Richard D. Foley
6040 N. Camino Arturo
Tucson, AZ 85718
February 3, 2006
Re: In the
Matter of the Arbitration Between: Stephen Nieman, Claimant v. Smith
Barney and Edward Jones NYSE Arbitration #2004-015790
Dear Ladies and Gentlemen of the NYSE Arbitration Panel:
I hold proxies for Mr. Stephen Nieman and Mr. John Furqueron, the individuals
in this case whose voting rights were violated.
This is a simple case in which the brokerage firms failed in their duty to
supply legal forms of proxy at the request of the stockowners for the 2004
Alaska Air Group, Inc. annual meeting.
While it is simple on the surface, it also a supremely important case, which
will have a wide impact on investors, the exchange and its client brokers and
- The owners of the shares in question had the absolute right to vote the
shares and or assign their proxy to another to vote them at the meeting with
the same right and authority of the owner.
- The shares and all the rights connected to them cannot be separated from
each other. Hence, the monetary value of some of the
rights cannot be assessed as being less valuable than the
price of the whole share.
- The duty of the agents (Smith Barney and Edward Jones) cannot be entirely
severed by the employment of a third party.
- The failure of a third party reverts the duty back to the agent brokers.
- Time factors are established for the proper delivery of shareholder materials
including voting materials. However, the owner never entirely relinquishes
their rights, or the entitlement to those rights until the polls close at
the annual meeting. Thus, the shareholder has the right to
demand of their agent-broker a legal form of proxy up until the closing
of the polls.
- The practicality of making and fulfilling such a demand do have some effect,
but this effect is not limited by relying exclusively on the U.S.
Postal Service ("USPS").
- The practice of reliance upon the USPS ability to accept, process, and
deliver dates back over a century at least to the 1860’s when the Lincoln
administration denied access to the USPS to publishers which were perceived
to be in opposition to its polices. While telegraph technology
was in place at that time, its use for wide distribution of substantial
packages information such as a newspaper or a corporate proxy statement
was not practical at that time.
- Today's immense development of communication technology has not yet been
harnessed to meet the practical needs compared to when the
basic securities laws in the United States were written and installed.
- However, with the development and wide spread availability of FAX and
Email technology, practical instant delivery of such documents as
a legal form of proxy became commonplace. I have personally received by FAX the
proxy of shareholders after the beginning of an annual meeting and before
the closing of the polls. I have personally received offers
from the proxy department of other brokers to FAX me, within 15 minutes
of my telephone request, a legal form of proxy.
- As a matter of common practice in virtually every proxy statement, the
voting procedures are addressed in the very first pages. These voting
instructions all address voting by street name holders in cases where the
shareholder wants to change their vote to instruct their bank or broker by
contacting them directly. All voting instructions now address the use
of Internet and telephonic communications. This constitutes a universal
acknowledgement of the shareholders’ right not to be bound
by postal delivery of legal forms of proxy, and confirmation of the
right to expect that such delivery will utilize electronic communications.
- It is not necessary to review all these exact wording other than noting
that the US SEC has repeatedly called all participants to use plain
English in these communications. (See: Robert L. Payne & Richard Foley & AESOA
re Santa Fe Southern Pacific c. 1988 –– first known shareholder
proposal calling for use of plain English).
- Such calls, however, did not endeavor to specify every word, clause, sentence,
or paragraph used to address these voting rights and concerns.
- The NYSE is currently involved in a transformation to a for-profit corporation
and moving forward towards and electronic stock exchange through
use of electronic technology now widely available.
- The US SEC is currently examining the issues surrounding electronic delivery
of annual statements, proxy statements, and so forth.
- For the NYSE and its clients to maintain their reputations of honest and
fair financial servants, it is necessary that they retain a high
awareness of their efficiency and the public’s ability though the use of these
higher technologies to render an instant dynamic impact on the reputations
of providers. This phenomenon has been born with these technologies
to empower the common user to rank the trustworthiness of any provider. (See
Ebay Feedback Forum for trading partner reputation ratings, etc.
