Most shares of U.S. publicly listed companies are held in “street name” accounts. Although the beneficial owner has the right to the economic attributes of the shares, the nominee appears as the registered owner on the issuer’s books and holds title to the securities. This structure of indirect share ownership facilitates the efficient processing and settlement of securities transactions. Nevertheless, the multiple layers of indirect ownership have necessitated the implementation of a complex regulatory scheme designed to protect the voting rights of beneficial owners.
Under the authority conferred by Section 14 of the Securities Exchange Act of 1934 (Exchange Act), the SEC has adopted rules designed to ensure beneficial owners are fully informed on matters considered at shareholder meetings. Pursuant to these regulations, brokers and banks have an obligation to forward proxy materials to these owners and to provide an opportunity to vote. At the same time, Rule 14a-2(a) excuses a broker or bank performing these tasks from compliance with the proxy rules so long as they do no more than forward an issuer’s soliciting materials and request voting instructions in an impartial manner.
Brokers and banks routinely assign the tasks of forwarding proxy materials and collecting voting instructions to a single third-party service provider, Broadridge Financial Solutions, Inc. (Broadridge). Because the exemption in Rule 14a-2(a) applies to brokers and banks, Broadridge has been left without direct oversight. Although Broadridge provides frequent updates on its practices to governing authorities, concerns have nonetheless arisen over the need to extend aspects of the proxy rules more explicitly to the activities of the firm. In its 2010 release on the U.S. proxy system, the SEC formally acknowledged that, although the use of Broadridge and other proxy distributors improved the efficiency of proxy distribution to beneficial owners, third party involvement “adds complexity to the proxy system and makes it less transparent to shareholders and to issuers.”
This article will explore the reach of the Rule 14a-2(a)(1) exemption. Part II provides a general overview of the proxy process and the chain of beneficial ownership in the U.S. Part III discusses the impact of Section 14a-2(a)(1) and the “impartiality” requirement on the distribution of proxy materials and voting instruction solicitations. Part IV addresses concerns surrounding the regulation of the “impartiality” requirement as applied to third-party proxy distributors, specifically Broadridge. Part V provides conclusive analysis.
Part II. The U.S. Proxy System and the Chain of Beneficial Ownership
Most owners of large public companies hold shares in street name accounts. Title remains in the name of a nominee, generally a broker or bank. Although the nominee retains legal title, the beneficial owner has a contractual right to the economic benefits associated with the shares. Transfer occurs through changes in book entries. This form of share ownership facilitates the efficient processing and settlement of securities transactions and reduces the administrative backlog by eliminating the use of physical certificates.
Brokers and banks typically deposit the shares with The Depository Trust Company (DTC), the world’s largest securities depository. DTC provides clearing and settlement services to its members and retains record title to all share deposits through its subsidiary, Cede & Co. Because state corporate law does not recognize those holding shares in street name accounts, the structure results in DTC, rather than the beneficial owners, retaining the right to vote shares and confer proxies.
Federal regulation, the rules of the stock exchanges, and various contractual agreements remediate the lack of state law recognition of the rights of beneficial owners. In the period preceding a meeting of shareholders, DTC typically transfers voting rights to participants through the execution of an omnibus proxy. Once the voting rights have been transferred, the banks and brokers distribute to beneficial owners the proxy materials provided by the issuer. The approach ensures that the “exercise of the corporate franchise may be informed.”
The materials must be accompanied by either voting instructions or a proxy card. Brokers universally distribute a voting instruction form (VIF). The instructions are designed to resemble a proxy card and are returned directly to the broker. In the case of uninstructed shares, therefore, brokers retain voting rights. The rules of the New York Stock Exchange (NYSE) limit these rights to routine matters. Aside from the impartiality requirement of Rule 14a-2, VIFs are not directly regulated by the SEC and are not filed with the agency.
Most brokers and banks outsource distribution responsibilities to third-party proxy distributors. As a practical matter, they rely on a single intermediary, Broadridge. Broadridge forwards proxy materials and VIFs directly to street name owners and executes proxies in accordance with the instructions received.
The role of Broadridge is made more complex by the system of reimbursement for these services. The proxy rules specify that forwarding may be contingent upon an agreement by the issuer to reimburse the costs of doing so. The rules of the NYSE set out the maximum charges that brokers may impose. Broadridge, on behalf of its clients, bills and collects proxy distribution fees from issuers based on the NYSE fee schedule. As a result, brokers retain and have a contractual relationship with Broadridge, but issuers pay for the services.
