
[Federal Register: July 10, 2009 (Volume 74, Number 131)]
[Notices]               
[Page 33293-33307]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jy09-86]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60215; File No. SR-NYSE-2006-92]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 4, To 
Amend NYSE Rule 452 and Corresponding Listed Company Manual Section 
402.08 To Eliminate Broker Discretionary Voting for the Election of 
Directors, Except for Companies Registered Under the Investment Company 
Act of 1940, and To Codify Two Previously Published Interpretations 
That Do Not Permit Broker Discretionary Voting for Material Amendments 
to Investment Advisory Contracts With an Investment Company

July 1, 2009.

I. Introduction

    On October 24, 2006, the New York Stock Exchange LLC (``Exchange'' 
or ``NYSE'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend NYSE Rule 452 and corresponding Section 
402.08 of the Listed Company Manual (``Manual'') to eliminate broker 
discretionary voting for the election of directors. On May 23, 2007, 
the Exchange filed Amendment No. 1 to the proposed rule change to 
exempt companies registered under the Investment Company Act of 1940 
(``1940 Act'') from the ban on broker discretionary voting for the 
election of directors. On June 28, 2007, the Exchange filed Amendment 
No. 2 to the proposed rule change, to codify two previously published 
interpretations \3\ that do not permit broker discretionary voting for 
material amendments to investment advisory contracts with an investment 
company. On February 26, 2009, the Exchange filed and withdrew 
Amendment No. 3 to the proposed rule change for technical reasons. On 
February 26, 2009, the Exchange filed Amendment No. 4 to the proposed 
rule change. Amendment No. 4 superseded and replaced the proposal in 
its entirety. The Commission published the proposed rule change, as 
modified by Amendment No. 4, for comment in the Federal Register on 
March 6, 2009.\4\ The Commission received 153 comments from 137 
commenters on the proposal.\5\ This order approves the proposed rule 
change, as modified by Amendment No. 4.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 30697 (May 13, 
1992), 57 FR 21434 (May 20, 1992) (SR-NYSE-92-05) (approval order) 
and 52569 (October 6, 2005), 70 FR 60118 (October 14, 2005) (SR-
NYSE-2005-61) (notice of filing and immediate effectiveness).
    \4\ See Securities Exchange Act Release No. 59464 (February 26, 
2009), 74 FR 9864 (March 6, 2009) (``Notice'').
    \5\ See Comment letters in the Commission's Public Reference 
Room or on the Commission's Web site at http://www.sec.gov. For a 
complete list of comment letters and the short cites to letters used 
here, see Appendix A, attached hereto.
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II. Description of the Proposal and Background

A. Description of the Proposal

    The Exchange proposes amending NYSE Rule 452 and Section 402.08 of 
the Manual (together, ``NYSE Rule 452'') to eliminate broker 
discretionary voting for all elections of directors at shareholder 
meetings held on or after January 1, 2010,\6\ whether contested or not, 
except for companies registered under the 1940 Act. Currently, NYSE 
Rule 452 permits brokers to vote without voting instructions from the 
beneficial owner on uncontested elections of directors.\7\ 
Specifically, the NYSE proposal would add to the list of enumerated 
items for which a member generally may not give a proxy to vote without 
instructions from the beneficial owner, the ``election of directors.'' 
The proposal contains a specific exception, however, for companies 
registered under the 1940 Act.
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    \6\ The proposed change to NYSE Rule 452 would not apply to a 
meeting that was originally scheduled to be held prior to January 1, 
2010, but was properly adjourned to a date on or after the effective 
date.
    \7\ As discussed in more detail below, under current NYSE Rule 
452 a broker can vote without instruction from the beneficial owner 
provided ``the person in the member organization giving or 
authorizing the giving of the proxy has no knowledge of any contest 
as to the action to be taken at the meeting and provided such action 
is adequately disclosed to stockholders and does not include 
authorization for a merger, consolidation or any matter which may 
affect substantially the rights or privileges of such stock.'' See 
current NYSE Rule 452.10(3). Items where a broker is allowed to vote 
without specific instructions from the beneficial owner under Rule 
452 are often referred to as ``routine'' matters. NYSE Rule 452 also 
currently contains a list of eighteen enumerated items where the 
broker may not vote without specific voting instructions from the 
beneficial owner. See Notice, supra note 4 and infra note 14.
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    In addition, the Exchange proposes amending NYSE Rule 452 to codify 
two previously published interpretations.\8\ First, the NYSE proposes 
codifying that NYSE Rule 452 would preclude broker discretionary voting 
on a matter that materially amends an investment advisory contract with 
an investment company. Second, the NYSE proposes codifying that a 
material amendment to an investment advisory contract would include any 
proposal to obtain shareholder approval of an investment company's 
investment advisory contract with a new investment adviser for which 
shareholder approval is required by the 1940 Act and the rules 
thereunder.
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    \8\ The codification will place the interpretations into the 
rule text of Rule 452.
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B. Background

    A shareholder of a public company may hold shares either directly, 
as the record holder, or indirectly, as the beneficial holder, with the 
shares held in the name of the beneficial shareholder's broker-dealer, 
bank nominee, or custodian (``securities intermediary''), which is the 
record holder. The latter generally is referred to as holding 
securities in ``street name.''
    The NYSE's discretionary voting rule dates back to 1937. 
Historically, the majority of shareholders held their shares directly 
as record holders. In 1976, for example, shareholders held 
approximately 71% of securities of record (in their own name), while 
only approximately 29% of securities were held by securities 
intermediaries in street name.\9\ The number of beneficial owners 
holding securities in street name, however, has increased significantly 
since 1976,\10\ with the result that securities intermediaries, on 
behalf of beneficial owners, now hold a substantial majority of 
exchange traded

[[Page 33294]]

securities.\11\ As a result, NYSE's discretionary voting rule has taken 
on increased significance in the voting of corporate shares at annual 
meetings.
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    \9\ Final Report of the U.S. Securities and Exchange Commission 
on the Practice of Recording the Ownership of Securities in the 
Records of the Issuer in Other Than the Name of the Beneficial Owner 
of Such Securities (December 3, 1976), at 54.
    \10\ This is due, among other things, to the advent of margin 
accounts, technological developments, and clearing efficiencies.
    \11\ It has been estimated that approximately 85% of exchange 
traded shares are held by securities intermediaries in street name. 
See Securities Exchange Act Release No. 50758 (November 30, 2004), 
69 FR 70852 (December 7, 2004) (noting that, at the end of 2002, the 
Depository Trust Company (``DTC'') had on deposit approximately 84% 
of the shares issued by domestic companies listed on the NYSE and 
approximately 88% of the shares issued by domestic companies listed 
on the Nasdaq Stock Exchange). Securities held in ``street name'' by 
securities intermediaries are deposited at the DTC.
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    Under Rule 451, when a public company furnishes proxy materials to 
its record shareholders, securities intermediaries that hold securities 
in street name must deliver the proxy materials to the beneficial 
shareholders within a certain time frame and request voting 
instructions from the beneficial shareholders.\12\ If beneficial 
shareholders return voting instructions, the securities intermediaries 
vote their shares accordingly. However, if beneficial shareholders do 
not return voting instructions, securities intermediaries may, in 
certain situations, vote their shares at the intermediaries' 
discretion. Specifically, if voting instructions have not been received 
by the tenth day preceding the meeting date, under current NYSE Rule 
452, brokers may vote on behalf of the beneficial shareholders on 
certain matters where there is no contest and the item does not include 
authorization for a merger, consolidation, or any matter which may 
substantially affect the rights or privileges of the stock.\13\ The 
rule also contains eighteen specific items on which the broker 
generally may not vote without instructions from the beneficial 
owner.\14\ Items where the broker can vote without instructions are 
referred to as ``routine'' matters. Among other matters, the 
``uncontested'' election of directors is considered a ``routine'' 
matter under current NYSE Rule 452, and thus can be voted by the broker 
in its discretion if the beneficial owner has not returned voting 
instructions within the required time period.
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    \12\ See NYSE Rule 451(b)(1) (providing, in part, that for 
matters which may be voted without instructions under Rule 452, if 
voting instructions ``are not received by the tenth day before the 
meeting, the proxy may be given at discretion by the owner of record 
of the stock; provided * * * the proxy soliciting material is 
transmitted to the beneficial owner of the stock * * * at least 
fifteen days before the meeting.''); see also Rule 14b-1, 17 CFR 
240.14b-1. Rule 14b-1 under the Act does not require brokers or 
dealers to request voting instructions from beneficial owners, but 
they are required under that Rule to forward the proxy materials to 
the beneficial owners within a certain timeframe. However, Rule 14b-
2, 17 CFR 240.14b-2, which applies to banks that exercise fiduciary 
powers, requires banks to forward proxy materials to beneficial 
owners within a certain timeframe, as well as an executed proxy or a 
request for voting instructions.
    \13\ See supra note 7.
    \14\ See Notice, supra note 4. Presently, NYSE Rule 452 lists 18 
specific matters that cannot be voted by the broker without 
instructions and are often referred to as ``non-routine'' matters. 
These 18 categories are a matter that: (1) Is not submitted to 
stockholders by means of a proxy statement comparable to that 
specified in Schedule 14-A of the Commission; (2) is the subject of 
a counter-solicitation, or is part of a proposal made by a 
stockholder which is being opposed by management (i.e., a contest); 
(3) relates to a merger or consolidation (except when the company's 
proposal is to merge with its own wholly owned subsidiary, provided 
its shareholders dissenting thereto do not have rights of 
appraisal); (4) involves right of appraisal; (5) authorizes 
mortgaging of property; (6) authorizes or creates indebtedness or 
increases the authorized amount of indebtedness; (7) authorizes or 
creates a preferred stock or increases the authorized amount of an 
existing preferred stock; (8) alters the terms or conditions of 
existing stock or indebtedness; (9) involves waiver or modification 
of preemptive rights (except when the company's proposal is to waive 
such rights with respect to shares being offered pursuant to stock 
option or purchase plans involving the additional issuance of not 
more than 5% of the company's outstanding common shares); (10) 
changes existing quorum requirements with respect to stockholder 
meetings; (11) alters voting provisions or the proportionate voting 
power of a stock, or the number of its votes per share (except where 
cumulative voting provisions govern the number of votes per share 
for election of directors and the company's proposal involves a 
change in the number of its directors by not more than 10% or not 
more than one); (12) authorizes the implementation of any equity 
compensation plan, or any material revision to the terms of any 
existing equity compensation plan (whether or not stockholder 
approval of such plan is required by subsection 8 of Section 303A of 
the Exchange's Listed Company Manual); (13) authorizes (a) a new 
profit-sharing or special remuneration plan, or a new retirement 
plan, the annual cost of which will amount to more than 10% of 
average annual income before taxes for the preceding five years, or 
(b) the amendment of an existing plan which would bring its cost 
above 10% of such average annual income before taxes, but exceptions 
may be made in cases of (a) retirement plans based on agreement or 
negotiations with labor unions (or which have been or are to be 
approved by such unions), and (b) any related retirement plan for 
benefit of non-union employees having terms substantially equivalent 
to the terms of such union-negotiated plan, which is submitted for 
action of stockholders concurrently with such union-negotiated plan; 
(14) changes the purposes or powers of a company to an extent which 
would permit it to change to a materially different line of business 
and it is the company's stated intention to make such a change; (15) 
authorizes the acquisition of property, assets, or a company, where 
the consideration to be given has a fair value approximating 20% or 
more of the market value of the previously outstanding shares; (16) 
authorizes the sale or other disposition of assets or earning power 
approximating 20% or more of those existing prior to the 
transaction; (17) authorizes a transaction not in the ordinary 
course of business in which an officer, director or substantial 
security holder has a direct or indirect interest; and (18) reduces 
earned surplus by 51% or more, or reduces earned surplus to an 
amount less than the aggregate of three years' common stock 
dividends computed at the current dividend rate.
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    With the large proportion of shares now held in street name, the 
impact of the broker vote on the election of directors has become 
increasingly significant.\15\ In the view of some commenters, brokers 
tend to vote in accordance with management's recommendation.\16\ 
According to the NYSE, in recent years its interpretation of a 
``contested election'' has been questioned by a variety of persons,\17\ 
as an increasing number of proxy campaigns have targeted the election 
of directors without a formal contest. These campaigns generally do not 
involve a competing slate of directors or a formal counter-solicitation 
opposed by management, and hence, are not considered ``contests'' by 
the NYSE under NYSE Rule 452.\18\ Examples of these campaigns include 
``just vote no'' or ``withhold'' campaigns, where one or more investors 
express dissatisfaction with the performance of the company or its 
management, and urge shareholders to withhold their votes for one or 
more of management's nominees for director. NYSE views director 
elections subject to these campaigns as eligible for broker 
discretionary voting under current Rule 452.\19\ Concerns have been 
expressed that, in certain ``just vote no'' or ``withhold'' campaigns, 
the broker vote for management has made the difference and allowed 
directors subject to these campaigns to be elected, which would not 
have happened but for NYSE's discretionary voting rule.\20\
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    \15\ See e.g., FSBA 2 Letter; see generally AFSCME Letter; CII 4 
Letter; Colorado PERA Letter; CTW Letter; CTW 2 Letter; and FSBA 
Letter.
    \16\ See CFA 2 Letter; CII 2 Letter; CII 4 Letter; Colorado PERA 
Letter; Cox Letter; CTW Letter; CTW 2 Letter; FSBA 2 Letter; Glass 
Lewis Letter; Hermes Equity Letter; NYSBA Sec. Reg. Letter; OPERS 
Letter; Relational Investors Letter; TIAA-CREF Letter; and Trillium 
Letter; see also Notice, supra note 4; Report and Recommendation of 
the Proxy Working Group, dated June 5, 2006 (``PWG Report''), at 9.
    \17\ See Notice, supra note 4.
    \18\ See NYSE Rule 452.11(2).
    \19\ See Notice, supra note 4.
    \20\ See AFSCME Letter; CalPERS 3 Letter; CtW Letter; CtW 2 
Letter; FSBA Letter; FSBA 2 Letter; and Glass Lewis Letter; see also 
PWG Report, infra note 16, at 9. Several commenters stated that 
rather than eliminating the broker vote for all elections of 
directors the Commission should address the problem by making NYSE 
redefine what constitutes a contested election, see ABA Fed. Reg. 
Letter; ABC Letter; Alston Letter; BB&T Letter; see also Suburban 
Letter (urging further consideration of this alternative), and make 
alternative proxy contest strategies such as ``just vote no'' 
campaigns a contest that is not subject to broker discretionary 
voting under NYSE Rule 452. See ABC Letter; ABC 2 Letter; ABC 3 
Letter; Alston Letter; Broadridge Letter (suggesting that the NYSE 
rules be defined to eliminate broker votes where there is a 
controversy, such as a ``just vote no'' campaign); see also ABA Fed. 
Reg. Letter. The Commission notes that the Proxy Working Group, see 
infra note 21, considered this approach but noted that expanding the 
definition of contest to include ``just vote no'' campaigns, 
especially in light of the increased use of the internet to run 
proxy contests, could raise significant practical difficulties, such 
as defining what is a campaign or whether there are any limitations 
or other minimal requirements for a contest. See PWG Report, infra 
note 16, at 20. Moreover, the Commission notes that merely 
redefining what constitutes a contested election would still allow 
brokers who do not have an economic interest in the company to vote 
in director elections that are uncontested and would not further the 
goals of the proposed rule change. See infra notes 21 through 23 and 
accompanying text. Finally, the Commission notes that the NYSE, in 
making its proposal, reviewed the PWG Report, as well as comments 
submitted to the NYSE on the PWG recommendation. The NYSE states in 
its rule filing that its proposal on Rule 452 was being made in 
light of the recommendations of the Proxy Working Group and its own 
conclusions that the election of directors should no longer be 
deemed a ``routine matter'' under its rules.