- The law, common and other, does not define all requirements for actions
by agents or sub-agents. It is absurd to argue that an entity like
the Exchange or a corporation has no duty beyond that specifically spelled
out in statute. Were that argument true, then there would be no need
for the judicial system. That justice is blind does not mean that she
is without common sense. This case has been brought here for review
out of an obvious need for the application of common sense. It
is only reasonable that all parties strive to reach a reasonable
conclusion that can be seen by the common investor to be an exemplar
of common sense and a bulwark against erosion of their rights of
ownership and their rights to participate.
- This world is in the throes of a new revolution in participation by the
common citizen empowered with gifts previously reserved to the Gods
of former eras. The Internet is providing access to knowledge instantly, and
all participants engaged in commerce must face the now undeniable fact that
their reputations are subject to review as never before in history. There
are millions more citizens now participating as individual investors in the
collective marketplace. This number will grow exponentially as changes
are made to the pension and social security systems. Vendors of financial
services must lead the world community in establishing a new standard of
accountability, which begins where the statutes and rulings of the law end
and rise to a higher level. The financial services industry must become
the standard bearer as the investors’ champion in protecting
the rights of ownership.
- Some twenty years ago, the NYSE and ADP put a contract in place for the
processing, publishing, and distribution of corporate information
and the shareholder voting process. The conditions of technology to provide
these services have undergone a revolution. Yet many twists and turns
that should have been deleted remain. Rules developed for the processes
have grown to be overlapping, which have the appearance to be subject to
whimsical interpretation. Such a situation is no longer acceptable
or tolerable, and I assert is not an inconsiderable liability to
the entire system.
- Four primary examples should suffice for the purposes of this hearing. They
- Broker voting uncast client shares
- Exchange determination of when a contested election exists
- Camouflaging shareholder rights
- Employee training
- Requirement of contact info on ballot cards for legitimate US SEC-qualified
candidates for board seats
- (a) The genuine
need of corporations to rely upon broker votes for any purpose
no longer exists. Technology has freed the corporations from relying
on the USPS for delivery of proxy votes to conduct business. The only
discernible utility for Broker votes is now to create an artificially
slanted playing field favoring corporate management in contested
- (b) Current
NYSE Exchange rules state that upon notification, a contested election
is in effect will be based upon the paying of a fee to ADP to print and deliver
by USPS all challenger proxy materials. This is redundant
and wasteful, particularly when the US SEC via EDGAR and the corporation
in question have already included such notice to shareholders in
electronic securities filings, as well as the corporation's proxy
statement, which has already been delivered to all shareholders,
banks, brokers and such intermediaries, and the challengers have
all publicly declared that a contest is in effect and the challengers
are conducting an Internet-Only Proxy Solicitation. The only
discernible utility of such rule interpretation is to create an
artificial barrier for the challengers and thereby establish an
uneven playing field favoring incumbent management.
- (c) Camouflaging
shareholder rights is a nice way of saying that up until this case
and claim by Mr. Nieman, no party has brought forth the facts surrounding
the methodology by which a shareholder can attain the legal form of proxy
to which they are entitled. That is, under the current system, to check
a box on the proxy card, be it a paper or electronic, indicating that the
shareholder will be attending the annual meeting in person. I would
assert that this is “camouflaging" the shareholders rights behind
the inference that shareholder may be placing themselves under some degree
of obligation to actually attend the meeting regardless of its location. That
this box may also serve the corporation in determining to some limited degree
the size of the room necessary for conducting the annual meeting
is not superior to the shareholders right to access their rights to exercise
their ownership rights. If the need for the corporation to pre-determine
the room size for the annual meeting is worthy then a separate box for that
purpose should be provided. It should not be camouflaged and piggybacked
on top of the genuine right of the shareholder to receive a legal
form of proxy.
- (d) Mr.
