Global Proxy Exchange

1
Global Proxy Exchange

• How Proxies Should Work.

2
Capitalism Transformed

• Capitalism has been transformed over the last 100
  years.
• No longer are corporations owned by Morgans,
  Rockefellers and Carnegies ...

3
Democracy of Capitalism

• Today, corporations are owned by the masses,
• through mutual funds, pension plans and direct
  stock holdings.

4
Its Broken ...

• Democracy of Capitalism is broken because
  individuals dont vote the shares they own.
• rational apathy due to individual holdings being
  too fragmented.
• institutional ownership prevents individuals from
  voting shares they beneficially own.

5
Result Managerial Capitalism
... control may be held by the directors or
titular managers who can employ the proxy
machinery to become a self-perpetuating body,
even though as a group they own but a small
fraction of the stock outstanding. Berle and
Means , 1932
6
Solution

• Put individual investors back in charge.
• ... by implementing a non-profit, Global Proxy
  Exchange.
• Unlike an exchange for trading stocks or futures,
  
• ... this will allow individuals to secure,
  transfer, aggregate and exercise proxy rights.
• This includes proxy rights they hold
• Directly through stocks they own, and
• Indirectly through mutual funds, pension plans,
  etc.

7
Imagine a Woman ...

• If her mutual fund company allowed her to
  transfer her voting rights to anyone she chose,
• ... how would capitalism be transformed?

8
Transfer Proxy Rights to Whom?

• The woman could transfer her rights to
• A charity,
• A professional association,
• Her union,
• Her investment club,
• A faith-based organization,
• Her uncle Howard,
• ... Anyone willing to accept them.

9
Transferring Rights

• The proxy exchange is accessed through a secure
  website.
• The woman has an account already established for
  her by her mutual fund company.
• The fund company has depositedher rights into
  the account.
• With a click of the mouse, she can transfer all
  current and future rights to whomevershe
  chooses.

10
Different Sets of Screens Offer Various Options

• Actually, the exchange website offers various
  options
• Basic screens allow the woman to transfer all
  her rights to another party.
• Intermediate screens offer other optionssay to
  transfer rights to two or more parties.
• Advanced screens allow her to vote her shares
  herself through the exchange.
• Most individual investors will use the basic
  screens and transfer all their rights to a single
  party.

11
Example

• Suppose the woman uses the simple set of screens
  and transfers all her rights to a charity
  involved in childrens issues.
• What will the charity do with the rights?

12
What Will the Charity Do?

• The charity is in the same position as the woman
• It has an account on the exchange,
• Voting rights are being deposited into it
• ... from the woman, and from other investors.

13
The Charity has the Same Options as the Woman

• The charity can use the same basic, intermediate
  or advanced screens to
• Transfer the rights on to another party it
  trusts,
• Directly vote the shares itself, or
• something else, like vote some shares and
  transfer the rest.

14
Proxy Exchange In Action
Investment Advisor
15
Four Categories of Participantsin the Exchange

• Assigners anyoneprimarily financial
  institutions or institutional investorswho
  assigns proxy rights to the exchange
• Beneficiaries the beneficial ownersprimarily
  individual investorson whose behalf those proxy
  rights are assigned to the exchange
• Aggregators anyone willing to accept voting
  rights from beneficiaries or other aggregators
  and
• Voters parties who ultimately make voting
  decisions.

16
The Categories Overlap Example

• Suppose a woman and her father are both investors
  in a mutual fund.
• The fund assigns its proxy rights to the
  exchange, identifying the woman and her father
  (along with its other investors) as the
  beneficial owners.
• The father transfers his rights to the woman.
• She transfers their combined rights to a charity,
  which votes the shares.

17
Example Continued

• In this example,
• the mutual fund is an assigner.
• The father is a beneficiary.
• The woman is both a beneficiary and an
  aggregator.
• The charity is an aggregator and a voter.
• ... the roles overlap.