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[[Page 33295]]

    In April 2005, the NYSE formed a working group to review its rules 
regarding the proxy voting process (``Proxy Working Group''). The Proxy 
Working Group was composed of representatives from listed companies, 
NYSE member organizations, lawyers, institutional investors, and 
individual investors.\21\ The Proxy Working Group reviewed applicable 
NYSE rules relating to the proxy process and proxy fees, with a 
particular focus on NYSE Rule 452.\22\ The Proxy Working Group 
ultimately issued a report recommending that the election of directors 
be ineligible for broker discretionary voting under NYSE Rule 452, with 
the result that brokers holding shares in street name could not vote on 
the election of directors, whether the election is contested or 
uncontested, without specific voting instructions from the beneficial 
owners. The Proxy Working Group believed that the election of directors 
could no longer be viewed as a ``routine'' matter in the life of a 
corporation. According to the Proxy Working Group, it ``is well 
established under law * * * [that] `the business and affairs of every 
corporation * * * shall be managed by or under the direction of' the 
board of directors. Investors, courts, regulators and others expect 
directors to be accountable for the corporate decision-making process, 
and the primary way that accountability is expressed is through the 
director election process.'' \23\ The Proxy Working Group concluded 
that ``[d]irectors are simply too important to the corporation for 
their election to ever be considered routine.'' \24\ Although the Proxy 
Working Group recognized that the proposed change to Rule 452 may 
result in increased costs, it believed that ``it is a cost required to 
be paid for better corporate governance * * *.'' \25\
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    \21\ Members of the Proxy Working Group at the time of the PWG 
Report were: Larry W. Sonsini, Chairman, Wilson Sonsini Goodrich & 
Rosati; Rosemary Berkery, Executive Vice President and General 
Counsel, Merrill Lynch & Co., Inc., represented by Kevin Moynihan of 
Merrill Lynch & Co.; Glenn Booraem, Principal and Assistant Fund 
Controller, Vanguard Group; Peter Clapman, Senior Vice President and 
Chief Counsel for Corporate Governance, TIAA-CREF; Margaret Foran, 
Vice President-Corporate Governance & Corporate Secretary, Pfizer, 
Inc.; Gary Glynn, President, US. Steel Pension Fund; Amy Goodman, 
Partner, Gibson, Dunn & Crutcher LLP; Richard H. Koppes, Of Counsel, 
Jones Day; Jeffrey L. McWaters, Chairman and Chief Executive 
Officer, Amerigroup Corporation; Stephen P. Norman, Corporate 
Secretary, American Express Company; James E. Parsons, Corporate and 
Securities Counsel, Exxon Mobil Corporation; Judith Smith, Managing 
Director, Morgan Stanley & Co.; Esta Stecher, Executive Vice 
President and General Counsel, Goldman Sachs & Co., represented by 
Beverly O'Toole of Goldman Sachs & Co.; and Kurt Stocker, Professor, 
Northwestern University, Medill School of Journalism. See PWG 
Report, supra note 16. The Exchange attached the PWG Report as part 
of the proposal. In August 2007, the Proxy Working Group issued an 
addendum to its report (``Addendum''), available as part of the 
Exchange's proposal.
    \22\ In particular, the Proxy Working Group looked at NYSE Rules 
450 to 460 and 465.
    \23\ See PWG Report, supra note 16, at 21 (citing Del. Code tit. 
8, Section 141(b) (2005)).
    \24\ See id.
    \25\ See id.
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    In August 2007, the Proxy Working Group issued an Addendum to its 
report, recommending that the proposed change to NYSE Rule 452 should 
not apply to investment companies registered under the 1940 Act. The 
Proxy Working Group concluded that an exception for registered 
investment companies was appropriate given the fact, among other 
things, that they are subject to a unique regulatory regime.\26\
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    \26\ See Addendum, supra note 21, at 3.
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III. Summary of Comments

    The Commission received 153 comment letters from 137 
commenters.\27\ Twenty-eight commenters explicitly supported the 
proposal,\28\ and twelve commenters explicitly opposed the 
proposal.\29\ Ninety-seven of the commenters neither explicitly 
supported nor opposed the proposal.\30\ Ninety-five of these ninety-
seven commenters expressed concerns with the proposal,\31\ and ninety-
three urged that the Commission not take

[[Page 33296]]

action on the proposal at this time.\32\ One commenter stated that the 
proposal raised sufficient issues to warrant consideration by the full 
Commission at a public meeting, and that consideration of the proposal 
by delegated authority was inappropriate.\33\
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    \27\ See supra note 5. NYSE also received 39 letters on the PWG 
Report and Recommendation related to amending Rule 452. NYSE 
submitted these letters as part of the proposal. See discussion in 
Notice, supra note 4, and Exhibit 2 to the NYSE's proposed rule 
change.
    \28\ See AFSCME Letter; BCIMC Letter; CalPERS Letter; CalPERS 2 
Letter; CalPERS 3 Letter; CalSTRS Letter; CCGG Letter; CCGG 2 
Letter; CFA Letter; CFA 2 Letter; City of London Letter; CII Letter; 
CII 2 Letter; CII 3 Letter; CII 4 Letter; Colorado PERA Letter; 
Corporate Governance Letter; Cox Letter; CtW Letter; CtW 2 Letter; 
Dobkin Letter; FSBA Letter; FSBA 2 Letter; Glass Lewis Letter; 
GovernanceMetrics Letter; Gratzer Letter (``[e]liminate the rule''); 
Hagberg Letter; Hermes Equity Letter; ICI 4 Letter (supporting the 
proposal as amended); Newground Letter; OPERS Letter; PWG Letter 
(while the PWG continued to believe that the election of directors 
could no longer be considered a routine event in the life of a 
corporation, it also believed that the Commission should consider 
using the opportunity created by the NYSE's proposal to review the 
broader proxy process) (see discussion at Section IV.F, Commission 
Consideration of the Entire Proxy Process, further below); Railpen 
Letter; Relational Investors Letter; Sod'ali Letter; TIAA-CREF 
Letter; and Trillium Letter.
    \29\ See ABC Letter; ABC 2 Letter; ABC 3 Letter; Altman Letter; 
AmEx Letter; Astoria Financial Letter; BB&T Letter; Corning Letter; 
FedEx Letter; FPL Letter; NIRI Letter; Stanton Letter; Suffolk 
Letter; and UQM Letter.
    \30\ See ABA Fed. Reg. Letter; Aetna Letter; Agilent Letter; 
Alcoa Letter; Alston Letter; Anadarko Letter; ArvinMeritor Letter; 
Avery Letter; Avis Letter; BNSF Letter; Broadridge Letter; Boeing 
Letter; Business Roundtable Letter; CA Letter; Cardinal Letter; 
Central Vermont Letter; Ceridian Letter; Chamber of Commerce 2 
Letter; Chevron Letter; Cigna Letter; Cincinnati Financial Letter; 
Computershare Letter; Connecticut Water Letter; ConocoPhillips 
Letter; Continental Letter; Crescent Letter; CSX Letter; Cummins 
Letter; DTE Letter; Eaton Letter; Eli Lilly Letter; EV Letter; Exxon 
Mobil Letter; Fidelity Letter; First American Letter; First 
Financial Letter; Furniture Brands Letter; GE Letter; General Mills 
Letter; GM Letter; Governance Professionals Letter; Gulf Letter; 
Harman Letter; Helmerich Letter; Honeywell Letter; Illinois Stock 
Letter; International Paper Letter; Intel Letter; Jacksonville 
Letter; Johnson Letter; J.P. Morgan Letter; Manifest Letter; 
McKesson Letter; Medco Letter; MGE Letter; Monster Letter; NS 
Letter; Nucor Letter; NYSBA Sec. Reg. Letter; Office Depot Letter; 
OTC Letter; Otter Tail Letter; P&G Letter; Peabody Letter; Pfizer 
Letter; Platinum Letter; Praxair Letter; Provident Letter; Provident 
Financial Letter; Quest Letter; Realogy Letter; Routh Letter; Royal 
Gold Letter; Ryder Letter; S&C Letter; SCC Letter; Schwab Letter; 
Securities Transfer Letter; SIFMA Letter; STA Letter; Standard 
Letter; StockTrans Letter; Suburban Letter; Superlattice Letter; 
Sutherland Letter; Synalloy Letter; Textron Letter; TI Letter; 
Unitrin Letter; Veeco Letter; Verizon Letter; Wachtell Letter; 
Washington Banking Letter; Whirlpool Letter; Xcel Letter; Xerox 
Letter; and YRC Letter.
    \31\ See ABA Fed. Reg. Letter; Aetna Letter; Agilent Letter; 
Alcoa Letter; Alston Letter; Anadarko Letter; ArvinMeritor Letter; 
Avery Letter; Avis Letter; BNSF Letter; Boeing Letter; Business 
Roundtable Letter; CA Letter; Cardinal Letter; Central Vermont 
Letter; Ceridian Letter; Chamber of Commerce 2 Letter; Chevron 
Letter; Cigna Letter; Cincinnati Financial Letter; Computershare 
Letter; Connecticut Water Letter; ConocoPhillips Letter; Continental 
Letter; Crescent Letter; CSX Letter; Cummins Letter; DTE Letter; 
Eaton Letter; Eli Lilly Letter; EV Letter; Exxon Mobil Letter; 
Fidelity Letter; First American Letter; First Financial Letter; 
Furniture Brands Letter; GE Letter; General Mills Letter; GM Letter; 
Governance Professionals Letter; Gulf Letter; Harman Letter; 
Helmerich Letter; Honeywell Letter; Illinois Stock; Intel Letter; 
International Paper Letter; Jacksonville Letter; Johnson Letter; 
J.P. Morgan Letter; Manifest Letter; McKesson Letter; Medco Letter; 
MGE Letter; Monster Letter; NS Letter; Nucor Letter; NYSBA Sec. Reg. 
Letter; Office Depot Letter; OTC Letter; Otter Tail Letter; P&G 
Letter; Peabody Letter; Pfizer Letter; Platinum Letter; Praxair 
Letter; Provident Letter; Provident Financial Letter; Quest Letter; 
Realogy Letter; Routh Letter; Royal Gold Letter; Ryder Letter; S&C 
Letter; SCC Letter; SCC 2 Letter; Schwab Letter; Securities Transfer 
Letter; STA Letter; Standard Letter; StockTrans Letter; Suburban 
Letter; Superlattice Letter; Sutherland Letter; Synalloy Letter; 
Textron Letter; TI Letter; Unitrin Letter; Veeco Letter; Verizon 
Letter; Wachtell Letter; Washington Banking Letter; Whirlpool 
Letter; Xcel Letter; Xerox Letter; and YRC Letter.
    \32\ See ABA Fed. Reg. Letter; Aetna Letter; Agilent Letter; 
Alcoa Letter; Alston Letter; Anadarko Letter; ArvinMeritor Letter; 
Avery Letter; Avis Letter; BNSF Letter; Boeing Letter; Business 
Roundtable Letter; CA Letter; Cardinal Letter; Central Vermont 
Letter; Ceridian Letter; Chamber of Commerce 2 Letter; Chevron 
Letter; Cigna Letter; Cincinnati Financial Letter; Computershare 
Letter; Connecticut Water Letter; ConocoPhillips Letter; Continental 
Letter; Crescent Letter; CSX Letter; Cummins Letter; DTE Letter; 
Eaton Letter; Eli Lilly Letter; EV Letter; Exxon Mobil Letter; 
Fidelity Letter; First American Letter; First Financial Letter; 
Furniture Brands Letter; GE Letter; General Mills Letter; GM Letter; 
Governance Professionals Letter; Gulf Letter; Harman Letter; 
Helmerich Letter; Honeywell Letter; Illinois Stock Letter; Intel 
Letter; International Paper Letter; Jacksonville Letter; Johnson 
Letter; J.P. Morgan Letter; Manifest Letter; McKesson Letter; Medco 
Letter; MGE Letter; Monster Letter; NS Letter; Nucor Letter; NYSBA 
Sec. Reg. Letter; Office Depot Letter; OTC Letter; Otter Tail 
Letter; P&G Letter; Peabody Letter; Pfizer Letter; Platinum Letter; 
Praxair Letter; Provident Letter; Provident Financial Letter; Quest 
Letter; Realogy Letter; Routh Letter; Royal Gold Letter; Ryder 
Letter; S&C Letter; SCC Letter; Schwab Letter; Securities Transfer 
Letter; STA Letter; Standard Letter; StockTrans Letter; Superlattice 
Letter; Synalloy Letter; Textron Letter; TI Letter; Unitrin Letter; 
Veeco Letter; Verizon Letter; Wachtell Letter; Washington Banking 
Letter; Whirlpool Letter; Xcel Letter; Xerox Letter; and YRC Letter.
    \33\ See SCC 2 Letter.
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IV. Discussion and Analysis of Comment Letters

    After careful review and consideration of the comment letters, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 4, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\34\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(5) of 
the Act,\35\ which provides that the rules of the exchange must be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \34\ In approving the proposed rule change, the Commission 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f). The Commission 
notes that several commenters believed that the NYSE's proposal 
would make the proxy voting system less efficient. See Central 
Vermont Letter; Connecticut Water Letter; First Financial Letter; 
Jacksonville Letter; McKesson Letter; Monster Letter; Nucor Letter; 
Provident Letter; Quest Letter; Synalloy Letter; and Veeco Letter; 
see also Astoria Financial Letter (``[F]or many public companies, 
broker voting remains the most efficient means to obtain a quorum 
for shareholder meetings''); BB&T Letter (cost of obtaining quorum 
absent broker discretionary voting would ``be an enormous loss to 
investors,'' and that ``redefinition of what constitutes a 
`contested' election is the most efficient manner to address the 
real corporate governance concerns implied by the Amendment''); and 
Governance Professionals Letter (``The focus should be on solutions 
that contain costs and make the proxy voting system more efficient, 
rather than on increased costs and inefficiency.''); but see 
Relational Investors Letter (``The new administrative burdens 
created by this amendment are far outweighed by the benefits to 
efficient and effective corporate governance.''); see also PWG 
Report, supra note 16. As discussed further below, the Commission 
believes that the NYSE's proposed rule change should better 
enfranchise shareholders, and thereby enhance corporate governance 
and accountability, by assuring that voting is determined by those 
with an economic interest in the company on matters as critical as 
the election of directors, rather than permitting brokers to cast 
votes without instructions for shares beneficially owned by their 
customers, when the broker has no economic interest in those shares. 
Therefore, the Commission believes the NYSE's proposed rule change 
should protect investors and the public interest. Further, the 
Commission does not believe that the proposed change will 
necessarily make the voting process materially less efficient. The 
mechanics of the proxy voting procedure as to how beneficial owners 
return voting instructions to their brokers are not changing. NYSE 
Rule 452 would continue to allow the broker to vote on other routine 
matters, such as the ratification of independent auditors, which 
will help companies meet quorum requirements, and therefore 
alleviate the efficiency concerns raised by commenters. As discussed 
further below, pursuant to Section 19(b) and after reviewing the 
comments, the Commission believes the proposed rule change should be 
approved.
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission, Congress, states, investors and other market 
participants have long recognized the critical role that directors play 
in a corporation. The board of directors has ultimate responsibility 
for the management of the business and the affairs of the company.\36\ 
Shareholders, through their vote, vest with the directors they elect 
this critical duty to manage the company with which they have entrusted 
their resources.\37\ The board of directors generally does not 
participate in the daily business affairs of the company. It delegates 
these responsibilities to management the board selects and supervises. 
The board, however, ultimately is accountable to shareholders for 
corporate decisions.\38\ The most fundamental way in which shareholders 
can ensure that directors remain accountable to them for the directors' 
performance of these critical duties is through the director election 
process.\39\
---------------------------------------------------------------------------

    \36\ See, e.g., Del. Code Ann. Tit. 8, Section 141(a) (``The 
business and affairs of every corporation organized under this 
chapter shall be managed by or under the direction of a board of 
directors, except as may be otherwise provided in this chapter or in 
its certificate of incorporation.'').
    \37\ See e.g., PWG Report, supra note 16, at 21; see also Bruce 
A. Toth and Jason L. Booth, The Board of Directors, Corp. Prac. 
Series (BNA), at A-3.
    \38\ See Toth and Booth, The Board of Directors, Corp. Prac. 
Series, at A-3.
    \39\ See PWG Report, supra note 16, at 21.
---------------------------------------------------------------------------