Part III. Regulation Safeguarding the Voting Rights of Beneficial Owners
Brokers and banks (and by extension, Broadridge) that forward materials to beneficial owners are exempt from the proxy rules to the extent that they are complying with Rule 14a-2(a)(1). The Rule exempts any solicitation of shares in a nominee account so long as the broker (1) receives no compensation for the solicitation other than reimbursement of reasonable expenses; (2) promptly delivers all related soliciting materials to the person solicited; and (3) does no more than impartially request from the person solicited instructions as to the authority to be conferred by the proxy.
The decision to condition the exemption on impartial involvement in the proxy process has existed in one form or another since the 1930s. The exemption originally applied to those merely acting in a “ministerial” fashion, an approach that has been consistently maintained. Concerned about the potential for bias, the SEC in 1952 explicitly added the requirement of “impartiality.” The obligation applied whether the broker or bank distributed the material directly or indirectly through a contracted agent.
The addition of an obligation of impartiality made clear that involvement in a solicitation in a way that favored one side over the other would result in the application of the proxy rules. Voting instructions, therefore, could not be “slanted to favor either management or any opposing person or group” and extended to practices that were “of a nature calculated to influence the voting.” Impartiality would be lost by the prompt delivery of proxy solicitation materials for one of the parties to a proxy contest but not the other.
Application of the requirement depended upon “the content of the material, upon the conditions under which it is transmitted, and upon surrounding circumstances.” Brokers, as advisors, could, for example, impartially respond to unsolicited client requests for proxy voting advice. On the other hand, nonroutine and unrequested broker-generated material constituted an independent solicitation subject to proxy form and filing requirements.
The added duty of impartiality was fundamentally premised on the view that shareholders did not need the protections of the proxy rules for entirely neutral or ministerial action. The SEC and the courts have, therefore, consistently reinforced the importance of impartiality.
Part IV. Exchange Rule 14a-2(a)(1): “Impartiality” Concerns
Recent concerns have arisen over Rule 14a-2(a)(1)’s impartiality requirement. They involve practices that are arguably inconsistent with the obligation. They also, however, raise issues as to the application of the impartiality requirement to the collection, tabulation, and disclosure of VIFs.
A. Impartiality and the Electronic Voting Platform
Broadridge collects VIFs through a variety of mechanisms, including online voting platforms. Because Rule 14a-2(a)(1) specifically requires impartially when requesting instructions, the obligation applies to any voting platforms created to transmit such requests.
Prior to the 2013 proxy season, Broadridge provided a one-click voting option on the electronic voting platform. The “Vote with the Board’s Recommendations” button allowed street name owners to support management without having to fill out any item on the electronic version of the voting instructions.
Complaints, however, arose over the one-click voting option. Beneficial owners asserted that the practice favored management and was, therefore, inconsistent with the obligation to act in an impartial fashion. The Investor Advisory Committee raised concerns about this practice with the SEC.
The SEC staff in turn publicly expressed concern over the practice. The staff took the position that this feature, without a corresponding “Vote against the Board’s Recommendations” button, was inconsistent with the impartiality requirement of Rule 14a-2(a)(1). Ultimately, Broadridge removed the one-click voting option from most, but not all, of its vote distribution mechanisms.
Broadridge notified clients of intended changes to both ProxyVote and Mobile ProxyVote, the online voting platforms used by retail investors and the mobile counterpart programmed to collect retail proxies. Telephone instructions were also revised. The vote for management button, however, apparently remained in place on ProxyEdge—the electronic voting platform specifically provided for the distribution and management of institutional proxies.
B. Impartiality and Preliminary Voting Information
Although Rule 14a-2(a) addresses the forwarding of proxies and requests for voting instructions, it does not explicitly mention the collection of VIFs and the disclosure of preliminary voting information. Until 2013, Broadridge had in place a practice of disclosing preliminary voting results to the issuer, any third party that solicited proxies, and any third party distributing materials in an exempt solicitation. An exempt solicitation involved the distribution of proxy materials without requesting a proxy.