18
Can Shareholders Appoint Any Proxy They Like?

• Shareholders have a legal right to appoint a
  proxy to vote shares and otherwise act on their
  behalf.
• They can dictate how a proxy is to act, or they
  can leave that decision to the proxy.
• Today, the only viable proxy most individual
  investors can appoint is management.
• The notion that shareholders can select their own
  proxy resembles Henry Fords comment that people
  can buy any color automobile they wantso long as
  it is black.

19
Proxy Fights Offer One Alternative

• In rare circumstances, a proxy fight arise in
  which a competing group sends out a mailing to
  shareholders soliciting a grant of proxy rights.
• That situation is akin to offering automobiles
  that are either black or gray.

20
A Proxy Exchange Offers Choices

• A proxy exchange will allow shareholders to
  select anyone they like to exercise their voting
  rights.

21
Legal Issues

• A proxy exchange can be launchedunder existing
  laws.
• There are no legal or regulatory obstacles in
  the United States.
• Other Common Law jurisdictions are similar.
• From a legal standpoint, a proxy exchange is a
  surprisingly simple entity.
• To understand why, we have to perceive the proxy
  exchange in a different way from how we have
  described it so far ...

22
The Exchange Will Serve As Everyones Proxy

• Legally, the proxy exchange will serve as the
  proxy for everyone.
• It will hold all proxy rights.
• It will exercise those proxy rights according to
  the instructions of beneficiaries.
• If a beneficiary chooses to vote her own shares,
  the exchange will vote the shares according to
  her instructions.
• If she transfers rights to an aggregator, the
  transaction will legally be her instructing the
  exchange to exercise the proxy rights on her
  behalf according to the aggregator's instructions.

23
Distinction

• Proxy rights are constitutional rights.
• They are granted to the exchange by assigners.
• The exchange exercises them according to the
  instructions of beneficiaries.
• Exchange rights are contractual rights.
• They are rights to instruct the exchange on how
  to exercise the underlying proxy rights.
• They are granted to beneficiaries by the exchange
  on the instructions of assigners.
• Exchange rights may be transferred to and among
  aggregators.

24
A Proxy Exchange In Action
Assigners
Corporations
Proxy Rights
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Aggregators
25
Adam SmithDisliked Corporations
Adam Smith commented on managers of corporations
... being the managers rather of other peoples
money than of their own, it cannot well be
expected, that they should watch over it with the
same anxious vigilance with which the partners of
a private copartnery frequently watch over their
own ...
26
Agency Costs

• Agency theory tells us that board members,
  managers, and aggregators will make the personal
  commitment their roles require if they get
  something in return.
• Is there any real difference between
• a board member who acts generally for the
  financial benefit of shareholders so he can
  pursue his own agenda of securing perks for
  himself, and
• a board member who acts generally for the
  financial benefit of shareholders so he can
  pursue his own agenda of getting corporate money
  out of politics?

27
Competition Among Aggregators

• A proxy exchange will attract numerous
  aggregators who will compete for beneficiaries
  voting rights based on
• qualitytheir perceived ability to maximize
  shareholder value, and
• pricethe perceived magnitude and nature of
  their agency costs.

?
28
A New Market for Corporate Control

• A proxy exchange will be a new market for
  corporate control
• ... more efficient and less costly than hostile
  takeovers or traditional proxy fights.
• This will
• minimize agency costs,
• maximize shareholder value, and
• advance social agendas that have broad support
  among shareholders.

29
(No Transcript)
30
Global Proxy Exchange

• Implementation Strategy

31
Challenge How To Implement
Assigners
Corporations
Proxy Rights
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Aggregators
32
Stakeholders
Thousands of Corporations Globally
InvestmentAdvisors
Unions
non-profits
Other
33
Vision A Global Proxy Exchange
34
Hub Spoke Organization

• The exchange can be established as a network of
  affiliated organizations
• One central exchange in the US that serves as
  proxy for everyone, and
• Spoke regional organizations to serve as the
  exchanges representative in each country or
  region.
• All organizations will be non-profit.

35
Six-Step Implementation
Voting Infrastructure
Incorporation
Recruit Early Beneficiaries
Cultivate Early Voters
Recruit Aggregators
Media Campaign

• Both the central and spoke organizations will
  follow a similar progression.
• Spoke organizations will do so concurrently or
  lagged a few months.