Nieman followed the directions in the proxy statement to contact
his broker and the broker of shareholder for whom he held a proxy for that
purpose of attaining legal forms of proxy. In both instances, the employees
of both brokerage firms failed to perform their duty. Why these employees
did not understand their duties could be attributed to a number
of possibilities, the least reprehensible of which would be lack of training. The
public has the right to expect brokerage firms to properly train and supervise
their employees. Certainly shareholder clients of brokerage firms have
the right to expect the employees of the firm to conduct themselves to a
minimum standard of professionalism, which would of necessity include a through
working knowledge of the rights of shareholders and the system by which the
duties of the firm are fulfilled to the shareholder clients. Mr. Nieman
has already described in detail the lack of interest and knowledge he encountered. This
lack of knowledge even extended to the level of an attorney within
Smith Barney whose day off was of more importance to her than the fulfilling
of the firms duty to Mr. Nieman. The Exchange and the defendants have
a duty to train their employees to make certain that those employees
are able to fulfill the duties and obligations of the firm to its shareholder
have no way of knowing how wide the lack of training of employees
of clients of the Exchange ranges. However, once known, steps must
be taken to reconcile this situation and to establish the necessary
processes to assure that all clients of the Exchange are insuring
that their employees are properly trained concerning the voting
rights of the shareholder clients.
- (e) Exchange include required contact info (URL for Internet site and/or
phone number) on paper or electronic proxy cards for challenger
candidates who have qualified under US SEC rules for a legitimate proxy
- Mr. Nieman has not filed for monetary damages. However, I believe
that the Panel must consider this issue, make a determination that he is
so entitled, and make a determination of what a proper compensation should
be. Mr. Nieman has rearranged his work schedule that has
resulted in lost wages as he has prepared over the last sixteen
months to present this case.
- Mr. Nieman has not specifically filed for his expenses. However,
I believe that the Panel should award him his expenses and
a sum equal to one half of the normal hourly billing of the attorneys representing
the defendants at the same number of hours, which would otherwise be
accounted to these attorneys.
- Recommendation as to 20(a) discussed above, the Exchange should take immediate
steps to remove all broker voting.
- Recommendation as to 21(b) discussed above, the Exchange should immediately
revise it rules to accept that a contested election is in effect
upon notification that a proper challenger proxy contest is underway
according to US SEC rules.
- Recommendation as to 22(c) discussed above, the Exchange should immediately
instruct ADP and all others necessary that henceforth its proxy
cards on paper or electronic will have a box which the shareholder may
check which will clearly instruct the agent to provide the shareholder with
a legal form of proxy which the shareholder is free to assign to any other
party of their choosing.
- Recommendation as to 23(d) discussed above, the Exchange should immediately
instruct the respondent firms to take the necessary steps to insure
that its employees are properly trained in the ownership rights of its
shareholder clients. Further, that the Exchange make a public announcement that
it is undertaking a review of client employee training in the area of the
ownership rights of shareholder clients to raise the professional knowledge
and conduct up to a higher standard. Further, that the Exchange
make a public announcement of the steps it is taking to implement
an end to broker voting, insuring that shareholder are clearly
notified on their proxy cards that they have the right to receive
a legal form of proxy, and the Exchange's recognition of Internet-only
proxy contests, and that Mr. Nieman be recognized as being directly
responsible for assisting the Exchange in identifying these concerns
and subsequent actions.
- Recommendation as to 24(e) discussed above, it would NOT be proper if the
Exchange did not provide contact information on challengers, because,
in effect, the Exchange would be "campaigning" just for incumbent
management candidates. That would be akin to federal and state government
voting authorities only allowing information to qualified voters on only
Republican candidates and not legitimate Democratic candidates. The
Exchange would be willfully creating a slanted playing field, which cuts
across the grain of credibility and accountability. Should
the Exchange risk a lawsuit over the one-sided way we have demonstrated
it conducts proxy elections by the way it condones the content
of ballot cards that are mailed to all US stockholders?
- Should the NYSE Arbitration Panel concur with the above recommended actions,
and if Mr. Nieman be compensated and reimburses for his expenses,
I would recommend that Mr. Nieman accept such a finding.
Richard D. Foley