    As discussed below, the Commission believes that it is reasonable 
and consistent with the Act for NYSE to determine that the election of 
directors should no longer be an item eligible for broker discretionary 
voting, particularly given the large proportion of shares that today 
are held in street name, the importance of corporate governance and 
accountability expressed through the election process, and the concern 
that the broker vote could potentially distort election results.\40\ As 
the Proxy Working Group also concluded, the election of directors is 
not a ``routine'' issue for either the corporation or the shareholders; 
it is a key event in the operation and direction of the corporation and 
the shareholders' exercise of their rights and interests as the owners 
of the corporation.\41\ As such, the Commission believes that NYSE's 
proposal should better enfranchise shareholders by helping assure that 
votes on matters as critical as the election of directors are 
determined by those with an economic interest in the company,\42\ 
rather than the broker who has no such economic interest, and also 
should enhance corporate governance and accountability to shareholders.
---------------------------------------------------------------------------

    \40\ Broker votes can distort election results both by changing 
the outcome of an election and by creating a perception that a 
candidate (or group of candidates) has greater support than would be 
the case considering only the votes of beneficial owners. That 
perception, and in particular an understanding of the lack of 
substantial support for a director, even if he or she receives 
enough votes to be elected, can affect the decisions of the board 
and shareholders. See e.g., PWG Report, supra note 16, at 9 and n. 
12.
    \41\ See PWG Report, supra note 16, at 21.
    \42\ The Commission recognizes that, even under the NYSE's 
proposal, certain situations will continue to exist where a person 
with an economic interest in a company may not be able to vote the 
shares, such as when shares are purchased after the record date for 
a shareholder meeting. Nevertheless, the NYSE's proposal should make 
substantial strides in aligning a securityholder's voting decision 
on director elections with the economic interest in the shares, as 
it will prohibit a broker holding shares in street name, who does 
not have an economic interest in the company, from voting on behalf 
of the beneficial owner in director elections.
---------------------------------------------------------------------------

    The Commission also believes that the NYSE's proposed change 
codifying existing NYSE interpretations of NYSE Rule 452 is consistent 
with the

[[Page 33297]]

requirements of the Act. As discussed below, these proposed amendments 
will codify two previous interpretations that were adopted by the NYSE 
to help ensure the full and effective voting rights of investment 
company shareholders on material matters.\43\ The Commission believes 
that these changes are consistent with the requirements under Section 
6(b)(5) of the Act\44\ that the rules of the Exchange be designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and, in general, 
to protect investors and the public interest.
---------------------------------------------------------------------------

    \43\ See supra note 3. Two commenters supported the proposal 
regarding investment advisory contracts. See CFA 2 Letter and ICI 4 
Letter.
    \44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Increased Costs for Companies To Achieve Quorum

    Several commenters believed that the NYSE's proposal to eliminate 
the broker discretionary vote would make it more difficult for 
companies to obtain a quorum\45\ and elect directors.\46\ Some 
commenters believed that the relatively low retail shareholder 
participation rate in corporate elections would increase the difficulty 
of obtaining a quorum under NYSE's proposal.\47\ Commenters also stated 
that the proposal would increase the cost to a company of obtaining a 
quorum,\48\ by requiring them to incur higher proxy solicitation costs 
\49\ in order to communicate with shareholders, urge them to 
participate in director elections \50\ and support board-nominated 
candidates.\51\ For example, one commenter believed that it would need 
``to retain a proxy solicitor even in the absence of a `contest' * * * 
just to attempt to achieve a quorum.'' \52\ Several commenters noted 
that smaller issuers, in particular, would be negatively affected by 
the NYSE proposal, given their tendency to have a higher proportion of 
retail shareholders,\53\ so that smaller issuers would have to expend a 
disproportionate amount of additional resources to solicit shareholder 
votes, and obtain a quorum.\54\
---------------------------------------------------------------------------

    \45\ See ABA Fed. Reg. Letter; ABC 3 Letter; Alston Letter; 
Altman Letter; Anadarko Letter; ArvinMeritor Letter; Avery Letter; 
Avis Letter; BNSF Letter; Boeing Letter; Business Roundtable Letter; 
CA Letter; Cardinal Letter; Ceridian Letter; Chamber of Commerce 
Letter; Chamber of Commerce 2 Letter; Cigna Letter; Computershare 
Letter; ConocoPhillips Letter; Crescent Letter; CSX Letter; Cummins 
Letter; Eaton Letter; Eli Lilly Letter; Exxon Mobil Letter; FPL 
Letter; General Mills Letter; GM Letter; Governance Professionals 
Letter; Harman Letter; Helmerich Letter; ICI Letter; ICI 2 Letter; 
ICI 3 Letter; ICI 4 Letter; Intel Letter; International Paper 
Letter; Johnson Letter; J.P. Morgan Letter; Medco Letter; NS Letter; 
NYSBA Sec. Reg. Letter; Office Depot Letter; Peabody Letter; Pfizer 
Letter; Royal Gold Letter; Ryder Letter; S&C Letter; Schwab Letter; 
Securities Transfer Letter; STA Letter; Suburban Letter; Textron 
Letter; TI Letter; Unitrin Letter; UQM Letter; Verizon Letter; 
Wachtell Letter; Washington Banking Letter; Whirlpool Letter; Xcel 
Letter; Xerox Letter; YRC Letter; see also CII Letter; and CII 2 
Letter; see also Sutherland Letter.
    \46\ See ICI Letter; ICI 2 Letter; ICI 3, and ICI 4 Letter.
    \47\ See Alston Letter; Intel Letter; S&C Letter; Suburban 
Letter; and Wachtell Letter.
    \48\ See ABC Letter; Agilent Letter; Astoria Financial Letter; 
Central Vermont Letter; Connecticut Water Letter; First Financial 
Letter; ICI 3 Letter; Jacksonville Letter; McKesson Letter; Monster 
Letter; Nucor Letter; Provident Letter; Quest Letter; Schwab Letter; 
Suburban Letter; Suffolk Bank Letter; Synalloy Letter; Veeco Letter; 
and Wachtell Letter; see also Sutherland Letter.
    \49\ See ABC Letter; Chamber of Commerce Letter; Chamber of 
Commerce 2 Letter; Governance Professionals Letter; ICI 2 Letter; 
ICI 3 Letter; ICI 4 Letter; NIRI Letter; Praxair Letter; Quest 
Letter; Realogy Letter; Ryder Letter; Schwab Letter; STA Letter; 
Suburban Letter; Suffolk Bank Letter; Textron Letter; and YRC 
Letter; see also ABC Letter.
    \50\ See ABA Fed. Reg. Letter; ABC Letter; Aetna Letter; Aglient 
Letter; Alston Letter; Altman Letter; AmEx Letter; Anadarko Letter; 
ArvinMeritor Letter; Avery Letter; Avis Letter; BB&T Letter; BNSF 
Letter; Boeing Letter; Business Roundtable Letter; CA Letter; 
Ceridian Letter; Cigna Letter; ConocoPhillips Letter; CSX Letter; 
Cummins Letter; Eaton Letter; Eli Lilly Letter; FPL Letter; General 
Mills Letter; GM Letter; Governance Professionals Letter; Harman 
Letter; International Paper Letter; Jacksonville Letter; Johnson 
Letter; Medco Letter; MGE Letter; Monster Letter; NS Letter; Nucor 
Letter; Office Depot Letter; Peabody Letter; Pfizer Letter; Praxair 
Letter; Realogy Letter; Ryder Letter; SCC Letter; Synalloy Letter; 
Textron Letter; UQM Letter, Whirlpool Letter; Xerox Letter; and YRC 
Letter.
    \51\ See FedEx Letter.
    \52\ See Suburban Letter; see also ABC Letter (stating that in 
``2004, had the broker vote not been in effect, 85 percent of NYSE 
companies would have been working to reach quorum in the final nine 
days before their meetings while 23 percent would not have reached 
quorum by the meeting date. * * * [C]ompanies uncertain of their 
ability to reach quorum * * * would be forced to hire proxy 
solicitors. * * * '').
    \53\ See ABC 3 Letter; Agilent Letter; Alston Letter; AmEx 
Letter; Central Vermont Letter; Computershare Letter; Connecticut 
Water Letter; First Financial Letter; Governance Professionals 
Letter; Jacksonville Letter; McKesson Letter; Monster Letter; Nucor 
Letter; Provident Letter; Quest Letter; SCC Letter; and Synalloy 
Letter; see also Sutherland Letter (stating that the exemption 
should also apply to business development companies).
    \54\ See ABA Fed. Reg. Letter; ABC 3 Letter; Agilent Letter; 
Alston Letter; AmEx Letter; Astoria Financial Letter; Central 
Vermont Letter; Chamber of Commerce 2 Letter; Computershare Letter; 
Connecticut Water Letter; Crescent Letter; First Financial Letter; 
Governance Professionals Letter; Helmerich Letter; Jacksonville 
Letter; McKesson Letter; Monster Letter; Nucor Letter; Provident 
Letter; Quest Letter; Synalloy Letter; and Washington Banking 
Letter; see also Sutherland Letter.
---------------------------------------------------------------------------

    Some commenters also expressed concern with, or noted the 
shortcomings of, the current system of communicating with 
shareholders,\55\ and stated that the proposal should be evaluated in 
connection with a review of shareholder communication rules.\56\ Three 
commenters expressed concern that the proposed rule change could 
magnify the difficulties issuers have in communicating with 
shareholders, especially with objecting beneficial owners 
(``OBOs'').\57\ Commenters recommended that Commission rules be revised 
to facilitate the ability of issuers to contact shareholders 
directly.\58\ According to one commenter, ``[p]ermitting issuers to 
communicate with their shareholders * * * will enable them to `get out 
the vote,' enhancing their ability to obtain needed quorums and 
successfully re-solicit shareholders, if necessary.'' \59\
---------------------------------------------------------------------------

    \55\ See Alcoa Letter; Anadarko Letter; ArvinMeritor Letter; 
Avery Letter; Avis Letter; Boeing Letter; Business Roundtable 
Letter; CA Letter; Cardinal Letter; Ceridian Letter; Chevron Letter; 
Cincinnati Financial Letter; Computershare Letter; ConocoPhillips 
Letter; Continental Letter; Corning Letter; Crescent Letter; CSX 
Letter; Cummins Letter; Eaton Letter; Eli Lilly Letter; EV Letter; 
Exxon Mobil Letter; Fidelity Letter; First American Letter; FPL 
Letter; GE Letter; General Mills Letter; GM Letter; Gulf Letter; 
Helmerich Letter; Illinois Stock Letter; Intel Letter; International 
Paper Letter; Johnson Letter; Manifest Letter; Medco Letter; MGE 
Letter; NIRI Letter; NS Letter; Office Depot Letter; OTC Letter; 
Otter Tail Letter; Peabody Letter; Pfizer Letter; Platinum Letter; 
Praxair Letter; PWG Letter; Realogy Letter; Routh Letter; Royal Gold 
Letter; Ryder Letter; STA Letter; Securities Transfer Letter; 
Standard Letter; StockTrans Letter; Superlattice Letter; Textron 
Letter; Unitrin Letter; Verizon Letter; Washington Banking Letter; 
Whirlpool Letter; Xcel Letter; Xerox Letter; and YRC Letter.
    \56\ See Aetna Letter; Anadarko Letter; ArvinMeritor Letter; 
Avery Letter; Avis Letter; BNSF Letter; Boeing Letter; Business 
Roundtable Letter; CA Letter; Cardinal Letter; Ceridian Letter; 
Chamber of Commerce 2 Letter; Cigna Letter; Cincinnati Financial 
Letter; Computershare Letter; ConocoPhillips Letter; Continental 
Letter; Corning Letter; Crescent Letter; CSX Letter; Cummins Letter; 
Eaton Letter; Eli Lilly Letter; EV Letter; Exxon Mobil Letter; FedEx 
Letter; Fidelity Letter; First American Letter; GE Letter; General 
Mills Letter; GM Letter; Gulf Letter; Helmerich Letter; Honeywell 
Letter; Illinois Stock Letter; Intel Letter; International Paper 
Letter; Johnson Letter; NS Letter; Office Depot Letter; OTC Letter; 
Otter Tail Letter; P&G Letter; Peabody Letter; Pfizer Letter; 
Platinum Letter; Praxair Letter; Realogy Letter; Routh Letter; Ryder 
Letter; STA Letter; Securities Transfer Letter; Standard Letter; 
StockTrans Letter; Superlattice Letter; Textron Letter; TI Letter; 
Unitrin Letter; Verizon Letter; Washington Banking Letter; Whirlpool 
Letter; Xcel Letter; Xerox Letter; and YRC Letter.
    \57\ See Alcoa Letter; Corning Letter; and NIRI Letter.
     OBOs are shareholders who object to having their names and 
addresses disclosed to companies whose shares they own.
    \58\ See Alcoa Letter; Computershare Letter; Corning Letter; ICI 
Letter; ICI 2 Letter; NIRI Letter; PWG Letter; STA Letter; and TI 
Letter; see also Chamber of Commerce 2 Letter (stating that any 
amendment to Rule 452 should be accompanied by an improved 
shareholder communication system).
    \59\ See ICI 2 Letter.
---------------------------------------------------------------------------

    Other commenters believed that quorum concerns were not a valid 
reason for allowing brokers to continue to vote uninstructed shares in 
the

[[Page 33298]]

election of directors.\60\ For example, one commenter believed that the 
participation of institutional investors would assure a quorum for most 
issuers, except for a limited number of small companies.\61\ Moreover, 
several commenters believed that quorum concerns could be addressed 
simply by including a ``routine'' item on the ballot,\62\ such as the 
ratification of auditors,\63\ or with appropriate changes in state law 
to permit shares held by brokers to count solely for purposes of 
establishing quorum.\64\ Also, another commenter believed that 
``issuers can communicate effectively to shareholders through 
established, robust and efficient systems currently in place.'' \65\
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    \60\ See CII 4 Letter; Colorado PERA Letter; FSBA Letter; FSBA 2 
Letter; Glass Lewis Letter; Hagberg Letter; and TIAA-CREF Letter; 
see also CCGG Letter (elimination of U.S. broker non-votes would not 
adversely impact the ability of Canadian issuers to obtain quorum).
    \61\ See Glass Lewis Letter.
    \62\ See Hagberg Letter; Glass Lewis Letter; and TIAA-CREF 
Letter.
    \63\ See CII Letter; CII 2 Letter; CII 4 Letter; Colorado PERA 
Letter; Glass Lewis Letter; Hagberg Letter; and TIAA-CREF Letter; 
contra ICI 3 Letter (stating that ``[a]sking funds to take this 
action for the sole purpose of achieving a quorum'' is unacceptable 
since funds have not been required to ratify the selection of fund 
auditors since 2001.).
    \64\ See CalPERS Letter; Computershare Letter; FSBA 2 Letter; 
ICI 2 Letter; S&C Letter; Sod'ali Letter; and TIAA-CREF Letter; see 
also Suburban Letter (urging further consideration of this 
alternative).
    \65\ See SIFMA Letter.
---------------------------------------------------------------------------

    The Commission acknowledges commenters' concerns regarding the 
potential for the proposed rule change to impact the ability of some 
companies to achieve quorum. For example, the Proxy Working Group 
recognized that smaller issuers may have certain increased costs in 
obtaining quorum due to the high percentage of shares held by retail 
investors.\66\ However, as noted by several commenters, issuers with a 
large institutional shareholder base or with another routine matter on 
their proxies, such as ratification of independent auditors, should not 
face material additional difficulties in achieving a quorum.\67\ The 
Commission notes that a majority of companies other than registered 
investment companies include the ratification of independent auditors 
as a matter for shareholders to approve, even though such approval is 
not required by law,\68\ so that these companies should not, as a 
practical matter, encounter the quorum issue as articulated by the 
commenters. Quorum concerns for other companies, including small 
companies, may be addressed to the extent that these companies include 
an item on their ballot that may be considered a routine matter. The 
Commission also notes a report showing that, if NYSE's proposal were 
implemented, most companies would nevertheless achieve quorum, albeit 
at a date closer to their annual meetings than previously.\69\ More 
fundamentally, however, although issuers may incur increased proxy 
solicitation costs under the NYSE's proposal, the Commission agrees 
with the NYSE and the Proxy Working Group that these costs are 
justified by, among other things, assuring voting on matters as 
critical as the election of directors can no longer be determined by 
brokers without instructions from the beneficial owner, thereby 
enhancing corporate governance and accountability.\70\ Moreover, to the 
extent there are issues regarding establishing a quorum, we do not 
believe having uninstructed votes cast on the election of a director by 
broker-dealers who lack the shareholders' economic interests in the 
corporation is the appropriate way to address the issue.
---------------------------------------------------------------------------