The disclosure policy changed during the 2013 proxy season. Broadridge announced that it would discontinue its routine practice of providing voting tallies to exempt solicitors. The announcement came during the middle of a highly anticipated contest at J.P. Morgan Chase & Co. (J.P. Morgan) over whether to separate the roles of chairman and chief executive officer.New York Attorney General, Eric Schneiderman, encouraged J.P. Morgan to authorize release of the voting information. Published reports indicated that J.P. Morgan agreed to do so but only if recipients signed confidentiality agreements.
The change drew objections because some felt denial of access to preliminary voting data would make it “hard to know what kind of strategy to pursue and what kind of resources to invest.” Others asserted that disclosure provided issuers with a competitive campaigning advantage over shareholder proponents.
The SEC received complaints over the change in policy by Broadridge. The SEC was encouraged to address the issue by providing “clear rules of the road.” Most recently, the Council of Institutional Investors has sought clarification on the matter from the Director of the Division of Corporation Finance. Despite these efforts, the SEC has not taken a public position on the matter.
Solicitations exempt under Section 14a-2(a) are not subject to the proxy rules. The SEC has, however, consistently stressed the limited nature of the exemption. Eligibility is premised on the broker, bank, or third-party intermediary remaining passive, acting no more than in a ministerial fashion, when forwarding soliciting materials. In other words, they are exempt from the proxy rules because they do not play a substantive role in the solicitation.
Concerns have arisen over the application of the Rule 14a-2(a)(1) impartiality requirement to the actions of Broadrdige. Regulatory oversight of Broadridge, to date, has been indirect. The legal obligations with respect to forwarding apply to brokers and banks. Broadridge merely acts as their agent. Nonetheless, the staff of the SEC apparently conveys concerns directly to Broadridge. This occurred, for example, in connection with the removal of the “Vote with the Board’s Recommendations” button from Broadridge’s online retail platform.
Even so, this indirect approach to regulation has limits. Broadridge only partially addressed concerns over the vote with management option. The firm removed the all-for-management button from its retail-focused, Internet-voting platform. It did not make comparable changes to the online platform used to manage the votes of institutional investors.
Imposing a more direct regulatory regime could be beneficial. At a minimum, the SEC could informally require the filing of VIFs and screen shots of the voting platforms. This would provide the SEC with a mechanism for more immediate review of forwarding practices and for addressing any concerns that arise with respect to impartiality.
Similarly, the selective disclosure of preliminary voting information favors one side in an exempt solicitation. Rule 14a-2(a)(1) only addresses the transmission of proxy materials and requests for voting instructions. It does not directly address the collection of voting instructions and the subsequent disclosure of preliminary data.
The exemption in Rule 14a-2(a)(1) was, however, premised upon the requirement that brokers and banks (including their agents) act in a neutral manner. Presumably, shareholders no longer need the protections of the proxy rules when intermediaries act in this manner. Selective disclosure of voting data, however, can potentially influence the outcome of a proxy solicitation. As a result, the practice should likewise be subject to the obligations of impartiality as a condition for the use of the exemption. The staff should make this clear, including the application to preliminary voting results. Impartiality would allow Broadridge to either keep preliminary tallying information completely confidential or to disclose it to all parties involved with the solicitation.
The exemption for those forwarding proxy materials has long been a component of the proxy process. Applying the full panoply of the proxy rules to those activities would add expense and not provide benefit to shareholders. Where, however, the forwarding process ceases to be entirely ministerial and is used to favor only one side in a proxy solicitation, this is no longer the case. The vote with management button and disclosure of preliminary voting results are two examples of behavior that may require additional shareholder protection in order to ensure that the U.S. proxy system “operates with the accuracy, reliability, transparency, accountability, and integrity that shareholders and issuers should rightfully expect.”
. Over 80% of all shares outstanding of U.S. publicly listed companies are held in “street name” accounts. Notice of NYSE Proposed Rule Change Relating to Expense Reimbursement for the Processing of Proxy Materials and Issuer Communications Provided to Investors Holding Securities in Street Name, Exchange Act Release No. 68936, 2013 WL 603321, at *2 (Feb. 15, 2013).
. Account nominees consist of broker-dealers, banks, and other securities intermediaries who hold legal title on behalf of a beneficial owner. See J. Robert Brown, Jr., The Shareholder Communication Rules and the Securities and Exchange Commission: An Exercise in Regulatory Utility or Futility?, 13 J. Corp. L. 683, 688 (1988).
