Who’s between a company and its shareholders? According to the SEC, it’s merely brokers, banks, custodians, securities depositories, transfer agents, proxy solicitors, proxy service providers, proxy advisory firms, and vote tabulators. Here’s the quote from their Concept Release on the US Proxy System:

The manner in which proxy materials are distributed and votes are processed and recorded involves a level of complexity not generally understood by those not involved in the process. This complexity stems, in large part, from the nature of share ownership in the United States, in which the vast majority of shares are held through securities intermediaries such as broker-dealers or banks; this structure supports prompt and accurate clearance and settlement of securities transactions, yet adds significant complexity to the proxy voting process. As a result, the proxy system involves a wide array of third-party participants in addition to companies and their shareholders, including brokers, banks, custodians, securities depositories, transfer agents, proxy solicitors, proxy service providers, proxy advisory firms, and vote tabulators.

In the US, the children’s game is known as Telephone. Elsewhere in the world, it’s known as Chinese whispers, Grapevine, Broken Telephone, Whisper Down the Lane, Gossip, Le Téléphone Arabe, and Stille Post.

Do you know what it takes to get that freshly-baked proxy ballot in your mitts every year? Under the illusion that the company annually queries their shareholder database and performs a massive Mail Merge? Start with the fact that companies don’t even know the names of most of their shareholders, complicate this with the reality that your shares are likely held in your broker’s name, and spread this over millions of shareholders and thousands of companies.

Here’s the SEC’s diagram revealing the complexity of the industry that has evolved under these conditions:

diagram

A little more complicated than you were expecting?  Yeah, me too.

“Farming looks mighty easy when your plow is a pencil and you’re a thousand miles from the corn field.”  –Dwight D. Eisenhower