    \66\ See Addendum, supra note 21, at 3; see also PWG Report, 
supra note 16, at 21.
    \67\ See CII Letter; CII 2 Letter; CII 4 Letter; Colorado PERA 
Letter; Glass Lewis Letter; Hagberg Letter; and TIAA-CREF Letter.
    \68\ See CII 4 Letter (stating that including an auditor 
ratification ``resolution on the proxy is a step that many 
corporations already take on their own and one that the Council 
believes is a best practice for all public companies'').
    \69\ See Broadridge Letter and attached report, Updated Analysis 
of the Broker Vote, dated February 3, 2009. Moreover, the Commission 
notes that NYSE's proposed rule change is consistent with the rules 
of other self-regulatory organizations. For example, the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') and The NASDAQ Stock 
Market LLC (``Nasdaq'') do not permit broker discretionary voting 
for their members, unless they do so pursuant to the rules of 
another national securities exchange of which they are also a member 
and the member clearly indicates which rule it is following. See 
National Association of Securities Dealers, Inc. (``NASD'') Rule 
2260 and Nasdaq Rule 2260. We note that NYSE Rule 452 is a member 
rule. Accordingly, NYSE members would follow the NYSE rule 
regardless of where a security is listed. Further, while other self-
regulatory organizations currently allow discretionary voting, we 
would expect these markets to make changes to conform to the NYSE's 
new rules to eliminate any disparities involving voting depending on 
where shares are held. See NYSE Amex Equities Rule 452 and Chicago 
Board Options Exchange, Incorporated Rule 31.74.
    \70\ See PWG Report, supra note 16, at 21 and Notice, supra note 
4. With respect to concerns raised by commenters regarding 
communications with shareholders, the Commission notes that the 
proposed rule change would not alter the existing system of 
shareholder communications, which is outside the scope of NYSE's 
proposed rule change.
---------------------------------------------------------------------------

    As discussed further below,\71\ the Commission believes that 
shareholder education is important for encouraging retail shareholders 
to vote, and could play a key role both in reducing any additional 
proxy solicitation costs incurred by companies, as well as achieving 
the policy goal of fostering investor participation in corporate 
governance. The Commission notes that the Proxy Working Group has 
established an Investor Education Sub-Committee. The Commission 
supports the Proxy Working Group's efforts to develop, and encourages 
the NYSE and its member firms to implement, an investor education 
effort to inform investors about the amendments to NYSE Rule 452, the 
proxy voting process, and the importance of voting.
---------------------------------------------------------------------------

    \71\ See infra Section IV.D., Shareholder Education.
---------------------------------------------------------------------------

B. Disenfranchising Retail Shareholders and Growing Influence of Third 
Parties

    Several commenters stated that the proposal could disenfranchise 
individual shareholders,\72\ because eliminating broker discretionary 
voting may be counter to shareholders' assumptions that their brokers 
would vote on their behalf if they did not vote.\73\ Other commenters 
believed that the proposed rule change would shift voting power toward 
small blocks of voters \74\ and special interest groups wishing to use 
minority stock positions to pursue their own special interests,\75\ and 
non-investment objectives.\76\ Moreover, several commenters

[[Page 33299]]

expressed concern that retail shareholder participation in company 
elections has decreased in recent years,\77\ especially under e-
proxy,\78\ so that the NYSE's proposal would shift disproportionate 
weight to institutional investors,\79\ and increase power in the hands 
of the few shareholders who vote.\80\
---------------------------------------------------------------------------

    \72\ See Aetna Letter; Alcoa Letter; Altman Letter; AmEx Letter; 
Andarko Letter; Arvin Meritor Letter; Avery Letter; Avis Letter; 
BNSF Letter; Boeing Letter; Business Roundtable Letter; CA Letter; 
Cardinal Letter; Ceridian Letter; Chamber of Commerce 2 Letter; 
Chevron Letter; Cigna Letter; Cincinnati Financial Letter; 
Continental Letter; ConocoPhillips Letter; Corning Letter; Crescent 
Letter; CSX Letter; Cummins Letter; DTE Letter; Eaton Letter; Eli 
Lilly Letter; EV Letter; Fidelity Letter; First Financial Letter; 
FPL Letter; Furniture Brands Letter; General Mills Letter; GM 
Letter; Gulf Letter; Harman Letter; Illinois Stock Letter; Intel 
Letter; International Paper Letter; Jacksonville Letter; Johnson 
Letter; J.P. Morgan Letter; McKesson Letter; Medco Letter; MGE 
Letter; Monster Letter; NS Letter; Nucor Letter; Office Depot 
Letter; OTC Letter; Otter Tail Letter; Peabody Letter; Pfizer 
Letter; Platinum Letter; Praxair Letter; Provident Letter; Provident 
Financial Letter; Quest Letter; Realogy Letter; Routh Letter; Ryder 
Letter; SCC Letter; STA Letter; Standard Letter; Stanton Letter; 
StockTrans Letter; Superlattice Letter; Synalloy Letter; Textron 
Letter; TI Letter; Veeco Letter; Verizon Letter; Wachtell Letter; 
Whirlpool Letter; Xcel Letter; Xerox Letter; and YRC Letter.
    \73\ See Aetna Letter; Alcoa Letter; AmEx Letter; Anadarko 
Letter; ArvinMeritor Letter; Avery Letter; Avis Letter; BNSF Letter; 
Boeing Letter; Business Roundtable Letter; CA Letter; Cardinal 
Letter; Ceridian Letter; Cigna Letter; ConocoPhillips Letter; 
Crescent Letter; CSX Letter; Cummins Letter; Eaton Letter; Eli Lilly 
Letter; FPL Letter; General Mills Letter; GM Letter; Harman Letter; 
International Paper Letter; Johnson Letter; Medco Letter; NS Letter; 
Office Depot Letter; Peabody Letter; Pfizer Letter; Praxair Letter; 
Realogy Letter; Ryder Letter; STA Letter; Textron Letter; Verizon 
Letter; Wachtell Letter; Whirlpool Letter; Xcel Letter; Xerox 
Letter; and YRC Letter.
    \74\ See UQM Letter.
    \75\ See Astoria Financial Letter; Chamber of Commerce 2 Letter; 
and S&C Letter.
    \76\ See Chamber of Commerce Letter and Chamber of Commerce 2 
Letter.
    \77\ See Agilent Letter; Alcoa Letter; Alston Letter; Altman 
Letter; Central Vermont Letter; Chevron Letter; Computershare 
Letter; Connecticut Water Letter; Corporate Governance Letter; DTE 
Letter; Eli Lilly Letter; Exxon Mobil Letter; First Financial 
Letter; Furniture Brands Letter; Governance Professionals Letter; 
McKesson Letter; Medco Letter; Monster Letter; Nucor Letter; NYSBA 
Sec. Reg. Letter; Provident Letter; Provident Financial Letter; 
Quest Letter; S&C Letter; Synalloy Letter; Veeco Letter; and 
Wachtell Letter.
    \78\ See AFSCME Letter; Agilent Letter; Alcoa Letter; Alston 
Letter; Altman Letter; Central Vermont Letter; Chevron Letter; CII 4 
Letter; Colorado PERA Letter; Connecticut Water Letter; Corporate 
Governance Letter; DTE Letter; Exxon Mobil Letter; First Financial 
Letter; Furniture Brands Letter; Governance Professionals Letter; 
McKesson Letter; Monster Letter; Nucor Letter; NYSBA Sec. Reg. 
Letter; Provident Letter; Provident Financial Letter; Quest Letter; 
S&C Letter; Synalloy Letter; and Wachtell Letter.
    \79\ See Agilent Letter; Altman Letter; AmEx Letter; BB&T 
Letter; Central Vermont Letter; Chevron Letter; Connecticut Water 
Letter; Corning Letter; DTE Letter; First Financial Letter; 
Furniture Brands Letter; Governance Professionals Letter; Intel 
Letter; Jacksonville Letter; J.P. Morgan Letter; McKesson Letter; 
Medco Letter; Monster Letter; Nucor Letter; Provident Letter; 
Provident Financial Letter; Quest Letter; Stanton Letter; Synalloy 
Letter; Veeco Letter; and Wachtell Letter.
    \80\ See Alston Letter and NIRI Letter. Another commenter opined 
that the proposal confuses civic governance with corporate 
governance. See Suffolk Bank Letter.
---------------------------------------------------------------------------

    Several commenters also believed that eliminating broker 
discretionary voting could increase the influence of proxy advisory 
firms, which provide, among other things, voting recommendations to 
their institutional investor clients.\81\ A number of commenters 
expressed concerns about the degree of influence that proxy advisory 
firms have in corporate elections.\82\ Other commenters expressed 
concern that stock lending and financial derivatives,\83\ as well as 
the impact of over-voting and under-voting,\84\ distort the shareholder 
voting process. Commenters urged the Commission to consider these 
issues in conjunction with the proposal.\85\
---------------------------------------------------------------------------

    \81\ See Aetna Letter; Agilent Letter; Alcoa Letter; Altman 
Letter; Anadarko Letter; ArvinMeritor Letter; Avery Letter; Avis 
Letter; Boeing Letter; Business Roundtable Letter; CA Letter; 
Central Vermont Letter; Ceridian Letter; Chamber of Commerce 2 
Letter; Cigna Letter; Connecticut Water Letter; ConocoPhillips 
Letter; CSX Letter; Cummins Letter; DTE Letter; Eaton Letter; Eli 
Lilly Letter; First Financial Letter; FPL Letter; Furniture Brands 
Letter; General Mills Letter; GM Letter; Governance Professionals 
Letter; Harman Letter; Intel Letter; International Paper Letter; 
Jacksonville Letter; Johnson Letter; J.P. Morgan Letter; McKesson 
Letter; Medco Letter; Monster Letter; NIRI Letter; NS Letter; Nucor 
Letter; Office Depot Letter; Peabody Letter; Pfizer Letter; Praxair 
Letter; Provident Letter; Provident Financial Letter; Quest Letter; 
Ryder Letter; SCC Letter; Synalloy Letter; Textron Letter; Veeco 
Letter; Wachtell Letter; Whirlpool Letter; Xcel Letter; Xerox 
Letter; and YRC Letter. Another commenter stated that the proposal 
might result in a conflict of interest for proxy advisory firms. See 
Cardinal Letter.
    \82\ See Cincinnati Financial Letter; Computershare Letter; 
Continental Letter; Corning Letter; Crescent Letter; EV Letter; 
Exxon Mobil Letter; Fidelity Letter; First American Letter; Gulf 
Letter; Helmerich Letter; Honeywell Letter; Illinois Stock Letter; 
Manifest Letter; MGE Letter; OTC Letter; Otter Tail Letter; Platinum 
Letter; Routh Letter; Royal Gold Letter; S&C Letter; Securities 
Transfer Letter; Standard Letter; StockTrans Letter; Superlattice 
Letter; TI Letter; and Washington Banking Letter.
    Other commenters noted the lack of competition in the current 
proxy distribution process. See SCC Letter; and STA Letter. Some 
commenters suggested that the role of proxy service providers be 
evaluated in conjunction with the proposal. See Cincinnati Financial 
Letter; Continental Letter; Crescent Letter; EV Letter; Fidelity 
Letter; First American Letter; Gulf Letter, Illinois Stock Letter; 
MGE Letter; OTC Letter; Otter Tail Letter; Platinum Letter; Routh 
Letter; S&C Letter; Securities Transfer Letter; Standard Letter; 
StockTrans letter; and Superlattice Letter. The Commission notes 
that these issues are outside the scope of NYSE's proposal.
    \83\ See Alcoa Letter; Cardinal Letter; Cincinnati Financial 
Letter; Continental Letter; Crescent Letter; EV Letter; Fidelity 
Letter; First American Letter; Gulf Letter; Helmerich Letter; 
Illinois Stock Letter; MGE Letter; OTC Letter; Otter Tail Letter; 
Platinum Letter; Routh Letter; Royal Gold Letter; Securities 
Transfer Letter; SCC Letter; STA Letter; Standard Letter; StockTrans 
Letter; Superlattice Letter; Unitrin Letter; and Washington Banking 
Letter.
    \84\ See Cardinal Letter; Cincinnati Financial Letter; 
Continental Letter; Crescent Letter; EV Letter; Fidelity Letter; 
First American Letter; Gulf Letter; Helmerich Letter; Illinois Stock 
Letter; MGE Letter; OTC Letter; Otter Tail Letter; Platinum Letter; 
Routh Letter; Royal Gold Letter; Securities Transfer Letter; SCC 
Letter; STA Letter; Standard Letter; StockTrans Letter; Superlattice 
Letter; Unitrin Letter; and Washington Banking Letter; contra SIFMA 
Letter. Over-voting occurs when a broker-dealer casts more votes on 
behalf of itself and its customers than it is entitled to cast. An 
under-vote occurs when the broker-dealer casts less votes on behalf 
of itself and its customers than it is entitled to cast.
    \85\ See Cardinal Letter; Cincinnati Financial Letter; 
Continental Letter; Crescent Letter; EV Letter; Fidelity Letter; 
First American Letter; Gulf Letter; Helmerich Letter; Illinois Stock 
Letter; Manifest Letter; OTC Letter; Otter Tail Letter; Platinum 
Letter, Routh Letter; Royal Gold Letter; Securities Transfer Letter; 
STA Letter; Standard Letter; StockTrans Letter; Superlattice Letter; 
Unitrin Letter; and Washington Banking Letter. One commenter, 
however, stated that brokers are able to accurately calculate the 
number of equity shares eligible for voting, as ``broker-dealers are 
required to have robust and precise accounting systems in place to 
ensure the integrity of their records of share ownership.'' See 
SIFMA Letter.
---------------------------------------------------------------------------

    However, other commenters believed that the proposal would ensure 
that voting results were not distorted by broker votes \86\ and that 
the true owners of corporations were not disenfranchised.\87\ For 
example, one commenter stated that ``eliminating the ability of brokers 
to vote uninstructed client shares for the election of directors is an 
important first step in improving shareholder democracy and enhancing 
the integrity of the proxy voting system.'' \88\ Several commenters 
opined that continuing to count broker votes would diminish the strides 
being made toward more effective corporate governance, and stressed the 
importance of shareholder participation as more issuers move towards 
majority voting standards for the election of directors.\89\ Commenters 
also suggested that the broker vote may have impacted the result in 
some recent corporate elections.\90\
---------------------------------------------------------------------------

    \86\ See AFSCME Letter; CCGG Letter; CCGG 2 Letter; CII 2 
Letter; CII 4 Letter; Colorado PERA Letter; FSBA Letter; FSBA 2 
Letter; Glass Lewis Letter; Hagberg Letter; OPERS Letter; Railpen 
Letter; see also CalPERS Letter (proposal would ``increase the 
credibility and fairness of the election process''); CtW Letter; CtW 
2 Letter; and Trillium Letter.
    \87\ See CtW Letter; CtW 2 Letter; FSBA Letter; FSBA 2 Letter; 
Glass Lewis Letter; Railpen Letter; Relational Investors Letter 
(also noting that brokers do not have direct economic interest); and 
Trillium Letter.
    \88\ See CCGG 2 Letter.
    \89\ See CII 4 Letter; Colorado PERA Letter; CtW Letter; Hermes 
Equity Letter; Railpen Letter; and TIAA-CREF Letter.
    \90\ See AFSCME Letter; CalPERS 3 Letter; CtW Letter; CtW 2 
Letter; FSBA Letter; FSBA 2 Letter; and Glass Lewis Letter.
---------------------------------------------------------------------------

    The Commission does not believe that the proposal would 
disenfranchise retail shareholders, but would instead be enfranchising 
since it helps assure that only those with an economic interest in a 
company may vote on matters as critical as the election of directors. 
Moreover, the Commission notes that research conducted on behalf of the 
Proxy Working Group indicates that the NYSE's proposal may, in fact, be 
consistent with an assumption of many shareholders that only they can 
vote their shares.\91\ As noted above, the Commission also encourages 
the efforts of the Proxy Working Group to develop an investor education 
effort to inform investors about the amendments to NYSE Rule 452, the 
proxy voting process, and the importance of voting.
---------------------------------------------------------------------------