. Exchange Act Release No. 11708, 1975 WL 163166, at *2 (Oct. 3, 1975) (“More recently nominee name arrangements have been used by clearing agencies and particularly securities depositories which hold stock on behalf of their participants (broker-dealers, institutional investors and financial agents) for the purpose of permitting those participants to effect the settlement of transactions and the transfer or pledge of securities among themselves by book entry and without physical delivery of certificates.”)
. Proxy Concept Release, supra note 3, at *6. See also J. Sinclair Armstrong, then-Chairman of the SEC, Address at the Tenth Annual Meeting of the American Society of Corporate Secretaries: Proxy Solicitations under the Revised Proxy Rules of the Securities and Exchange Commission (June 4, 1956), available at http://www.sec.gov/news/speech/1956/060456armstrong.pdf.
. In general, beneficial owners receive and may execute a voting instruction form (VIF) that instructs the broker or bank intermediary on how to vote the beneficially held shares. However, a beneficial owner may request a proxy card whereby the securities intermediary may choose to legally confer its voting rights to the beneficial owner. See 17 C.F.R. § 240.14b-2(b)(3) (2014); NYSE Rule 451, 1997 WL 34652003 (2014).
. Solicitations exempt under Section 14a-2(a) are not subject to the proxy rule requirements of Sections 240.14a-3 to 240.14a-15. For instance, exempt solicitations are excluded from the proxy form requirements of Rules 14a-4 and 14a-5 and the filing requirements of 14a-6. See Rule 14a-2(a), supra note 8.
. See Solicitations of Proxies Proposed Rule Making, Securities Act Release No. 4668, 17 Fed. Reg. 1153, 1153 (Feb. 6, 1952) (“This exemption is based on the assumption that the banker, broker or other person is acting in a ministerial capacity and is not making an independent solicitation from the beneficial owner.”).
. See Proxy Concept Release, supra note 3, at *24. See also John C. Wilcox et al.,“Street Name” Registration & the Proxy Solicitation Process, in Practical Guide to SEC Proxy and Comp. Rules, § 11.03[A] (Amy L. Goodman et al. eds., 5th ed. 2010 & Supp. 2014).
. Nearly all brokers and banks contract with Broadridge to fulfill the administrative obligation of distributing proxy materials. See NYSE, Report and Recommendations of the Proxy Working Group to the New York Stock Exchange 1 (June 5, 2006), available at http://www.nyse.com/pdfs/REVISED_NYSE_Report_6_5_06.pdf.
. See Proxy Concept Release, supra note 3, at *9 (“Although we do not directly regulate such proxy service providers, our regulations governing the proxy process-related obligations of [brokers and banks] apply to the way in which proxy service providers perform their services because they act as agents for, and on behalf of, those [brokers and banks] and typically vote proxies on behalf of those [brokers and banks] pursuant to a power of attorney.”).
. See Letter from Charles E. Schumer, Senator, to Mary Jo White, Chairman, SEC (May 23, 2013), available at http://www.sec.gov/comments/sr-nyse-2013-07/nyse201307-32.pdf; Letter from Brandon Rees, Acting Dir., Am. Fed’n of Labor & Cong. of Indus. Orgs., to Elizabeth M. Murphy, Sec’y, SEC (July 5, 2013), available at http://www.aflcio.org/content/download/92351/2580321/AFL-CIO+Comment+on+Release+No+34-69622+-+July+5+2013.pdf; Letter from Ann Yerger, Exec. Dir., Council of Institutional Investors, to Mary Jo White, Chairman, SEC (May 17, 2013), available at https://www.sec.gov/comments/sr-nyse-2013-07/nyse201307-31.pdf; Letter from Dieter Waizenegger, Exec. Dir., CtW Inv. Grp., to Mary Jo White, Chairman, SEC (May 17, 2013) [collectively, hereinafter Comment Letters].
. DTC member participant listings are available on the DTC website and list JP Morgan Chase, Barclays Capital, Morgan Stanley, Goldman Sachs & Co., among others, as member participants. DTC Member Directories, Depository Trust Co., http://www.dtcc.com/customer/directories/dtc/dtc.php (select one of the directory links provided) (last updated Feb. 2014).
