr. Headrick received just 43% of economically interested votes yet
      was reseated as a result of broker votes. The board's ill-advised
      decision provoked a backlash among CVS/Caremark's major institutional
      shareholders and inquiries from Congressional leaders.  Ultimately, in
      July 2007, Mr. Headrick resigned.



The SEC's approval of Rule 452 ensures that director elections will be decided by genuine shareholder direction, removing the potential for repetition of the imbroglios at WaMu and CVS Caremark.  Prohibiting brokers from casting "phantom votes" will bolster integrity in the election of directors, the most fundamental corporate governance right for shareholders.  In so doing, the Commission reasserts its critical role as investor advocate.

We commend the Commission on enacting this much-needed and long-overdue reform

  Sincerely,

  William Patterson


  Cc: Kathleen L. Casey, Commissioner, Securities and Exchange Commission
  Elisse B. Walter, Commissioner, Securities and Exchange Commission
  Luis A. Aguilar, Commissioner, Securities and Exchange Commission
  Troy A. Paredes, Commissioner, Securities and Exchange Commission


DATASOURCE: CtW Investment Group



CONTACT:  Per Olstad of CtW Investment Group, [phone]



Web Site:  http://www.ctwinvestmentgroup.com/ 

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