U.S. Securities Law Update | October 2020
Electronic Voting System of Broadridge Can Impact Voting at Shareholder Meetings of Israeli Companies on Proposals Requiring a Personal Interest Statement
Companies publicly traded in the U.S. typically utilize the shareholder communication services of Broadridge Financial Solutions, Inc. in connection with shareholder meetings, including sending proxy materials to participating brokers. Based on our recent experience, the electronical voting card of Broadridge may omit the recommendation of boards of directors on proposals that require a personal interest statement under Israeli law.
The Israeli Companies Law requires that certain transactions, including the election of external directors, CEO compensation, adoption of compensation policies and transactions with controlling shareholders, require a special shareholder majority vote. This special majority requires, in addition to the usual majority shareholder vote, that one of the following must occurs:
- the transaction is approved by a majority of votes of shareholders present at the shareholder meeting who confirm that they do not have a personal interest in the transaction (and in most certain cases, also that they are not controlling shareholders of the Company); or
- the total number of votes of the non-interested shareholders mentioned in clause (i) above voted that against approval of such transaction does not exceed 2% of the total voting rights in the company.
Companies typically state in proxy statements they send to shareholders that their board of directors recommends approval of the proposals submitted to the shareholders for approval. These board recommendations also appear on the electronic voting card prepared by Broadridge that are sent to shareholders who hold shares though their brokerage account. However, we understand that there is a default in Broadridge’s electronic voting system that presents no recommendation of the board of directors on its electronic voting card regarding proposals which require a personal interest statement – even if the proxy statement contain a favorable board recommendation for such proposals.
Given the difficulty at times in obtaining the necessary approval of shareholders for proposals that require a personal interest statement, we recommend that our clients and friends contact their transfer agent prior to their next shareholder meeting to work with Broadridge in order ensure that the board recommendations will appear as “FOR” on the electronic voting card for all proposals to shareholders, including those requiring a personal interest statement .
 There will continue to be no recommendation of the board on the proxy card for the question whether the shareholder has a personal interest in the proposal or is a controlling shareholder.