. When an issuer initiates a proxy solicitation, shares registered to Cede & Co. indicate to the issuer that those shares are beneficially owned and that proxy materials must be forwarded to the DTC participants who must then forward those proxy materials and voter instruction forms to its beneficial owner clients. See Proxy Concept Release, supra note 3, at *6.
. DTC participant broker-dealers and banks are also considered beneficial owners for proxy regulation purposes. Exchange Act Rule 13d-3(a) defines a beneficial owner of a security as any person who directly or indirectly has or shares certain rights, such as the power to vote or direct the voting of shares. See 17 C.F.R. § 240.13d-3(a) (2014).
. For each shareholder meeting, DTC chooses to execute an omnibus proxy as a matter of common practice. Recent litigation indicates that DTC is not legally required to execute an omnibus proxy for each meeting. See Kurz v. Holbrook, 989 A.2d 140, 170 (Del. Ch. 2010) (“There does not appear to be any federal statute or regulation, any listing standard, or any state statute or decision calling for the issuance of the DTC omnibus proxy.”).
. Unless the ultimate beneficial owner specifically requests a “legal proxy” from its securities intermediary, proxy authority is not transferred from the DTC participant down to the beneficial owner. See Wilcox et al., supra note 11, at § 11.03[A].
. Although most broker and bank intermediaries will issue a proxy card upon request, the rules do not give beneficial account holders the right to request an executed proxy card. The rules provide that the broker or bank may choose to send either an executed proxy card or a request for voting instructions. Industry regulation generally reserves for beneficial owners’ discretion over how to vote shares held in street name accounts through the broker’s proxy card. See 17 C.F.R. § 240.14b-2(b)(3) (2014); NYSE Rule 451, 1997 WL 34652003 (2014).
. See Proxy Concept Release, supra note 3, at *8 (“Instead of receiving and executing a proxy card (as registered owners receive and do), the beneficial owner receives a ‘voting instruction form’ or ‘VIF’ from the [broker or bank], which permits the beneficial owner to instruct the securities intermediary how to vote the beneficially owned shares.”).
. Pursuant to NYSE Rule 451(b)(1), member organizations requesting voting instructions must notify beneficial owners of the record holder’s right to vote shares on discretionary, routine matters when ballot instructions are not received ten days prior to the scheduled meeting. See id. See also Notice of Order Approving NYSE Proposed Rule Change to Amend NYSE Rule 452 to Eliminate Broker Discretionary Voting for the Election of Directors, Exchange Act Release No. 60215, 2009 WL 1897466, at *2 (July 1, 2009) (“[I]f beneficial shareholders do not return voting instructions, securities intermediaries may, in certain situations, vote their shares at the intermediaries’ discretion.”).
. See Keir D. Gumbs, Todd Hamblet & Kristin Stortini, Debunking the Myths Behind Voting Instruction Forms and Vote Reporting, Corp. Governance Advisor, July–Aug. 2013, at 4, available at http://www.cov.com/files/Publication/87c02cb1-d867-42d4-ad05-121f1ba7c86b/Presentation/PublicationAttachment/b51c699e-b1a6-4126-91d6-1a882cd4e985/Corp_Gov_Advisor_Article-Voting_Instruction_Forms_and_VIF_Reporting.pdf.
. ProxyPulse, http://proxypulse.broadridge.com/ (last visited Jan. 19, 2014) (“With 50 years of experience, Broadridge’s infrastructure underpins proxy voting services for over 90% of public companies and mutual funds in North America, and processes more than $4.5 trillion in fixed income and equity trades per day.”).
. VIFs received back from beneficial owners merely instruct the securities intermediary on how to vote the respective beneficially held shares. Roundtable on Proxy Voting Mechanics, supra note 16.
. VIFs are not subject to state laws governing the validity of proxies. Broadridge may communicate and collect voting instructions through the Internet or telephone without being limited by state law proxy restrictions. See Wilcox et al., supra note 11, at § 11.03[A].
. See NYSE, supra note 12, at 27 (“[T]he entity that pays the costs for the system—the issuer—has no choice in the service provider and no direct ability to negotiate fees with the service provider. Rather, the service provider ([Broadridge] through its contracts with the member firms) has a contract with the broker or bank, and has its fees set by the NYSE and paid for by the issuer.”).