    \91\ See Investor Attitudes Study, attached as Exhibit B to the 
NYSE's proposal, at page 18 (``Investor Attitudes Study''). The 
Investor Attitudes Study showed that while 37 percent of 
stockholders believed that if they did not vote their proxy on 
routine matters their shares may be voted by their brokers; 30 
percent of stockholders believed that if they did not vote their 
proxy, their shares would not be voted. The Investor Attitudes Study 
showed that even those stockholders who understood that their broker 
may vote their shares failed to completely understand how those 
shares could be voted. Out of the 37 percent cited to in the 
Investor Attitudes Study, 10 percent of stockholders believed that 
their shares would be voted by their brokerage firm based on the 
firm's preference; while 27 percent believed that their brokerage 
firm would vote in accordance with the Board of Director's or the 
company's recommendations. See Investor Attitudes Study at 18.
---------------------------------------------------------------------------

    As to the concerns that the proposal could increase the impact of 
special interest groups holding minority share

[[Page 33300]]

positions, the Commission believes that it is not a basis for not 
approving the proposed rule change. Even if this is the result in some 
cases, it remains consistent with the purposes of the proposed rule 
change, including assuring that investors with an economic interest in 
the company vote on matters as critical as the election of directors, 
thereby enhancing corporate governance and accountability.
    With regard to the concern that proxy advisory firm recommendations 
could have increased influence on director elections,\92\ the 
Commission notes that issues relating to the use of proxy advisory 
services by institutions and others, and whether that use should be 
further regulated, is a matter that will be considered by the 
Commission as it examines broader proxy issues. It is not, however, 
germane to, and does not need to be resolved to approve, the NYSE's 
proposal. While the Commission acknowledges the possibility that, with 
the elimination of the broker vote, the vote of institutions or others 
that use proxy advisory services may, at least in the short term, 
represent a larger percentage of the votes returned in director 
elections, the Commission believes the goals of the NYSE's proposal, as 
described above, are consistent with Section 6(b)(5) of the Act \93\ in 
that the proposal should protect investors and the public interest by 
barring brokers from voting on behalf of investors in uncontested 
elections of directors when they have no economic interest in the 
corporation or the outcome. The Commission further notes that 
institutional investors, whether relying on proxy advisory firms or 
not, must vote the institutions' own shares and, in so doing, must 
discharge their fiduciary duties to act in the best interest of their 
investors and avoid conflicts of interest; institutions are not 
relieved of their fiduciary responsibilities simply by following the 
recommendations of a proxy advisor.\94\
---------------------------------------------------------------------------

    \92\ See notes supra 81 and 82 and accompanying text.
    \93\ 15 U.S.C. 78f(b)(5).
    \94\ See, e.g., 29 U.S.C. 1104 (setting forth the fiduciary 
duties under the Employee Retirement Income Security Act).
---------------------------------------------------------------------------

    The Commission has also considered the various other concerns 
raised by commenters about the broader proxy process, including the 
impact of stock lending and financial derivatives, and over-voting and 
under-voting issues.\95\ While the Commission will separately address 
issues such as these as it examines proxy and voting matters generally, 
they do not directly implicate the NYSE's proposal. The fact that there 
may be more to be done in these areas is not a reason for disapproving 
the NYSE's proposal if, as the Commission believes, the NYSE's proposed 
rule change is consistent with Section 6(b)(5) of the Act.\96\
---------------------------------------------------------------------------

    \95\ See supra notes 83, 84, 85 and accompanying text.
    \96\ See also supra note 42.
---------------------------------------------------------------------------

C. Impact on Companies With Majority Vote Standards for Election of 
Directors

    Several commenters raised concerns about the particular impact the 
proposal could have on companies that have adopted a majority vote 
standard for the election of directors.\97\ Typically, companies that 
have adopted a majority vote standard require each director to receive 
a majority of the votes cast in order to be elected.\98\ Historically, 
most public companies elected directors under a plurality vote 
standard, meaning that the person(s) receiving the most votes would 
serve as a director regardless of whether the shares voted for that 
person constituted a majority of the shares cast.\99\
---------------------------------------------------------------------------

    \97\ See Aetna Letter; Alcoa Letter; Anadarko Letter; 
ArvinMeritor Letter; Astoria Financial Letter; Avery Letter; Avis 
Letter; BB&T Letter; BNSF Letter; Boeing Letter; Business Roundtable 
Letter; CA Letter; Ceridian Letter; Cigna Letter; ConocoPhillips 
Letter; CSX Letter; Cummins Letter; Eaton Letter; Eli Lilly Letter; 
FedEx Letter; FPL Letter; GE Letter; General Mills Letter; GM 
Letter; Harman Letter; Helmerich Letter; International Paper Letter; 
Johnson Letter; J.P. Morgan Letter; Medco Letter; NS Letter; Office 
Depot Letter; Peabody Letter; Pfizer Letter; Praxair Letter; Royal 
Gold Letter; Ryder Letter; S&C Letter; Textron Letter; TI Letter; 
Unitrin Letter; Washington Banking Letter; Whirlpool Letter; Xcel 
Letter; Xerox Letter; and YRC Letter.
    \98\ Some companies have also adopted a policy that requires a 
director to resign if not elected by a majority of the votes cast, 
since under the laws of certain states, if an incumbent director is 
not elected, he or she continues to serve as a holdover director 
until a successor is duly elected and qualified. See generally S&C 
Letter. See also Delaware General Corporation Law Section 141(b) 
(``Each director shall hold office until such director's successor 
is elected and qualified or until such director's earlier 
resignation or removal.'') and California Corporation Code Section 
301(b) (``Each director, including a director elected to fill a 
vacancy, shall hold office until the expiration of the term for 
which elected and until a successor has been elected and 
qualified.'').
    \99\ See PWG Report, supra note 16, at 12-13. Many companies 
with a majority vote standard for election of directors retain a 
plurality vote standard in the event of a contested election of 
directors. As noted by commenters, in recent years, a trend toward 
majority voting has emerged. See text accompanying note 89, supra.
---------------------------------------------------------------------------

    Several commenters believed that companies employing a majority 
vote standard for director elections may have particular difficulty in 
obtaining majority support for director nominees were NYSE's proposal 
to be approved.\100\ Specifically, commenters noted that the 
elimination of broker discretionary voting, coupled with majority 
voting, would make it more difficult for these companies to obtain 
adequate votes to overcome a ``vote no'' campaign by activist 
shareholders,\101\ and thus would disproportionately empower minority 
shareholder groups.\102\ Two commenters suggested that the difficulty 
of obtaining a majority vote without broker discretionary voting might 
discourage issuers from adopting a majority vote standard.\103\
---------------------------------------------------------------------------

    \100\ See FedEx Letter; Helmerich Letter; Royal Gold Letter; 
Unitrin Letter; Wachtell Letter; and Washington Banking Letter.
    \101\ See Alcoa Letter and S&C Letter.
    \102\ See BB&T Letter.
    \103\ See NYSBA Sec. Reg. Letter and Wachtell Letter.
---------------------------------------------------------------------------

    According to an analysis submitted by one commenter, however, in 
calendar year 2007, 373 NYSE-listed companies had majority vote 
standard for the election of directors.\104\ Analyzing the elections of 
those majority vote companies, the analysis found that only eight out 
of 2,718 directors received at least 50 percent withhold votes based on 
actual votes from returned proxy cards by shareholders, while six 
directors received at least 50 percent withhold votes using broker 
voting.\105\ Thus, according to the commenter, only two more directors 
out of 2,718 failed to receive a majority without broker votes.
---------------------------------------------------------------------------

    \104\ See Broadridge Letter and attached analysis. The Corporate 
Library reports that as of December 2008, 49.5 percent of companies 
in the S&P 500 had made the switch to majority voting for director 
elections and another 18.4 percent had, while retaining a plurality 
standard, adopted a policy requiring that a director who does not 
receive majority support must submit his or her resignation. On the 
other hand, the plurality voting standard is still the standard at 
the majority of smaller companies in the Russell 1000 and 3000 
indices, with 54.5 percent of companies in the Russell 1000 and 74.9 
percent of the companies in the Russell 3000 still using a straight 
plurality voting standard. See The Corporate Library Analyst Alert, 
December 2008. As noted earlier, under a plurality vote standard, 
the person receiving the most votes will serve as the director. 
Thus, companies that elect directors under a plurality vote standard 
would have less difficulty in obtaining votes to overcome a ``just 
vote no'' or ``withhold'' campaign.
    \105\ Broadridge also found that seven directors out of 2,718 
directors received greater than or equal to 50 percent withhold 
votes based on proportional voting. See id.
---------------------------------------------------------------------------

    While NYSE's proposal may make it somewhat more difficult for a 
director in a majority vote company to survive a ``just vote no'' or 
similar campaign, the Commission continues to believe the proposal is 
consistent with the requirements of Section 6(b)(5) of the Act, which 
requires that the rules of an exchange be designed to protect investors 
and the public interest, by assuring that voting on matters as critical 
as the election of directors can no longer be determined by brokers 
without instructions from the beneficial owner, thereby enhancing 
corporate

[[Page 33301]]

governance and accountability. In making this determination, the 
Commission recognizes that the increasing percentage of shares held in 
street name, in conjunction with the greater use of just vote no or 
withhold vote campaigns may have resulted in broker voting under Rule 
452 affecting voting on certain non-contested director elections in 
ways not contemplated in 1937. Accordingly, in light of these 
developments and concerns, we believe it is consistent with Section 
6(b)(5) of the Act for the NYSE to determine that their member brokers 
should no longer be voting without instructions on behalf of their 
customers in director elections.

D. Shareholder Education

    Several commenters believed that shareholder education was a 
critical component to making NYSE's proposal workable,\106\ and 
shareholders would need to be educated about the proxy process and the 
importance of voting before the proposal could be implemented.\107\ One 
commenter stated that the ``potential adverse effects'' of the proposal 
were increased if the proposal were adopted without shareholder 
education.\108\ Another commenter believed that director elections 
should only become ineligible for broker voting when the NYSE and other 
constituents were satisfied that shareholders would exercise their 
voting rights.\109\ Commenters emphasized the importance of shareholder 
education with respect to voting rights and director elections,\110\ 
and some commenters urged the Commission (either alone or in 
conjunction with others) to undertake educational efforts designed to 
increase voting participation by retail shareholders.\111\ One 
commenter stated that shareholders would generally benefit from 
shareholder education about broker discretionary voting,\112\ while 
other commenters indicated that approval of the proposal should be in 
conjunction with a shareholder education initiative.\113\
---------------------------------------------------------------------------

    \106\ See Business Roundtable Letter; Chamber of Commerce 2 
Letter; Crescent Letter; GE Letter; and PWG Letter. But see Suburban 
Letter.
    \107\ See Chamber of Commerce 2 Letter; Governance Professionals 
Letter; ICI Letter; and ICI 2 Letter.
    \108\ See NYSBA Sec. Reg. Letter.
    \109\ See ICI Letter and ICI 2 Letter.
    \110\ See Sod'ali Letter; and Verizon Letter.
    \111\ See Corporate Governance Letter (also encouraging the 
Commission to encourage institutional investors to announce their 
proxy votes in advance of meetings and facilitating the development 
of systems like the Investor Suffrage Movement and ProxyDemocracy) 
and NIRI Letter.
    \112\ See Broadridge Letter.
    \113\ See Computershare Letter; Newground Letter; and S&C 
Letter.
---------------------------------------------------------------------------

    As noted above, the Commission supports the Proxy Working Group's 
efforts to develop, and encourages NYSE and its member firms to 
implement, an investor education effort to inform investors about the 
amendments to NYSE Rule 452, the proxy voting process, and the 
importance of voting. The Commission believes the proposal offers 
substantial investor benefits, as noted above, so that its 
implementation should not be delayed. In addition, because 
implementation of the proposal will not occur until January 2010, there 
should be sufficient time for NYSE to inform market participants of the 
changes to its rules on broker discretionary voting.

E. Alternatives of Proportional Voting and Client Directed Voting

    While not part of the NYSE's proposal, several commenters discussed 
proportional voting in their letters. In general, under proportional 
voting, a broker would vote shares held by it in street name, for which 
voting instructions for directors have not been received, in proportion 
to the votes cast by other retail clients of that broker.\114\ Some 
commenters endorsed the concept of proportional voting in general,\115\ 
and several supported proportional voting as an alternative to the 
NYSE's proposal.\116\ Other commenters stated that proportional voting 
should be considered as part of a comprehensive review of the proxy 
voting system.\117\ Several commenters were concerned that proportional 
voting, although potentially effective, would be eliminated under the 
proposal.\118\ Commenters stated that proportional voting could provide 
an even more accurate reflection of the sentiment of retail 
shareholders than eliminating broker discretionary voting.\119\
---------------------------------------------------------------------------

    \114\ Proportional voting may be implemented in two ways. Each 
broker would vote based on the proportion of the votes cast: (1) 
Held by such broker or (2) held by all brokers. Proportional voting 
also could reflect the entirety of votes cast, not just the retail 
vote.
    \115\ See ABA Fed. Reg. Letter; ABC Letter; ABC 3 Letter; 
Agilent Letter; AmEx Letter; Connecticut Water Letter; DTE Letter; 
Exxon Mobil Letter; First Financial Letter; Furniture Brands Letter; 
GE Letter; Governance Professionals Letter; Honeywell Letter; ICI 
Letter; ICI 2 Letter; Jacksonville Letter; J.P. Morgan Letter; 
McKesson Letter; Medco Letter; Monster Letter; Nucor Letter; NYSBA 
Sec. Reg. Letter; Provident Letter; Provident Financial Letter; 
Quest Letter; S&C Letter; Schwab Letter; SIFMA Letter; Synalloy 
Letter; TI Letter; Veeco Letter; and Wachtell Letter; see also PWG 
Letter (no objection to members of SIFMA implementing proportional 
voting).
    \116\ See ABA Sec. Reg. Letter; ABC Letter (supporting 
proportional voting on a broker-by-broker basis); ABC 2 Letter 
(supporting proportional voting on a broker-by-broker basis); ABC 3 
Letter; Agilent Letter; Alston Letter; BB&T Letter; Broadridge 
Letter; Business Roundtable Letter; Connecticut Water Letter; DTE 
Letter; First Financial Letter; Furniture Brands Letter; ICI Letter; 
ICI 2 Letter (recommending proportional voting only in instances 
where a minimum number of beneficial owners vote, or alternatively, 
a minimum percentage of shares outstanding are voted); Jacksonville 
Letter; McKesson Letter; Monster Letter; Nucor Letter; Provident 
Letter; Provident Financial Letter; Quest Letter; S&C Letter; Schwab 
Letter (proportional voting is a ``better first step'' than 
eliminating discretionary broker voting); Synalloy Letter; TI 
Letter; Unitrin Letter; and Veeco Letter.
    \117\ See AmEx Letter; Chamber of Commerce 2 Letter; Governance 
Professionals Letter; and Honeywell Letter. Other commenters 
believed that proportional voting and/or client directed voting 
should be considered in conjunction with any change to NYSE Rule 
452. See Exxon Mobil Letter; and J.P. Morgan Letter.
    \118\ See ABA Fed. Reg. Letter; Agilent Letter; Business 
Roundtable Letter; Connecticut Water Letter; DTE Letter; First 
Financial Letter; Furniture Brands Letter; GE Letter; Governance 
Professionals Letter; Jacksonville Letter; J.P. Morgan Letter; 
McKesson Letter; Medco Letter; Monster Letter; Nucor Letter; 
Provident Letter; Provident Financial Letter; Quest Letter; Synalloy 
Letter; Veeco Letter; and Wachtell Letter; see also Intel Letter.
    \119\ See ABA Fed. Reg. Letter; ABC 3 Letter; Chevron Letter; 
Connecticut Water Letter; First Financial Letter; Furniture Brands 
Letter; GE Letter; Jacksonville Letter; J.P. Morgan Letter; McKesson 
Letter; Medco Letter; Monster Letter; Nucor Letter; NYSBA Sec. Reg. 
Letter; Provident Letter; Provident Financial Letter; Quest Letter; 
Synalloy Letter; and Veeco Letter.
---------------------------------------------------------------------------

