SEC clears Tesla-crafted auto-vote plan for wide use, worrying activists

By Ross Kerber

Sept 30 (Reuters) – Wall Street’s top regulator backed a plan developed by electric carmaker Tesla allowing companies to have investors opt to cast proxy votes in line with management automatically, worrying corporate activists, who say it will further diminish their influence.

The program builds on an arrangement created by Exxon last year. Both aim to increase the traditionally low participation rate of retail investors in corporate annual meeting elections, now around 30%, to closer to the 77% rate of institutional investors. Retail investors tend to vote with management but exhibit a “rational apathy” to casting ballots since individually they own tiny proportions of equity.

Shareholder activists said the program, along with other steps by the SEC, currently operating with only Republican commissioners, would unnecessarily diminish their influence. It is one of a number of steps under the Trump administration to shift power away from investors to corporate executives and boards.

In a letter to the US Securities and Exchange Commission dated September 29, Tesla outlined what it called an “issuer voluntary retail voting program” based on “extensive discussions” with SEC staff.  

The program would save money issuers currently spend soliciting retail votes, Tesla said. It spent more than $2 million rounding up mom-and-pop support at its two most recent annual meetings, including one designed to gain backing for CEO Elon Musk’s pay package.

Currently investors often cast ballots via website, mail or phone, methods Tesla said its program would supplement. “Without a user-friendly way to vote, the proxy voting system disproportionately affects the vote and voice of retail investors,” Tesla said in its letter. 

In a same-day response, an official in the SEC’s Division of Corporation Finance, Tiffany Posil, approved Tesla’s plan and said the action applies to any other issuer.

Private investor James McRitchie, who often sponsors critical shareholder resolutions, said in an email that a better reform would allow shareholders to choose among their own priorities. These might include climate protection or limiting executive pay.

As approved by the SEC, the change is “blatantly one-sided,” McRitchie said.

The SEC declined further comment. Tesla did not respond to requests for comment.

(Reporting by Ross Kerber; editing by David Gaffen)

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