. NYSE Rules 451 and 465 establish the fee structure to which the majority of firms charged with forwarding proxy materials adhere to for reimbursement. NYSE Rule 451, 1997 WL 34652003 (2014); NYSE Rule 465, 2001 WL 36090692 (2014). See also NYSE, supra note 12, at 23; Proxy Concept Release, supra note 3, at *22 n.110 (“The vast majority of firms that distribute issuer material to beneficial owners are reimbursed at the NYSE fee schedule rates because most of the brokerage firms are NYSE members or members of other exchanges that have rules similar to the NYSE’s rules.”).
. Reasonable expenses consist of all out-of-pocket expenses incurred in forwarding and receiving proxy materials and voting devices from beneficial owners, including clerical expenses and the actual costs of postage, envelopes, and communication. See Proxy Concept Release, supra note 3, at *22 n.109.
. See Order Instituting Proceedings to Determine Whether to Disapprove Proposed Rule Change Amending NYSE Rules 451 and 465, Which Provide A Schedule for the Reimbursement of Expenses by Issuers for the Processing of Proxy Materials, Exchange Act Release No. 69622, 2013 WL 2254554, at *2 (May 23, 2013).
. The SEC indicated in its release on broker-dealer participation in proxy solicitations that Section 14 and the proxy rules apply to “brokers along with all other persons.” Broker-Dealer Participation in Proxy Solicitations, supra note 30, at *1 (Jan. 7, 1964).
. Solicitations exempt under Section 14a-2(a) are not subject to the proxy rule requirements of Sections 240.14a-3 to 240.14a-15. For instance, exempt solicitations are excluded from the proxy form requirements of Rules 14a-4 and 14a-5 and the filing requirements of Rule 14a-6. See Rule 14a-2(a), supra note 8.
Rule LA2. Transactions to which rules inapplicable. The rules and regulations promulgated by the Commission pursuant to Section 14 of the Securities Exchange Act shall not, except where specifically so provided, apply to solicitations . . . (e) by any person whose activity is limited to the performance of ministerial acts in behalf of a person who is soliciting a proxy, consent or authorization.
Exchange Act Release No. 378, 1935 WL 29270, at *1 (Sept. 24, 1935).
. The SEC explains that broker-dealers are “particularly likely to become involved in proxy solicitations both because they may have an interest in the matters to be voted on and because they may have connections with management, opposition, or other participants.” Broker-Dealer Participation in Proxy Solicitations, supra note 30, at *1.
. The proposed rule, as amended, was to read as follows: “(3) In addition, does no more than impartially instruct the person solicited to forward a proxy to the person, if any, to whom the person solicited desires to give a proxy, or impartially request from the person solicited instructions as to the authority to be conferred by the proxy.” Solicitations of Proxies Proposed Rule Making, supra note 10, at 1153–54.
. The SEC justified the exemption “based on the assumption that the banker, broker, or other person is acting in a ministerial capacity and is not making an independent solicitation from the beneficial owner.” Id. at 1153.
. A broker, in his or her capacity as an advisor, may impartially respond to unsolicited requests for voting advice so long as the broker does not actively initiate the communication and volunteer independent soliciting material. See id. at *2.
. See id. at *2 (“[M]aterial originating with the broker which is sent along with proxy material which the broker is distributing on behalf of someone else, would almost always constitute a solicitation because of the circumstances under which it comes into the hands of the securities holder.”).
. Judith C. McLevey, Governance & Proxy: Setting Expectations for 2013 Proxy Season, NYSE Euronext (Jan. 4, 2013, 6:05 PM), http://exchanges.nyx.com/judy-mclevey/setting-expectations-2013-proxy-season (discussing the SEC’s new interpretive guidance limiting the option to “Vote with the Board’s Recommendations” on Broadridge’s voting platforms).
[A court] must defer to the SEC’s interpretations of its own regulations in its amicus briefs unless they are plainly erroneous or inconsistent with the regulations [and that informal opinions such as] SEC no-action letters constitute neither agency rule-making nor adjudication and thus are entitled to no deference beyond whatever persuasive value they might have.
See, e.g., MONY Grp., Inc. v. Highfields Capital Mgmt., L.P., 368 F.3d 138, 146–47 (2d Cir. 2004) (quoting Gryl ex rel. Shire Pharms. Grp. PLC v. Shire Pharms. Grp. PLC, 298 F.3d 136, 145 (2d Cir. 2002)).