    Several commenters also discussed client directed voting as an 
alternative to the proposal,\120\ or believed that client directed 
voting should be considered in conjunction with the proposal.\121\ 
Under client directed voting, for those elections where the beneficial 
owners fail to return specific voting instructions, brokers would vote 
the shares according to the beneficial owners' standing directions. 
These standing directions could be given by beneficial owners at the 
time they sign their brokerage agreements, or periodically thereafter. 
Some commenters believed that client directed voting had merit, either 
to complement the NYSE's proposal or as an alternative.\122\
---------------------------------------------------------------------------

    \120\ See ABA Fed. Reg. Letter; ABC 2 Letter; ABC 3 Letter; 
Agilent Letter; Business Roundtable Letter; Chamber of Commerce 2 
Letter; Connecticut Water Letter; DTE Letter; First Financial 
Letter; Furniture Brands Letter; GE Letter; Intel Letter; 
Jacksonville Letter; McKesson Letter; Monster Letter; Nucor Letter; 
Provident Letter; Provident Financial Letter; Quest Letter; Synalloy 
Letter; and Veeco Letter.
    \121\ See AmEx Letter; Governance Professionals Letter; 
Honeywell Letter; and J.P. Morgan Letter; and SCC Letter.
    \122\ See ABC 2 Letter; ABC 3 Letter; GE Letter; and 
Jacksonville Letter.
---------------------------------------------------------------------------

    On the other hand, several commenters stated that eliminating 
broker discretionary voting is preferable to these alternative 
approaches, including proportional voting.\123\ Some

[[Page 33302]]

commenters believed that proportional voting could complicate the proxy 
voting process and result in abuses,\124\ continue to compromise the 
integrity of proxy voting,\125\ or provide ``a disproportionate weight 
to the votes of disaffected shareholders.'' \126\ Other commenters 
stated that proportional voting violates the ``one share, one vote'' 
principle.\127\ Still other commenters recommended further research and 
consideration on this alternative.\128\
---------------------------------------------------------------------------

    \123\ See CalSTRS Letter, CCGG 2 Letter; CII Letter; CII 2 
Letter; CII 4 Letter; Colorado PERA Letter; FSBA 2 Letter; Hagberg 
Letter; Sod'ali Letter; and TIAA-CREF Letter.
    \124\ See CII Letter; CII 2 Letter; CII 4 Letter; Colorado PERA 
Letter; and TIAA-CREF Letter.
    \125\ See CCGG 2 Letter.
    \126\ See Hagberg Letter.
    \127\ See CalSTRS Letter; CII 4 Letter; Colorado PERA Letter; 
Sod'ali Letter; and TIAA-CREF Letter.
    \128\ See ABA Fed. Reg. Letter; Alston Letter; CalPERS Letter 
(recommending proportional voting for those matters requiring a 
majority or more to pass); Suburban Letter.
---------------------------------------------------------------------------

    For the reasons discussed above, the Commission continues to 
believe that it is consistent with the requirements of Section 6(b)(5) 
of the Act to protect investors and the public interest for NYSE to 
eliminate broker discretionary voting in director elections. While 
several commenters believed that proportional voting would most 
accurately represent the retail vote, the Commission notes that 
proportional voting could have a distortive impact, depending on how it 
is implemented.\129\ In addition, proportional voting would allow votes 
to be cast by someone other than the person with an economic interest 
in the security.\130\ With respect to client directed voting, the 
Commission notes that it raises a variety of questions and concerns, 
such as requiring shareholders to make a voting determination in 
advance of receiving a proxy statement with the disclosures mandated 
under the federal securities laws and without consideration of the 
issues to be voted upon. Finally, the Commission notes that the fact 
that there may be other reasonable alternatives does not mean that the 
rule change proposed by the NYSE is inconsistent with Section 6(b)(5) 
of the Act.\131\ For the reasons discussed above, the Commission finds 
the proposed rule change consistent with the requirements of the Act.
---------------------------------------------------------------------------

    \129\ For example, of the 11 largest brokerage firms using 
proportional voting, only five of these firms used only the votes of 
retail account holders when ``mirroring'' votes for uninstructed 
retail shares. See Broadridge Letter. According to Broadridge, for 
purposes of its analysis, all uninstructed brokerage shares were 
voted on the basis of the instructions received from all brokerage 
account holders, including those of ``professional'' investors. Id.
    \130\ See PWG Report, supra note 16, at 17-18.
    \131\ 15 U.S.C. 78(f)(b)(5). The Commission notes that, in this 
regard, Section 19(b) of the Act requires, among other things, that 
``[t]he Commission shall approve a proposed rule change of a self-
regulatory organization if it finds that such proposed rule change 
is consistent with the requirements of this title and the rules and 
regulations thereunder applicable to such organizations.'' 15 U.S.C. 
78s(b)(2).
---------------------------------------------------------------------------

F. Commission Consideration of the Entire Proxy Process

    Many commenters believed that NYSE's proposal to amend NYSE Rule 
452 should not be viewed in isolation, but should be considered by the 
Commission as part of a comprehensive review of the proxy voting and 
shareholder communication system.\132\ Certain commenters also raised 
concerns regarding the efficiency of shareholder communications and the 
proxy voting process as a whole, as well as the merits of other 
possible alternatives.\133\ Commenters stated that the proposal should 
be examined in light of current circumstances,\134\ such as the rapidly 
shifting corporate governance environment,\135\ and in conjunction with 
alternatives.\136\ Commenters urged the Commission not to take action 
on the proposal until the Commission completed its comprehensive 
review.\137\ For example, one commenter believed that the 
implementation of the NYSE's proposal without other changes to the 
proxy system could have ``unintended and devastating consequences'' in 
the form of increased costs to public companies to ensure quorum, undue 
influence of minority shareholders, and the like.\138\ Moreover, 
another commenter noted that the Commission may be considering two 
proposals that relate to the proxy system: requiring companies to 
include shareholder-selected nominees in the company's proxy materials 
and allowing shareholders to vote on executive compensation (``say-on-
pay'').\139\ This commenter believed that the Commission should 
consider NYSE's proposal at the same time as these two proposals, 
because the issues they raise are intertwined.\140\
---------------------------------------------------------------------------

    \132\ See Alcoa Letter; Alston Letter; Anadarko Letter; Arvin 
Letter; Avery Letter; BNSF Letter; Boeing Letter; Business 
Roundtable Letter; CA Letter; Cardinal Letter; Ceridian Letter; 
Cigna Letter; Cincinnati Financial Letter; Computershare Letter; 
Continental Letter; Corning Letter; Crescent Letter; CSX Letter; 
Cummins Letter; DTE Letter; Eaton Letter; Eli Lilly Letter; EV 
Letter; Exxon Mobil Letter; Fidelity Letter; First American Letter; 
First Financial Letter; Furniture Brands Letter; GE Letter; General 
Mills Letter; GM Letter; Gulf Letter; Harman Letter; Helmerich 
Letter; Honeywell Letter; Illinois Stock Letter; Intel Letter; 
International Paper Letter; Jacksonville Letter; Johnson Letter; 
J.P. Morgan Letter; Manifest Letter; Medco Letter; MGE Letter; 
Monster Letter; NS Letter; Nucor Letter; Office Depot Letter; OTC 
Letter; Otter Tail Letter; P&G Letter; Peabody Letter; Pfizer 
Letter; Platinum Letter; Praxair Letter; Provident Letter; Provident 
Financial Letter; Quest Letter; Realogy Letter; Routh Letter; Ryder 
Letter; S&C Letter; SCC Letter; Securities Transfer Letter; STA 
Letter; Standard Letter; StockTrans Letter; Superlattice Letter; 
Synalloy Letter; Textron Letter; TI Letter; Unitrin Letter; Veeco 
Letter; Verizon Letter; Washington Banking Letter; Whirlpool Letter; 
Xcel Letter; Xerox Letter; and YRC Letter.
    \133\ See e.g., Aetna Letter; Agilent Letter; GE Letter; and 
McKesson Letter.
    \134\ See NYSBA Sec. Reg. Letter and Wachtell Letter.
    \135\ See Wachtell Letter.
    \136\ See Central Vermont Letter; and Chevron Letter.
    \137\ See Aetna Letter; Agilent Letter; Anadarko Letter; 
ArvinMeritor Letter; Avery Letter; Avis Letter; BNSF Letter; Boeing 
Letter; Business Roundtable Letter; CA Letter; Ceridian Letter; 
Chamber of Commerce 2 Letter; Cigna Letter; Cincinnati Financial 
Letter; Connecticut Water Letter; Conoco Phillips Letter; 
Continental Letter; Crescent Letter; CSX Letter; Cummins Letter; DTE 
Letter; Eaton Letter; Eli Lilly Letter; EV Letter; Exxon Mobil 
Letter; Fidelity Letter; First American Letter; First Financial 
Letter; Furniture Brands Letter; GE Letter; General Mills Letter; GM 
Letter; Gulf Letter; Harman Letter; Helmerich Letter; Honeywell 
Letter; Illinois Stock Letter; Intel Letter; International Paper 
Letter; Jacksonville Letter; Johnson Letter; J.P. Morgan Letter; 
Manifest Letter; Medco Letter; MGE Letter; Monster Letter; NS 
Letter; Nucor Letter; Office Depot Letter; OTC Letter; Otter Tail 
Letter; P&G Letter; Peabody Letter; Pfizer Letter; Platinum Letter; 
Praxair Letter; Provident Letter; Provident Financial Letter; Quest 
Letter; Realogy Letter; Routh Letter; Ryder Letter; S&C Letter; SCC 
Letter; Securities Transfer Letter; STA Letter; Standard Letter; 
StockTrans Letter; Superlattice Letter; Synalloy Letter; Textron 
Letter; TI Letter; Unitrin Letter; Veeco Letter; Verizon Letter; 
Washington Banking Letter; Whirlpool Letter; Xcel Letter; Xerox 
Letter; and YRC Letter.
    \138\ See NIRI Letter (``Some of these consequences include the 
potential for increased costs to public companies to ensure a quorum 
is achieved, an increased influence of proxy advisory firms through 
their voting recommendations, additional power in the hands of the 
few shareholders who vote, and a magnification of the shareholder 
communications limitations associated with objecting beneficial 
owners (OBO) who may be unsure of the meaning of this status and are 
unable to receive direct corporate communications.'').
    \139\ See Computershare Letter.
    \140\ Id.
---------------------------------------------------------------------------

    In contrast, other commenters saw no reason to delay NYSE's 
proposal until other issues relating to the proxy voting system had 
been considered, as sufficient time and resources have been spent on 
the proposal's development, and it is justifiable as a stand-alone 
initiative.\141\
---------------------------------------------------------------------------

    \141\ See Dobkin Letter and Hagberg Letter.
---------------------------------------------------------------------------

    The Commission has analyzed and reviewed NYSE's proposal in light 
of the current proxy process, and with full knowledge that a variety of 
proxy and shareholder communication issues are under review. Given the 
benefits to investors of the proposal as discussed above, including 
assuring that voting on matters as critical as the election of 
directors can no longer be determined by brokers without instructions 
from the beneficial owner, thereby enhancing corporate governance and 
accountability, the Commission does

[[Page 33303]]

not believe it is appropriate to delay action on the NYSE's proposal 
pending consideration of the myriad important and difficult issues 
relating to shareholder director nominations, proxy voting, and 
shareholder communication, which are outside the scope of NYSE's 
proposed rule change.\142\ The Commission believes that approval of the 
proposal is warranted pursuant to Section 19(b) of the Act \143\ even 
as it considers broader proxy issues in the near future. We do not 
believe that action on those issues will undermine the fundamental 
concept that decisions as significant as the election of the board of 
directors should be made by those with an economic interest in the 
company, rather than the brokers who have no such economic interest. 
Further, as noted earlier, under Section 19(b)(2) of the Act, the 
Commission must approve the proposal presented by NYSE if it finds the 
proposed rule change consistent with the Act and applicable rules and 
regulations thereunder.\144\
---------------------------------------------------------------------------

    \142\ See Securities Act Release No. 9046 (June 10, 2009) (File 
No. S7-10-09).
    \143\ 15 U.S.C. 78s(b). See also supra note 131.
    \144\ See 15 U.S.C. 78s(b)(2); see also supra note 131.
---------------------------------------------------------------------------

G. Exemptions for Registered Investment Companies Under the Investment 
Company Act of 1940 and Requests for Additional Exemptions

    Seven commenters either supported or did not oppose the exemption 
for registered investment companies.\145\ However, some of these 
commenters, who support the exemption, recommended that it be 
reconsidered at a later date.\146\
---------------------------------------------------------------------------

    \145\ See Altman Letter; CalPERS Letter; CFA 2 Letter; CII 
Letter; FSBA Letter; FSBA 2 Letter; ICI 4 Letter (supporting amended 
proposal); and Sutherland Letter.
    \146\ See CalPERS Letter (``CalPERS is not opposed to exempting 
investment companies from this proposed rule change in the short 
term''); CII Letter (``Given the corporate governance concerns 
surrounding mutual funds, we believe the proposed change should also 
apply to investment companies at some point in the not-too-distant 
future.''); FSBA Letter (proposed exemption for investment companies 
``poses no problem, but this should be re-evaluated at some 
point''); and FSBA 2 Letter (proposed exemption ``is currently 
warranted, but this should be re-evaluated in the future'').
---------------------------------------------------------------------------

    In addition, three commenters requested the exemption also include 
business development companies (``BDCs'') \147\ or smaller issuers, 
which tend to have a high percentage of retail ownership.\148\ Another 
commenter believed the exemption favored registered investment 
companies over other issuers that face similar increased proxy 
solicitation costs and an increased risk of failed elections.\149\ Yet 
another commenter stated that the proposed exemption was over-broad, as 
it included closed-end funds.\150\ That commenter argued that unlike 
open-end funds, closed-end funds typically have institutional bases, 
and do not have the same issues establishing quorum at shareholder 
meetings.\151\
---------------------------------------------------------------------------

    \147\ See ICI 4 Letter and Sutherland Letter.
    \148\ See Altman Letter (requesting an exemption for issuers 
with similar circumstances to those of investment companies, such as 
those ``with a high percentage of retail ownership and burdensome 
cost concerns''); see also Suburban Letter (requesting an exemption 
for Master Limited Partnerships because of the ``disparate impact 
that such amendment would have on MLPs'').
    However, one commenter did not support approval of NYSE's 
proposal under any circumstances and questioned NYSE's rationale for 
letting ``investment companies off the hook.'' See ABC 2 Letter 
(stating that it ``does not support an expansion of the `carve out' 
to include smaller public companies. By and large, we believe that 
`carve outs' are bad public policy.''); see also ABC 3 Letter 
(stating opposition to NYSE's proposal). This commenter noted that 
``the predicament of small and midsize public companies is identical 
to that of small and midsize investment companies * * * . It is hard 
to see, on the merits, why the NYSE provides relief to one group and 
not to the other.'' See ABC 2 Letter.
    \149\ See Alcoa Letter.
    \150\ See City of London Letter. The commenter noted that 
closed-end funds typically trade at a discount to net asset value, 
and suggested that investors in closed-end funds do not view 
themselves as having the option of ``voting with [their] feet.'' Id.
    \151\ Id. But see ICI 2 Letter, which states that retail 
investors own ninety-eight percent of the value of closed-end funds. 
See also further discussion below on the basis for exempting 
registered investment companies under the 1940 Act from the NYSE's 
proposal.
---------------------------------------------------------------------------

    The Commission believes that it is reasonable and consistent with 
the Act for the Exchange to exempt registered investment companies from 
the prohibition in NYSE Rule 452 on broker discretionary voting in 
director elections. NYSE relied on the Proxy Working Group's conclusion 
that the unique regulatory regime governing registered investment 
companies differentiated them from operating companies. In recommending 
the exemption for registered investment companies, the Proxy Working 
Group considered the heightened problems that registered investment 
companies face because of their disproportionately large retail 
shareholder base, that they often do not include other routine matters 
on the ballot,\152\ which would allow a broker vote to count for quorum 
purposes, and that they are subject to the 1940 Act, which, among other 
things, also regulates shareholder participation in key decisions. The 
1940 Act, for example, requires that a registered investment company 
obtain the approval of a majority of its voting securities before 
changing the nature of its business so as to cease to be an investment 
company, deviating from its concentration policy with respect to 
investments in any particular industry or group of industries, or 
changing its subclassification as an open-end company or closed-end 
company. The Commission believes that the different regulatory regime 
for registered investment companies supports the exemption, and finds 
the exemption should, among other things, further the public interest 
and the protection of investors, consistent with Section 6(b)(5) of the 
Act.\153\
---------------------------------------------------------------------------

