RICH DALY, the CEO of Broadridge Financial Solutions, Inc. (NYSE:BR), has responded to investor concerns about the potential impact on his company of the Securities and Exchange Commission’s (SEC) proxy system review, saying critics want to take the system back 45 years and companies’ costs could more than double in an unregulated market.
Speaking on Broadridge’s earnings call Aug. 12, Daly was upbeat about the potential new opportunities that the SEC’s review and other regulatory developments on the corporate governance front might have for his company. And he said Broadridge welcomed the opportunity to have a discussion about current regulated proxy processing fees because they were less than half the rate in the “free market.”
The SEC last month published a concept release seeking public input on many issues that have been raised about the current system for delivering shareholder meeting materials and processing proxy votes. It asks for comments on stimulating competition in a market that Broadridge dominates with greater than 90% market share. The release has been praised by Broadridge competitor Computershare as “all we could have hoped.”
Organizations like the National Investor Relations Institute (NIRI), which is a member of the Shareholder Communications Coalition, want the SEC to break Broadridge’s near monopoly on proxy fulfillment services to brokerage and bank clients. They have called for the creation of an independent data aggregator to give information to vendors chosen by companies themselves. Currently, companies pay for the cost of fulfillment under fees regulated by the New York Stock Exchange (NYSE), but they have no say on the choice of a fulfillment company.
However, Daly said Broadridge did not expect the idea to fly, adding: “We think that it’s going to be an evolution. We think that a revolution is going to take a billion dollars in savings out, plus put all the integrity and accuracy at risk. If it went down that path, and there was a need for a data hub, we already have the data hub in place, but we do not expect to see it go down that path, even though if it did, we’re extremely well positioned.”
Regulated fees a good deal for companies
Daly shot back at critics of its fees saying that Broadridge is saving issuers about $1 billion annually in paper and postage costs through its technology, and it could take out another $1 billion if rules were changed. Companies now pay total annual fees of about $500 million, he said.
Daly said Broadridge is “eager” to have discussions on current investor communications fees because companies are currently paying much less than is the case in the unregulated market. Fees in the unregulated market are “over two times the average fee that issuers pay in the regulated market.”
Addressing the various criticisms of the current system, he was blunt:
“There are some that believe the SEC should move the process back 45 years to when it was a direct investor-to-issuer model, despite the fact that the scalability and accuracy issues of that model at a time when volumes were a small percentage of what they are today. There are some that believe the status quo is acceptable and there are some like us that believe the model should be driven forward using the latest technologies to enable more transparency and confidence than any new regulations can achieve.”
Opportunities more than threats
Importantly, Daly pointed out that the SEC’s concept release and other pending regulatory changes are likely to create more opportunities for Broadridge than they are to threaten its current business.
With mandatory say-on-pay proposals and shareholder access to company proxy statements on the cards in the coming year, companies and their boards will be looking for ways to improve their communications with shareholders to demonstrate their responsiveness and accountability. In this environment, Broadridge is indeed uniquely positioned to benefit.
Daly sees particular opportunities for Broadridge’s Investor Network, a social network where individuals are anonymous but labeled according to the number of shares they own. The network, which was launched in October 2008, has been slow to gain traction with investors and companies, although it has proven quite successful when tied to a full or hybrid virtual annual meeting. During Intel’s recent shareholder meeting, 200 investors submitted questions in a forum powered by Broadridge’s technology.
“We believe that the opportunities around investor-to-investor communications will enable boards, managements and shareholders to have greater transparency than ever anticipated before,” said Daly.
In the longer term, end-to-end processing and client-directed voting, which could allow brokerage clients to automate how they vote at shareholder meetings, will require new investments in systems and technology that Broadridge is well-positioned to provide.
“Client-directed voting is an opportunity to get more participants involved in the process and have a better view of all shareholder views in the proxy voting process. We have already built the pilot for this and it needs to be rolled out, maintained and made bullet-proof like everything else we do. There is a cost and we believe there should be a fair return,” Daly said.
Broadridge was still in the process of reviewing the details of the SEC’s release and will be responding formally within the 90-day comment period.