. During the 2013 proxy season, votes submitted via Broadridge’s online voting platforms, ProxyVote and ProxyEdge, accounted for 95% of the shares, 28.6 billion shares, voted through Broadridge. See Broadridge, 2013 Proxy Season: Key Statistics & Performance Rating (2013), available at http://media.broadridge.com/documents/Broadridge-Proxy-Stats-2013-Report.pdf.
. VIFs are not subject to state laws governing the validity of proxies. Broadridge may communicate and collect voting instructions through the Internet or telephone without being limited by state law proxy restrictions. See Wilcox et al., supra note 11, at § 11.03[A].
. Ross Kerber, Top U.S. Proxy Vote Site Favors Boards, Critics Say, Reuters (May 29, 2012, 12:29 PM), http://www.reuters.com/article/2012/05/29/us-proxy-voting-buttons-idUSBRE84S0Z320120529; For a screen shot of the location of the “Vote with the Board’s Recommendations” button, see Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime, Corp. Governance (Jan. 30, 2013), http://corpgov.net/2013/01/broken-windows-proxy-vote-rigging-both-invite-more-serious-crime/.
. Kerber, supra note 71; see also Letter from Jeff Mahoney, Gen. Counsel, Council of Inst. Investors, to Elizabeth M. Murphy, Sec’y, SEC (April 5, 2013), available at http://www.sec.gov/comments/sr-nyse-2013-07/nyse201307-25.pdf.
. Interview with Professor J. Robert Brown, Jr., Sec’y, SEC Investor Advisory Committee, in Denver, Colo. (Apr. 4, 2014) (indicating that concern had been raised with staff at meetings of the Investor Advisory Committee). See generally Investor Advisory Committee, SEC, http://www.sec.gov/spotlight/investor-advisory-committee-2012.shtml (last modified Apr. 14, 2014).
. See Gumbs et al., supra note 36, at 6–7 n.23 (“This guidance was announced publicly by Tom Kim, the Chief Counsel of the SEC’s Division of Corporation Finance, at the Annual SEC Speaks Conference in Washington D.C. in February 2013.”).
. Broadridge declined to offer a single option to “Vote Against the Board’s Recommendations” due to purported “technical complications presented by director election proposals and the Dodd-Frank required say on pay frequency vote.” See Letter from Broadridge to Clients (Dec. 20, 2012) available at http://www.thecorporatecounsel.net/nonMember/docs/12_12_Vote.pdf [hereinafter Broadridge Letter].
. Going forward, Broadridge generated online voting instruction ballots will notify shareholders, in bold type, that selecting “Submit” without voting on each item individually will result in the votes being cast in accordance with management’s recommendations. To vote against management, a shareholder must make such specification on each ballot item. A single “click” option to vote against the recommendations of management currently no longer exists. See id.
does not, at any time during such solicitation, seek directly or indirectly, either on its own or another’s behalf, the power to act as a proxy for the security holder and does not furnish or otherwise request, or act on behalf of a person who furnishes or requests, a form of revocation, abstention, consent or authorization.
17 C.F.R. § 240.14a-2(b)(1) (2011). The exemption does not, however, apply to the antifraud rules. Id.
. Under Rule 14a-2(b)(1), the distribution of soliciting materials recommending that shareholders vote in opposition to management on a proposal listed on the issuer’s proxy card qualifies for exemption from certain proxy rules. Id. During the J.P. Morgan solicitation, shareholder groups sent materials to shareholders recommending that they vote in favor of separating the roles of chairman and chief executive officer. Susan Craig & Jessica Silver-Greenberg, Shareholders Denied Access to JPMorgan Vote Results, N.Y. Times (May 15, 2013), http://dealbook.nytimes.com/2013/05/15/jpmorgan-voters-are-denied-access-to-results/?_r=0. The materials indicated that this could be done by voting against management on the company’s proxy card. Susan Craig & Jessica Silver-Greenberg, Strong Lobbying Helps Dimon Thwart a Shareholder Challenge, N.Y. Times (May 21, 2013), http://dealbook.nytimes.com/2013/05/21/jpmorgan-seen-to-defeat-effort-to-split-top-2-jobs-at-bank/ Thus, the shareholder distributed recommendation material qualified as a solicitation. Brian Browdie, JPM Exec’s SIFMA Ties Could Help Dimon Vote, Am. Banker (May 16, 2013, 6:48 PM), http://www.americanbanker.com/people/jpmexecs-simfa-ties-could-help-dimon-vote-1059203-1.html. However, due to the Rule 14a-2(b) exemption, the shareholder proponents were not required to submit a corresponding proxy card. See 17 C.F.R. § 240.14a-2(b)(1) (2011).