    \152\ See Rule 32a-4 under the 1940 Act, 17 CFR 270.32a-4, and 
infra note 156 and accompanying text.
    \153\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    While the Commission understands the concerns raised by commenters 
urging NYSE to broaden the exemption, the Commission believes that 
there are sufficient differences between registered investment 
companies and other entities to conclude that NYSE's proposal is 
consistent with the Act.\154\ For example, the regulation of BDCs and 
registered investment companies under the 1940 Act differs 
significantly. Particularly relevant here, the 1940 Act requires a BDC 
to seek ratification of the independent auditor, which is a routine 
item under NYSE Rule 452, at each annual meeting.\155\ Adoption of the 
amendment will therefore have no effect on a BDC's ability to obtain a 
quorum, and expansion of the exemption for registered investment 
companies to include BDCs is unnecessary. A registered investment 
company, however, is exempt from the 1940 Act's auditor ratification 
requirement if it relies on a conditional exemptive rule under the 1940 
Act.\156\ That exemptive rule is not available to BDCs.
---------------------------------------------------------------------------

    \154\ See Altman Group Letter; ICI 4 Letter; and Sutherland 
Letter.
    \155\ See 15 U.S.C. 80a-31(a) and 15 U.S.C. 80a-59. See 17 CFR 
270.32a-4.
    \156\ Rule 32a-4 under the 1940 Act. See 17 CFR 270.32a-4.
---------------------------------------------------------------------------

    The Commission finds it reasonable for the NYSE to distinguish 
between registered investment companies and smaller issuers that may 
have a large retail shareholder base for purposes of allowing broker 
discretionary voting on director elections. While the Commission 
recognizes that small issuers could face similar concerns as registered 
investment companies as a result of the proposed changes to Rule 452, 
there are significant differences between small issuers and registered 
investment companies. For example, as noted by the Proxy Working Group, 
``the unique regulatory regime governing investment companies made such 
companies sufficiently different from

[[Page 33304]]

operating companies (regardless of size) that it was appropriate to 
treat such companies differently.'' \157\ Further, operating companies 
frequently place an item that permits broker discretionary voting, such 
as the ratification of independent auditors, on the ballot, which will 
help them obtain quorum.\158\ In contrast, pursuant to NYSE Rule 452, 
for registered investment companies, only the election of directors 
would qualify as a routine matter on their ballot for purposes of 
establishing quorum.
---------------------------------------------------------------------------

    \157\ See Addendum, supra note 21, at 3.
    \158\ See supra Section IV.A, Increased Costs for Companies to 
Achieve Quorum.
---------------------------------------------------------------------------

    Because of these differences, the Commission believes that it is 
reasonable for the NYSE to distinguish between registered investment 
companies and other entities in defining the scope of the exemption, 
and therefore, believes the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act, which, among other things, 
requires that the rules of an exchange be designed to protect investors 
and the public interest and are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.

H. Implementation Date

    The NYSE's proposal to eliminate broker discretionary voting for 
the election of directors would apply to shareholder meetings held on 
or after January 1, 2010, except to the extent that a meeting was 
originally scheduled to be held prior to that date but was properly 
adjourned to a date on or after it.\159\ The Commission received 
several comments relating to the NYSE's proposed implementation date. 
One commenter recommended that, if the Commission approved the 
proposal, it should initially make the proposal applicable only to 
large accelerated filers, so as to not ``unfairly burden smaller public 
companies and to provide time to observe the effect of the proposed 
amendments in operation.'' \160\ However, other commenters recommended 
that the proposed rule change be implemented earlier.\161\
---------------------------------------------------------------------------

    \159\ NYSE also stated that in the event the proposal is not 
approved by the Commission on or before August 31, 2009, NYSE would 
delay the effective date to a date which is at least four months 
after the approval date, and which does not fall within the first 
six months of the calendar year. See Notice, supra note 4.
    \160\ See ABA Fed. Reg. Letter.
    \161\ See AFSCME Letter (recommending immediate implementation); 
CII 4 Letter (recommending immediate implementation); Colorado PERA 
Letter (requesting that the proposal become effective upon final 
approval); FSBA 2 Letter (recommending that the proposal be 
implemented earlier than 2010); Hermes Equity Letter (requesting 
that the Commission ``allow the amendment to take effect as soon as 
possible''); OPERS Letter (recommending that the proposal be 
implemented earlier than 2010); and Sod'ali Letter (recommending 
that the proposal be immediately effective).
---------------------------------------------------------------------------

    The Commission believes that the NYSE's proposed implementation 
date is reasonable and consistent with the Act. The Commission believes 
that it is reasonable for the NYSE to implement the proposed rule to 
apply to all affected issuers at the same time because the NYSE appears 
to have provided sufficient time for these issuers to adjust to the 
proposed rule change. The Commission also believes that it is 
reasonable for the NYSE to delay the effective date of the proposed 
rule to shareholder meetings held on or after January 1, 2010. The 
Commission recognizes that, given the significance of the NYSE's 
proposed rule change, issuers may need additional time to prepare their 
proxy materials and inform investors of the changes resulting from the 
NYSE's proposal. Accordingly, the Commission believes that the NYSE's 
proposal to apply the proposed rule change to shareholder meetings held 
on or after January 1, 2010 is consistent with the Act.

I. Prior Interpretations to Rule 452

    The Exchange proposes amending NYSE Rule 452 to codify two 
previously published interpretations, which were filed with the 
Commission pursuant to Section 19(b)(2) of the Act.\162\ First, the 
NYSE proposes codifying that NYSE Rule 452 would preclude broker 
discretionary voting on a matter that materially amends an investment 
advisory contract with an investment company. Second, the NYSE proposes 
codifying that a material amendment to an investment advisory contract 
would include any proposal to obtain shareholder approval of an 
investment company's investment advisory contract with a new investment 
adviser, which approval is required by the 1940 Act and the rules 
thereunder.
---------------------------------------------------------------------------

    \162\ See Securities Exchange Act Release Nos. 30697, supra note 
3 (interpreting Rule 452 to allow members organizations to give a 
proxy on the initial approval of an investment advisory contract if 
the beneficial holder does not exercise his right to vote, but 
precluding members organizations from giving proxies on material 
amendments to the investment advisory contracts without specific 
client instructions) and 52569, supra note 3 (interpreting Rule 452 
to preclude member organizations from giving proxies on any proposal 
to obtain shareholder approval of an investment company's investment 
advisory contract with a new investment adviser, which approval is 
required by the 1940 Act, without specific beneficial owners' voting 
instructions).
---------------------------------------------------------------------------

    The Commission received two comment letters on NYSE's codification 
of its prior interpretations.\163\ Both commenters supported this 
proposal.\164\ For example, ICI stated that ``[w]e agree that these 
matters are the types of non-routine matters on which investment 
company shareholders should be required to vote * * *. When investors 
become shareholders of an investment company, they already have chosen 
the adviser in the context of the disclosures in the investment 
company's prospectus and other documents * * *. Given the importance of 
the identity of the adviser and the services it provides to investment 
company shareholders, we believe the benefits of shareholders' voting 
on material amendment to an advisory contract or an advisory contract 
with a new investment adviser outweigh the costs associated with such a 
requirement.'' \165\
---------------------------------------------------------------------------

    \163\ See CFA 2 Letter and ICI 4 Letter.
    \164\ Id.
    \165\ See ICI 4 Letter.
---------------------------------------------------------------------------

    The Commission believes that the NYSE's codification of previously 
published interpretations is consistent with the Act and the rules and 
regulations thereunder. As the Commission has previously stated, 
``[f]ull and effective voting rights of investment company shareholders 
are an important aspect of the investment company structure.'' \166\ 
The Commission believes that the NYSE, by codifying its prior 
interpretations to Rule 452, is providing greater transparency and 
ensuring the consistent application of its interpretations. Further, 
the proposed amendments codify existing NYSE interpretations, which 
were the subject of two prior rule filings.\167\ Accordingly, these 
changes raise no new regulatory issues, and are consistent with the 
Act.
---------------------------------------------------------------------------

    \166\ See Release No. 30697, supra note 3.
    \167\ See supra note 3.
---------------------------------------------------------------------------

J. Conclusion

    The Commission finds, for the reasons set forth above, that the 
Exchange's proposal, as modified by Amendment No. 4, is consistent with 
the requirements of the Act. In particular, the Commission finds that 
the proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act,\168\ which provides that the rules of the exchange 
must be designed to protect investors and the public interest, and are 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \168\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that it is reasonable and consistent with 
the Act for the NYSE to determine that the election of directors should 
no longer be

[[Page 33305]]

an item eligible for broker discretionary voting. As noted above, the 
most fundamental way for shareholders to hold directors accountable for 
their performance of critical corporate duties is through the director 
election process. Given the large proportion of shares that today are 
held in street name, the importance of corporate governance matters, 
and the concern that the broker vote can distort election results, the 
Commission believes it is appropriate for the NYSE to eliminate broker 
discretionary voting in director elections.\169\ In making this 
determination, the Commission believes that the NYSE's proposal, among 
other things, furthers the protection of investors and the public 
interest by assuring that voting on matters as critical as the election 
of directors can no longer be determined by brokers without 
instructions from the beneficial owner, and thus should enhance 
corporate governance and accountability to shareholders.
---------------------------------------------------------------------------

    \169\ As discussed above, NYSE does not propose to eliminate 
broker discretionary voting for registered investment companies 
under the 1940 Act.
---------------------------------------------------------------------------

    The Commission also believes that the NYSE's proposed change 
codifying prior NYSE interpretations of NYSE Rule 452 is consistent 
with the requirements of the Act. These proposed amendments help to 
ensure the full and effective voting rights of investment company 
shareholders on material matters, and further, codify existing NYSE 
interpretations.

V. Conclusion

    It is therefore ordered, that pursuant to Section 19(b)(2) of the 
Act,\170\ the proposed rule change, as modified by Amendment No. 4, is 
hereby approved.
---------------------------------------------------------------------------

    \170\ 15 U.S.C. 78s(b)(2).

By the Commission.
Elizabeth M. Murphy,
Secretary.

Appendix A

    List of comment letters received:
    Letter from Keith F. Higgins, Chair, Committee on Federal 
Regulation of Securities, American Bar Association, dated April 3, 
2009 (``ABA Fed. Reg. Letter''); John Endean, President, American 
Business Conference, dated January 16, 2007 (``ABC Letter''); John 
Endean, President, American Business Conference, dated June 25, 2007 
(``ABC 2 Letter''); John Endean, President, American Business 
Conference, dated March 31, 2009 (``ABC 3 Letter''); Judith H. 
Jones, Vice President and Corporate Secretary, Aetna Inc., dated 
March 26, 2009 (``Aetna Letter''); Charles Jurgonis, Plan Secretary, 
American Federation of State, County and Municipal Employees, AFL-
CIO, dated March 26, 2009 (``AFSCME Letter''); D. Craig Nordlund, 
Senior Vice President, General Counsel and Secretary, Agilent 
Technologies, Inc., dated March 24, 2009 (``Agilent Letter''); Donna 
Dabney, Vice-President, Secretary, and Corporate Governance Counsel, 
Alcoa, Inc., dated March 24, 2009 (``Alcoa Letter''); David E. 
Brown, Mark F. McElreath, Justin R. Howard, and William S. Ortwein, 
Alston & Bird LLP, dated April 1, 2009 (``Alston Letter''); Kenneth 
L. Altman, President, The Altman Group, Inc., dated March 27, 2009 
(``Altman Letter''); Stephen P. Norman, Secretary, American Express 
Company, dated March 27, 2009 (``AmEx Letter''); David L. Siddall, 
Vice President, Deputy General Counsel and Corporate Secretary, 
Anadarko Petroleum Corporation, dated March 25, 2009 (``Anadarko 
Letter''); Charles G. McClure, Chairman, Chief Executive Officer and 
President, ArvinMeritor, Inc., dated March 17, 2009 (``ArvinMeritor 
Letter''); Peter M. Finn, First Vice President, Regulatory Affairs, 
Astoria Financial Corporation, dated March 25, 2009 (``Astoria 
Financial Letter''); Dean A. Scarborough, President and Chief 
Executive Officer, Avery Dennison, dated March 16, 2009 (``Avery 
Letter''); Ronald L. Nelson, Chairman and Chief Executive Officer, 
Avis Budget Group, Inc., dated March 23, 2009 (``Avis Letter''); 
Frances B. Jones, Executive Vice President, Secretary, General 
Counsel and Chief Corporate Governance Officer, BB&T Corporation, 
dated March 26, 2009 (``BB&T Letter''); Doug Pearce, Chief Executive 
Officer and Chief Investment Officer, British Columbia Investment 
Management Corporation, dated March 31, 2009 (``BCIMC Letter''); 
Matthew K. Rose, Chairman, President and Chief Executive Officer, 
Burlington Northern Santa Fe Corporation, dated March 27, 2009 
(``BNSF Letter''); Robert Schifellite, President, Investor 
Communication Solutions, Broadridge Financial Solutions, Inc., dated 
March 27, 2009 (``Broadridge Letter''); W. James McNerney, Jr., 
Chairman of the Board, President and Chief Executive Officer, The 
Boeing Company, dated March 26, 2009 (``Boeing Letter''); Anne M. 
Mulcahy, Chair, Corporate Leadership Initiative, Business 
Roundtable, dated March 25, 2009 (Business Roundtable Letter''); 
Clifford DuPree, Vice President, Corporate Governance and Corporate 
Secretary, CA, Inc., dated March 27, 2009 (``CA Letter''); Peter H. 
Mixon, General Counsel, CalPERS, dated June 25, 2007 (``CalPERS 
Letter''); Peter H. Mixon, General Counsel, CalPERS, dated October 
26, 2007 (``CalPERS 2 Letter''); Dennis A. Johnson, Senior Portfolio 
Manager, CalPERS Corporate Governance, dated April 29, 2008 
(``CalPERS 3 Letter''); Anne Sheehan, Director, Corporate 
Governance, California State Teacher's Retirement System, dated 
March 27, 2009 (``CalSTRS Letter''); Sally J. Curley, Senior Vice 
President, Cardinal Health, Inc., dated March 30, 2009 (``Cardinal 
Letter''); Doug Pearce, Chairman, Canadian Coalition for Good 
Governance, dated January 19, 2009 (``CCGG Letter''); Stephen 
Griggs, Executive Director, Canadian Coalition for Good Governance, 
dated March 27, 2009 (``CCGG 2 Letter''); Dale A. Rocheleau, Senior 
Vice President, General Counsel and Corporate Secretary, Central 
Vermont Public Service Corporation, dated March 27, 2009 (``Central 
Vermont Letter''); Kathryn V. Marinello, Chairman and Chief 
Executive Officer; Ceridian Corporation, dated March 25, 2009 
(``Ceridian Letter''); Kurt N. Schacht, Executive Director, CFA 
Institute Centre for Financial Market Integrity, dated March 31, 
2008 (``CFA Letter''); Kurt N. Schacht, Managing Director, and James 
C. Allen, Director, CFA Institute Centre for Financial Market 
Integrity, dated March 27, 2009 (``CFA 2 Letter''); David Chavern, 
Senior Vice President and Chief Legal Officer, Chamber of Commerce 
of the United States of America, dated November 13, 2006 (``Chamber 
of Commerce Letter''); David T. Hirshmann, President and Chief 
Executive Officer, Center for Capital Markets Competitiveness, 
United States Chamber of Commerce, dated March 27, 2009 (``Chamber 
of Commerce 2 Letter''); Lydia I. Beebe, Corporate Secretary and 
Chief Governance Officer, Chevron, dated March 27, 2009 (``Chevron 
Letter''); H. Edward Hanway, Chairman and Chief Executive Officer, 
Cigna Corporation, dated March 26, 2009 (``Cigna Letter''); Ann 
Yerger, Executive Director, Council of Institutional Investors, 
dated June 5, 2007 (``CII Letter''); Amy Borrus, Deputy Director, 
Council of Institutional Investors, dated November 5, 2007 (``CII 2 
Letter''); Ann Yerger, Executive Director, Council of Institutional 
Investors, dated April 17, 2008 (``CII 3 Letter''); Jonathan D. 
Urick, Research Analyst, Council of Institutional Investors, dated 
March 19, 2009 (``CII 4 Letter''); Steven J. Johnston, Chief 
Financial Officer, Secretary and Treasurer, Cincinnati Financial 
Corporation, dated March 25, 2009 (``Cincinnati Financial Letter''); 
Barry M. Olliff, Chief Investment Officer, City of London Investment 
Company Limited, dated March 27, 2009 (``City of London Letter'') 
(also requesting that the proposal not exempt closed-end funds 
registered under the Investment Company Act of 1940); Gregory W. 
Smith, General Counsel, Colorado Public Employees' Retirement 
Association, dated March 26, 2009 (``Colorado PERA Letter''); Paul 
Conn, President, Global Capital Markets, Computershare Limited, and 
David Drake, President, Georgeson Inc., dated March 27, 2009 
(``Computershare Letter''); Daniel J. Meaney, Corporate Secretary, 
Connecticut Water Company, dated March 25, 2009 (``Connecticut Water 
Letter''); J.J. Mulva, Chairman and Chief Executive Officer, 
ConocoPhillips, dated March 26, 2009 (``ConocoPhillips Letter''); 
Steven G. Nelson, President and Chairman of the Board, Continental 
Stock Transfer and Trust Company, dated March 24, 2009 
(``Continental Letter''); James B. Flaws, Vice Chairman and Chief 
Financial Officer, Corning Incorporated, dated March 24, 2009 
(``Corning Letter''); James McRitchie, Publisher, Corporate 
Governance, dated March 13, 2009 (``Corporate Governance Letter''); 
Marc Cox, dated April 26, 2009 (``Cox Letter''); Barbara Trivedi, 
Shareholder Services Manager, Crescent Banking Company, dated March 
25, 2009 (``Crescent Letter''); Ellen M. Fitzsimmons, Senior Vice 
President--Law and Public Affairs and General Counsel, CSX 
Corporation, dated March 18, 2009 (``CSX Letter''); William B. 
Patterson, Executive Director, CtW

