On Aug. 15, 2019, Broadridge notified solicitors and tabulators that, per Charles Schwab’s instruction, all jobs with a record date of July 12, 2019, or later, will no longer include Schwab’s discretionarily voted shares. In general, companies with large retail share positions, such as banks, utilities and consumer goods companies, will be affected. Companies with heavy institutional ownership will be affected to a lesser degree.
A good rule of thumb is that, on average, 35% of a broker’s position usually votes with management on a non-discretionary proposal, whereas on a discretionary (routine) proposal, you can expect the vast majority of the shares to vote with management (per the broker’s discretion). For many issuers, the elimination of the discretionary vote will create a need for additional solicitation efforts, such as reminder mailings and, more effectively, calls to non-objecting beneficial owners (NOBOs) utilizing QuickVote to capture votes and increase the quorum numbers.
Other brokers have eliminated discretionary voting in the past, but because of the large number of retail customers, Schwab’s decision to go this route raises concerns that many other brokers will soon follow suit.
What it may mean to issuers
The effect that this will have on the vote at annual and special meetings is mainly that it will lead to reduced quorums, particularly in cases where the Charles Schwab position is made up mostly of retail positions from which there is usually little direction received from the underlying beneficial owners of the shares.
In cases where Schwab’s position in a particular issuer is relatively large, it will be more difficult for a company to obtain as high of a quorum as they’re used to, and in extreme cases, the required vote necessary to hold the meeting. Thus, increasing their need for additional solicitation efforts (reminders, phone calls) and a proxy solicitor to assist the company in obtaining the required quorum.