36
Step AIncorporation

• Goal Incorporate and secure funding.
• Form a board of directors.
• Incorporate a non-profit that will become the
  proxy exchange.
• Develop a detailed business plan, including
  funding needs.
• Obtain a grant from a major foundation.

37
Step AIncorporation
Assigners
Corporations
Proxy Rights
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Aggregators
38
Step BVoting Infrastructure

• Goal Acquire personnel and infrastructure to
  actually vote shares of all listed US
  corporations.
• The funding foundation and partner pension plans
  will contribute the votes to be exercised
• They will appoint the proxy exchange as their
  proxy.
• They will direct the exchange on how to vote.
• They will transfer their existing proxy voting
  departments to the exchange, so there will be the
  same people and systems doing the work.
• Over time, those resources will be expanded to
  meet the future needs of the exchange.

39
Step BVoting Infrastructure
Corporations
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Aggregators
40
Step CCultivate Early Voters

• Goal Cultivating organizations willing to serve
  as early voters.
• Essentially, we will be marketing the proxy
  exchange concept to charities, unions,
  professional associations, etc.
• We will identify groups of like-minded
  organizations and convince them to pool resources
  and each form a captie voting organization.
• A group of environmental organizations.
• A group of unions.
• Etc.

41
Step CCaptive Voting Organization
42
Step CCultivate Early Voters

• Early voters will be granted some exchange
  rights, so they can direct how shares are voted.
• Those exchange rights will come from the
  foundation that had previously directed the
  exchange on how to vote its shares.
• Some pension plans may also allow their shares to
  be voted by the early voters.

43
Step CCultivate Early Voters
Foundation Pension Funds
Corporations
Proxy Rights Some Decisions
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Exchange Rights
Aggregators
44
Step DRecruit Aggregators

• Goal Recruit as an aggregator every recognizable
  organization beneficiaries might want to transfer
  exchange rights to.
• We will work with early voters recruited in Step
  C to identify and recruit aggregators.
• Recruiting aggregators will be easy as being an
  aggregator entails little more than
• Having an account on the exchange, and
• Selecting another aggregator to transfer exchange
  rights to.

45
Step DRecruit Aggregators
Foundation Pension Funds
Corporations
Proxy Rights Some Decisions
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Exchange Rights
Aggregators
46
Step ERecruit Early Beneficiaries

• Goal Recruit initial or pioneer beneficiaries.
  
• As a practical matter, this will be about
  recruiting assigners
• mutual funds
• defined contribution plans
• brokers, etc.
• Their clients will then become pioneer
  beneficiaries.

47
Step ERecruit Early Beneficiaries

• Pioneer financial institutions will have two
  incentives to participate
• The opportunity to make a difference by helping
  launch the proxy exchange, and
• The prospect of benefiting from marketing of the
  proxy exchange in Step Finvestors to switch
  accounts from other financial institutions to
  pioneer institutions.
• The first incentive will apply to all
  institutions. The second will be relevant for
  mutual funds and brokers.

48
Step ERecruit Early Beneficiaries
Assigners
Corporations
Proxy Rights
Decisions
Proxy Exchange
Exchange Rights
Decisions
Beneficiaries
Voters
Exchange Rights
Exchange Rights
Aggregators
49
Step FMedia Campaign

• Goal To expand the proxy exchange to all
  financial institutions and beneficial
  shareholders.
• We will launch a media campaign to create
  interest among beneficial shareholders.
• We will work with non-profits, unions and other
  aggregators to promote the proxy exchange to
  their constituencies.
• Message to beneficial shareholders If your
  financial institution doesnt participate in the
  proxy exchange, move your account to one that
  does.

50
Step FMedia Campaign

• We will directly approach non-participating
  financial institutions and encourage them to get
  involved.
• We will also target institutions we didnt focus
  on earlier
• Defined benefit pension plans,
• Life insurers.

51
Today

• What can ICPM and its partners do today?
• Form a committee to start work on Step A
• Recruit a board of directors.
• Incorporate a non-profit.
• Develop a detailed business plan and financials.
• Seek foundation funding.

52
(No Transcript)