[[Page 33306]]

Investment Group, dated June 6, 2007 (``CtW Letter''); William B. 
Patterson, Executive Director, CtW Investment Group, dated April 17, 
2008 (``CtW 2 Letter''); Tim Solso, Chairman and Chief Executive 
Officer, Cummins Inc., dated March 25, 2009 (``Cummins Letter''); 
David M. Dobkin, dated March 27, 2009 (``Dobkin Letter''); Patrick 
B. Carey, Associate General Counsel & Assistant Corporate Secretary, 
DTE Energy, dated March 27, 2009 (``DTE Letter''); Alexander M. 
Cutler, Chairman and Chief Executive Officer, Eaton Corporation, 
dated March 13, 2009 (``Eaton Letter''); Bronwen L Mantlo, Associate 
General Counsel and Assistant Secretary, dated March 26, 2009 (``Eli 
Lilly Letter''); Holly Roseberry, President, EV Innovations, Inc., 
dated March 25, 2009 (``EV Letter''); David S. Rosenthal, Vice 
President, Investor Relations and Secretary, Exxon Mobil 
Corporation, dated March 27, 2009 (``Exxon Mobil Letter''); 
Christine P. Richards, Executive Vice President, General Counsel and 
Secretary, FedEx Corporation, dated March 26, 2009 (``FedEx 
Letter''); Kevin Kopaunik, President, Fidelity Transfer Company, 
dated March 24, 2009 (``Fidelity Letter''); Salli Marinov, President 
and Chief Executive Officer, First American Stock Transfer, Inc., 
dated March 24, 2009 (``First American Letter''); Dorothy B. Wright, 
Vice President and Corporate Secretary, First Financial Holdings, 
Inc., dated March 24, 2009 (``First Financial Letter''); Alissa E. 
Ballot, Vice President and Corporate Secretary, FPL Group, Inc., 
dated March 23, 2009 (``FPL Letter''); Michael McCauley, Director, 
Office of Corporate Governance, State Board of Administration of 
Florida, dated June 13, 2007 (``FSBA Letter''); Ashbel C. Williams, 
Executive Director and Chief Executive Officer, State Board of 
Administration of Florida, dated March 27, 2009 (``FSBA 2 Letter''); 
Jon D. Botsford, Senior Vice President, General Counsel and 
Secretary, Furniture Brands International, dated March 23, 2009 
(``Furniture Brands Letter''); Michael R. McAlevey, Vice President 
and Chief Corporate, Securities and Finance Counsel, General 
Electric Company, dated April 13, 2009 (``GE Letter''); Roderick A. 
Palmore, Executive Vice President, General Counsel and Chief 
Compliance and Risk Management Officer, General Mills, dated March 
17, 2009 (``General Mills Letter''); Robert McCormick, Chief Policy 
Officer, Glass Lewis & Co., dated March 13, 2009 (``Glass Lewis 
Letter''); G. Richard Wagoner, Jr., Chairman and Chief Executive 
Officer, General Motors Corporation, dated March 27, 2009 (``GM 
Letter''); Brian Connolly, Director of Sales, GovernanceMetrics 
International (``GovernanceMetrics Letter''); Neila B. Radin, Chair, 
Securities Law Committee, The Society of Corporate Secretaries and 
Governance Professionals, dated March 20, 2009 (``Governance 
Professionals Letter''); Steven Gratzer, dated April 27, 2009 
(``Gratzer Letter''); William A. Little III, President, Gulf 
Registrar and Transfer Corporation, dated March 24, 2009 (``Gulf 
Letter''); Carl T. Hagberg, Chairman and CEO, Carl T. Hagberg and 
Associates, dated March 27, 2009 (``Hagberg Letter''); Dinesh C. 
Paliwal, Chairman and Chief Executive Officer, Harman International, 
dated March 26, 2009 (``Harman Letter''); Steven R. Mackey, 
Executive Vice President, Secretary and General Counsel, Helmerich & 
Payne, Inc., dated March 24, 2009 (``Helmerich Letter''); Bess 
Joffe, Associate Director, Hermes Equity Ownership Services Limited, 
dated March 20, 2009 (``Hermes Equity Letter''); Thomas F. Larkins, 
Vice President, Corporate Secretary and General Counsel, Honeywell, 
dated March 27, 2009 (``Honeywell Letter''); Paul Schott Stevens, 
President, Investment Company Institute, dated November 20, 2006 
(``ICI Letter''); Paul Schott Stevens, President, Investment Company 
Institute, dated December 18, 2006 (``ICI 2 Letter''); Paul Schott 
Stevens, President, Investment Company Institute, dated February 20, 
2007 (``ICI 3 Letter''); Karrie McMillian, General Counsel, 
Investment Company Institute, dated March 27, 2009 (``ICI 4 
Letter'') (supporting the proposal, as amended to exempt investment 
companies); Robert G. Pearson, President and Chief Executive 
Officer, Illinois Stock Transfer Company, dated March 24, 2009 
(``Illinois Stock Letter''); Maura Abelin Smith, Senior Vice 
President, General Counsel and Corporate Secretary, International 
Paper Company, dated March 24, 2009 (``International Paper 
Letter''); Cary Klafter, Vice President, Legal and Corporate 
Affairs, Intel Corporation, dated March 26, 2009 (``Intel Letter''); 
Gilbert J. Pomar, III, President and Chief Executive Officer, and 
Valerie A. Kendall, EVP and Chief Financial Officer, Jacksonville 
Bancorp Inc., dated March 26, 2009 (``Jacksonville Letter''); 
Stephen A. Roell, Chairman and Chief Executive Officer, Johnson 
Controls, Inc., dated March 25, 2009 (``Johnson Letter''); Anthony 
J. Horan, Corporate Secretary, J.P.Morgan Chase & Co., dated March 
27, 2009 (``J.P. Morgan Letter''); Sarah Wilson, Chief Executive, 
Manifest, dated March 27, 2009 (``Manifest Letter''); McKesson 
Corporation, dated March 27, 2009 (``McKesson Letter''); Thomas M. 
Moriaty, General Counsel, Secretary and SVP, Medco Health Solutions, 
Inc., dated March 26, 2009 (``Medco Letter''); Kenneth G. Frassetto, 
Director--Treasury Management and Shareholder Services, MGE Energy, 
Inc., dated March 26, 2009 (``MGE Letter''); Michael C. Miller, 
Executive Vice President, General Counsel and Secretary, Monster 
Worldwide, Inc., dated March 24, 2009 (``Monster Letter''); Larry S. 
Dohrs, Vice President, Newground Social Investment, dated March 27, 
2009 (``Newground Letter''); Jeffrey D. Morgan, CAE, President & 
CEO, National Investor Relations Institute, dated March 16, 2009 
(``NIRI Letter''); C.W. Moorman, Chairman, President and Chief 
Executive Officer, Norfolk Southern Corporation, dated March 23, 
2009 (``NS Letter''); Daniel R. DiMicco, Chairman, President and 
Chief Executive Officer, Nucor Corporation, dated March 25, 2009 
(``Nucor Letter''); Jeffrey W. Rubin, Chair, Business Law Section, 
Committee on Securities Regulation, New York State Bar Association, 
dated March 27, 2009 (``NYSBA Sec. Reg. Letter''); Elisa D. Garcia, 
Executive Vice President and General Counsel, Office Depot, Inc., 
dated March 24, 2009 (``Office Depot Letter''); Chris DeRose, Chief 
Executive Officer, Ohio Public Employees Retirement System, dated 
March 24, 2009 (``OPERS Letter''); Toni Zaks, President, OTC 
Corporate Transfer Service, dated March 24, 2009 (``OTC Letter''); 
Loren K. Hanson, Assistant Secretary, Otter Tail Corporation, dated 
March 24, 2009 (``Otter Tail Letter''); E. J. Wunsch, Assistant 
Secretary and Associate General Counsel, The Procter & Gamble 
Company, dated March 27, 2009 (``P&G Letter''); Alexander C. Schoch, 
Executive Vice President, Chief Legal Officer and Secretary, Peabody 
Energy, dated March 17, 2009 (``Peabody Letter''); Matthew Lepore, 
Vice President, Chief President-Corporate Governance, Pfizer, dated 
March 27, 2009 (``Pfizer Letter''); Laura J. Cataldo, President and 
Chief Executive Officer, Platinum Stock Transfer, dated March 24, 
2009 (``Platinum Letter''); James T. Breedlove, Senior Vice 
President, General Counsel and Secretary, Praxair, dated March 27, 
2009 (``Praxair Letter''); Daniel Rothstein, Executive Vice 
President, Provident Bank, dated March 27, 2009 (``Provident 
Letter''); John F. Kuntz, General Counsel and Corporate Secretary, 
Provident Financial Services, Inc. (``Provident Financial Letter''); 
Larry W. Sonsini, Chairman, Proxy Working Group, dated March 25, 
2009 (``PWG Letter''); William J. O'Shaughnessy, Jr., Assistant 
General Counsel and Corporate Secretary, Quest Diagnostics 
Incorporated, dated March 25, 2009 (``Quest Letter''); Frank 
Curtiss, Head of Corporate Governance, Railways Pension Trustee 
Company Limited, dated April 15, 2009 (``Railpen Letter''); Marilyn 
Wasser, Executive Vice President and General Counsel, Realogy 
Corporation, dated April 2, 2009 (``Realogy Letter''); Ralph V. 
Whitworth, Principal, Relational Investors LLC, dated March 12, 2009 
(``Relational Investors Letter''); Jason Freeman, President, Routh 
Stock Transfer, Inc., dated March 24, 2009 (``Routh Letter''); Karen 
Gross, Vice President and Secretary, Royal Gold, Inc., dated March 
23, 2009 (``Royal Gold Letter''); Robert D. Fatovic, Executive Vice 
President, Chief Legal Officer and Corporate Secretary, Ryder, dated 
March 26, 2009 (``Ryder Letter''); Sullivan & Cromwell LLP, dated 
March 27, 2009 (``S&C Letter''); Niels Holch, Executive Director, 
Shareholder Communications Coalition, dated March 27, 2009 (``SCC 
Letter''); Niels Holch, Executive Director, Shareholder 
Communications Coalition, dated April 24, 2009 (``SCC 2 Letter''); 
R. Scott McMillen, Vice President and Associate General Counsel, The 
Charles Schwab Corporation, dated March 27, 2009 (``Schwab 
Letter''); George Johnson, Vice President, Securities Transfer 
Corporation, dated March 24, 2009 (``Securities Transfer Letter''); 
Thomas F. Price, Managing Director, Securities Industry and 
Financial Markets Association (``SIFMA Letter'') (noting that some 
of the assertions made by other commenters were ``inaccurate and 
promote confusion,'' and presenting its own observations on those 
issues); John C. Wilcox, Chairman, Sod'ali, dated March 27, 2009 
(``Sod'ali Letter''); Charles V. Rossi, President, The Securities 
Transfer Association, Inc., dated March 27, 2009 (``STA Letter''); 
Mary Cleo Fernandez,

[[Page 33307]]

Transfer Agent, Standard Registrar Transfer Agency, Inc., dated 
March 24, 2009 (``Standard Letter''); Robert M. Stanton, dated March 
25, 2009 (``Stanton Letter''); Jonathan Miller, President, 
StockTrans, Inc., dated March 24, 2009 (``StockTrans Letter''); Paul 
Abel, General Counsel and Secretary, Suburban Propane Partners, 
L.P., dated November 16, 2006 (``Suburban Letter'') (resubmitted on 
March 3, 2009); Douglas Ian Shaw, Senior Vice President and 
Corporate Secretary, Suffolk County National Bank, Suffolk Bancorp, 
dated March 13, 2009 (``Suffolk Letter''); Holly Roseberry, 
Director, Superlattice Power, Inc., dated March 25, 2009 
(``Superlattice Letter''); Steven B. Boehm and Cynthia M. Krus, 
Sutherland Asbill and Brennan LLP, dated March 31, 2009 
(``Sutherland Letter''); Cheryl C. Carter, Corporate Secretary, 
Synalloy Corporation, dated March 25, 2009 (``Synalloy Letter''); 
Lewis B. Campbell, Chairman and Chief Executive Officer, Textron 
Inc., dated March 30, 2009 (``Textron Letter''); Cynthia H. Haynes, 
Vice President, Assistant Secretary and Assistant General Counsel, 
Texas Instruments Incorporated, dated March 26, 2009 (``TI 
Letter''); Hye-Won Choi, Senior Vice President and Head of Corporate 
Governance, TIAA-CREF, dated March 27, 2009 (``TIAA-CREF Letter''); 
Jonas Kron, Senior Social Research Analyst, Trillium Asset 
Management, dated March 17, 2009 (``Trillium Letter''); Scott 
Renwick, Senior Vice President and General Counsel, Unitrin, dated 
March 27, 2009 (``Unitrin Letter''); Donald A. French, Treasurer, 
UQM Technologies, Inc., dated March 26, 2009 (``UQM Letter''); 
Gregory A. Robbins, Senior Vice President and General Counsel, Veeco 
Instruments Inc., dated March 26, 2009 (``Veeco Letter''); Marianne 
Drost, Senior Vice President, Deputy General Counsel and Corporate 
Secretary, Verizon Communications Inc., dated March 27, 2009 
(``Verizon Letter''); David A. Katz, Wachtell, Lipton, Rosen & Katz, 
dated March 26, 2009 (``Wachtell Letter''); Shelly L. Angus, Senior 
Vice President, Investor Relations, Washington Banking Company, 
dated March 23, 2009 (``Washington Banking Letter''); Robert J. 
LaForest, Vice President and Associate General Counsel, Whirlpool 
Corporation, dated March 26, 2009 (``Whirlpool Letter''); Michael C. 
Connelly, Vice President and General Counsel, Xcel Energy, dated 
March 27, 2009 (``Xcel Letter''); Anne M. Mulcahy, Chairman and 
Chief Executive Officer, Xerox Corporation, dated March 25, 2009 
(``Xerox Letter''); and William D. Zollars, Chairman of the Board, 
President and Chief Executive Officer, and YRC Worldwide Inc., dated 
March 25, 2009 (``YRC Letter'').

[FR Doc. E9-16318 Filed 7-9-09; 8:45 am]

BILLING CODE 8010-01-P