. See Letter from Brandon Rees to Elizabeth M. Murphy, supra note 14 (“For at least the past decade, Broadridge has routinely provided preliminary vote results to shareholders who have used its services to send exempt solicitation proxy materials . . . .”).
. See Broadridge Decision re Early Release of Shareholder Voting, Broadridge (Independent Steering Committee), July 2013, available at http://go.broadridge.com/Steering-Committee-Newsletter-July-2013?utm_campaign=CIS%20Steering%20Committee%20Newsletter%20July%202013&utm_medium=email&utm_source=Eloqua#decision. See also Brian Browdie, JPM Exec’s SIFMA Ties Could Help Dimon Vote, Am. Banker (May 16, 2013, 6:48 PM), http://www.americanbanker.com/people/jpmexecs-simfa-ties-could-help-dimon-vote-1059203-1.html (quoting Broadridge Executive, Lyell Dampeer, “I could understand that the [shareholder group] would have an expectation about getting voting, but we don’t have a direct contract with the group[,] . . . [w]e’re only billing them for the distribution of the material.”).
. See Dan Fitzpatrick, J.P. Morgan Vote Confusion Prompts a Call for New Rules, Wall St. J. (May 23, 2013, 3:59 PM), http://blogs.wsj.com/moneybeat/2013/05/23/j-p-morgan-vote-confusion-prompts-a-call-for-new-rules/.
. SEC Asked to Review Shareholder Voting Rules Over JPMorgan Move, Chi. Trib. (May 17, 2013), http://articles.chicagotribune.com/2013-05-17/business/chi-shareholder-voting-jpmorgan-20130517_1_jamie-dimon-independent-chairman-london-whale (quoting Michael Garland, New York City Comptroller Corporate Governance Official). See also, Red Oak Fund L.P. v. Digirad Corp., No. 8559-VCN, 2013 WL 5740103, at *4 (Del. Ch. Oct. 23, 2013) (noting that company and shareholder in proxy contest “used the preliminary Broadridge reports and the stockholder information gleaned by their proxy solicitors in developing and refining their solicitation strategies”).
. See Letter from Jeff Mahoney, Gen. Counsel, Council of Institutional Investors, to Keith F. Higgins, Dir., Div. of Corp. Fin., SEC (Mar. 6, 2014), available at http://www.cii.org/files/issues_and_advocacy/correspondence/2014/03_06_14_CII_letter_SEC_proxy_distributors.pdf.
. See Broker-Dealer Participation in Proxy Solicitations, supra note 30, at *3 (“Thus, the exemption will be lost if the firm does not act in an ‘impartial’ manner.” . . . The limited nature of this exemption is the basis for the telegram quoted at the outset of this opinion.”); Solicitations of Proxies Proposed Rule Making, supra note 10, at 1153 (explaining that the “exemption is based on the assumption that the banker, broker, or other person is acting in a ministerial capacity and is not making an independent solicitation from the beneficial owner[,]” and making it clear that “this is the only type of solicitation which is exempted by [current Rule 14a-2(a)], it is proposed to amend subparagraph (3) thereof to provide that instructions given must be impartial, and therefore, cannot be slanted to favor either the management or any opposing person or group.”).
. See Gumbs et al., supra note 36, at 6 n.22 (“Since VIFs are not subject to the specific form requirements imposed by Rule 14a-2, neither Rule 14a-2 nor any other proxy rule specifies the precise manner in which a broker or bank must collect voting instructions.”).
. From an issuer’s perspective, aside from the limitations generated via third-party contracts that inhibit the traceability of beneficial owners and their respective votes, proxy votes generally are not confidential. See Bernard S. Black, Shareholder Passivity Reexamined, 89 Mich. L. Rev. 520, 535 (1990).
. See Red Oak Fund L.P. v. Digirad Corp., No. 8559-VCN, 2013 WL 5740103, at *12 (Del. Ch. Oct. 23, 2013) (showing that one party perceived the importance of accurate preliminary voting information as a “game changer”).
* J.D. Candidate 2016, University of Denver Sturm College of Law.