NACD Responds to SEC Invitation for Comments by Corporate Directors on Proxy System

NACD Proposes Enhancements to Proxy System: NOBO as Default Standard, Ensuring Greater Transparency and Independence of Proxy Advisors

Oct 25, 2010, 08:00 ET from National Association of Corporate Directors

WASHINGTON, Oct. 25 /PRNewswire/ -- In light of the U.S. Securities Exchange Commission (SEC) Concept Release on the U.S. Proxy System, the National Association of Corporate Directors (NACD), the largest organization of corporate directors in the United States, today announced its commitment to enhance direct communication between companies and their investors with a proposal to replace OBO with NOBO as the default voting standard, and require proxy advisory firms who vote shares on behalf of owners to register as investment advisors.

The announcement comes immediately following SEC Chairman Mary Schapiro's remarks at the NACD's Annual Corporate Governance Conference, where she encouraged more comment from directors on the Dodd-Frank Act – say on pay, golden parachutes, and much more – to ensure that the right balance of rules is struck between boards and investors and that rule makers are properly informed and educated by boardroom leaders.

In accordance with the SEC's goals of accuracy, transparency and eliminating areas of conflict within the voting process, as well as shareholder participation, the NACD has identified three elements of the proxy access system that hinders the communication process:

  1. The current requirement for broker-dealers and banks to provide companies with information of street name holders (beneficial holders) as either non-objecting beneficial owners (NOBOs) and objecting beneficial owners (OBOs)
  2. The combined functions of proxy advisory firms that frequently produce conflicts of interest
  3. Limited awareness and use of new technology that can help boards garner information and sentiment from shareholders

"According to estimates from the SEC Concept Release, up to 80 percent of all public issuers' shares are held in street name, and 75 percent of those shares, or up to 60 percent of all public shares, are held by OBOs. In many cases, brokers have used OBOs as a default," said Ken Daly, President and CEO, NACD. "Shareholders are not always aware they are considered as 'objecting,' or what the consequences to communication might be."

As the SEC currently considers how to alter or eliminate the OBO/NOBO distinction, it is apparent that its current rule makes it difficult for companies to communicate with their beneficial owners. In its recent comment letter to the SEC, NACD warned that brokers will need to do a better job of explaining its consequences to beneficial owners. In addition, measures should be made to replace OBO with NOBO as the default standard, and to allow current OBOs the opportunity to become NOBOs.

Also under SEC consideration are the multiple functions of proxy advisory firms that are thought to pose potential conflicts of interest. Proxy advisor firms that advise both investors and companies should do more to separate those functions, said the NACD in its letter. Also, if companies vote shares on behalf of owners, proxy advisory firms should register as investment advisors allowing advisors to be free from any conflicts of interest.

"The NACD has anecdotal evidence that our members have altered their governance policies and practices to reflect recommendations from the advisory firms," said Daly. "We recommend more transparency and independence between companies and advisors. In an age of innovation, companies can do more to use technology and social media in board-shareholder communications."

About NACD

The National Association of Corporate Directors (NACD) is the only membership organization delivering the information and insights that corporate board members need to confidently navigate complex business challenges and enhance shareowner value. With more than 10,000 members, NACD advances exemplary board leadership.  NACD is focused on creating more effective and efficient boards through director-led education and peer forums to share ideas and leading practices based on more than 30 years of primary research. Fostering collaboration among directors and governance stakeholders, NACD is shaping the future of board leadership.  To learn more about NACD, visit

SOURCE National Association of Corporate Directors