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Broadridge's broad appeal |
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Key
acquisitions and new technologies keep it ahead of competitors.
Corporations
will always have a need to communicate with their shareholders, but changing
regulations, new technologies and evolving shareholder needs are making it
harder to do that without adding costs. The key considerations issuers face
include choosing methods of communication that are most efficient and
cost-effective, as well as deciding which vendor is going to help them
provide the variety of shareholder services that are needed.
Broadridge, the largest provider of proxy distribution and tabulation
services, has made a series of recent acquisitions and product launches that
have positioned it to wield significant influence over how issuers, brokers
and shareholders will communicate with each other in the future. In fact,
the company’s dominance in the area of proxy distribution and voting puts it
in the middle of ongoing discussions about whether or not to overhaul the
current proxy system.
A $2.9 billion powerhouse, Broadridge has a significant footprint in several
areas of the corporate issuer market. It has always been an industry leader
in investor communications services, raking in $1.6 billion in annual
revenues for the year ending June 30, 2011, providing a variety of services
including technology services for proxy and mutual fund information,
brokerage transaction communications, transfer agency business, and virtual
shareholder meetings and forums, as well as other segments. The company also
pulled in another $600 million in revenues during the same period from its
securities processing services business.
Having such tremendous resources and wide reach across many segments within
the industry gives Broadridge the ability to set the agenda on some issues,
but it also gives it the responsibility to make sure its agenda is good for
the industry and for shareholders. Robert Schifellite, president of investor
communications solutions at Broadridge, says the company is pushing the
issuers and brokerage companies it serves to move away from paper mailings
to electronic communications because it is faster and more cost-effective.
NIRI estimates the median cost of printing a full package during proxy
season is $4.82 plus 98 cents for the mailing. About 57 percent of all paper
documents are now converted into electronic documents. When you eliminate
those expenses with electronic delivery, Schifellite says, ‘it results in
more than $500 million in paper and postage cost savings.’
Mobile appeal
Of course,
getting issuers, brokerages and shareholders to consent to electronic
delivery requires great patience and strategic planning. As issuers are
interested in improving the number of overall shares voted, Broadridge
introduced a number of products aimed at boosting shareholder voting. In
March it unveiled its Mobile ProxyVote product, which allows shareholders to
vote their proxies over mobile devices such as the iPad and an array of
smartphones and tablet platforms. Schifellite says close to 150,000 votes
were taken through mobile platforms, and there is evidence that 30 percent
of those who voted using the mobile product were first-time voters.
There is a digital mail product in development that may also increase
voting: Broadridge is planning an ‘electronic mailbox’ that would provide
all investment actions on one screen, so shareholders would have access to
account statements, proxy materials, proxy voting, consumer accounts and
bills from various vendors at the same time on the same screen without
having to enter different control numbers. The idea is to combine Volly – a
digital mail collaboration with Pitney Bowes that allows consumers to
receive, view, organize and manage bills, statements, marketing catalogs,
coupons and other content – with the electronic mailbox design.
Broadridge already has an investor mailbox product: the 12 brokerages
offering it have seen a 500 percent increase in the number of clients that
also consent to e-delivery of proxy materials. Given that proxy voting
increases from 4 percent to 14 percent when people move from receiving paper
Notices to electronic delivery, overall voting rates are expected to
increase.
Communicating with shareholders through virtual shareholder meetings and
virtual shareholder forums is also creating a lot of enthusiasm about
increasing voting. At the 40 companies that opted to use the virtual
shareholder meeting option this past proxy season, participation rates at
the meeting increased – and shareholders that attend shareholder meetings
generally vote their shares. Additionally, the use of virtual shareholder
forums to allow shareholders to ask questions prior to the meeting is also
providing benefits.
‘The issuers are using these forums to pose questions to the shareholder
base prior to the meeting, getting a sense of shareholder sentiment and also
allowing shareholders a chance to pose questions to the firms,’ notes
Schifellite. ‘You are starting to create two-way dialog between companies
and shareholders.’
Award-winning ways
Broadridge’s
ability to continually adapt and implement new technologies that benefit
issuers and shareholders won it recent praise from a number of respected
technology services organizations.
The Financial
Technologies Forum awarded its technology innovation award to Broadridge for
its Mobile ProxyVote product, and the FSO Knowledge Xchange named Broadridge
as the leading organization for excellence in risk management solutions for
its FinancePro front-end trading solution and ClearancePro clearinghouse
pre-settlement confirmation tool. Broadridge was also named security
services technology provider of the year at International Custody and Fund
Administration’s American Service Provider Awards.
When it comes to handling proxy materials, Broadridge believes its size can
be a catalyst for changing the system for the better. No one handles the
volume of materials it does, and its systems have safeguards that limit
voting errors. As proxy communication is its core business, it has developed
a reputation for voting accuracy: Broadridge has procedures that project at
least 99.7 percent accuracy on votes of fewer than 50,000 shares and 100
percent accuracy on votes larger than 50,000 shares. Given that around
12,000 issuers use its proxy services, any solutions the company comes up
with can become standard.
Chuck Callan, chief regulatory officer for Broadridge, says many people
underappreciate his firm’s ability to adjust when new regulations are
implemented. When the SEC and the NYSE mandated that brokers deliver voting
materials within a five-day window, Broadridge consistently met (and
continues to meet) that standard for all of its customers.
‘Turnaround times are quick,’ Callan points out. ‘The rules say materials
can be delivered in five days, but we deliver them in just over two, and
electronic distributions can go out in one day. We’re giving shareholders
the largest window for voting and doing it where we’ve taken significant
cost out of the process and maintained good quality.’
Broadridge’s resources and experience also allow it to respond to
short-notice customer requests better than most. There was more confusion on
proxy forms this year because of changes related to regulations mandating
say-on-pay votes. As many firms scrambled to meet the deadline to submit
forms for their votes, Callan says Broadridge had to change its systems to
be able to tabulate forms that gave shareholders the option of voting for
annual, biennial or triennial votes on executive pay. ‘That was a project we
took on at significant cost, time and effort,’ he notes. ‘That type of
effort gets taken for granted.’
Broadridge’s size has also allowed it to expand into what it believes are
the next growth areas for the business. It recently bought Paladyne Systems,
a maker of investment management software used by hedge funds, brokerage
firms and asset managers.
‘The acquisition of Paladyne will significantly expand Broadridge’s position
as a service provider to buy-side clients,’ says chief executive Richard
Daly in a statement. ‘Buy-side companies buy nearly 40 percent of capital
markets technology and services and represent a segment of virtually
untapped opportunity for Broadridge.’
Expanding its reach
The purchase
of StockTrans has put Broadridge firmly in the transfer agency business and
the company anticipates rising sales. Callan says more than 200 publicly
traded companies have now chosen Broadridge services in this area and the
company expects a wave of shareholders moving from being registered
shareholders to street shareholders.
‘The cost of servicing shareholders on the street side is lower than
servicing them on the registered side,’ says Schifellite. ‘We are uniquely
positioned to go to a firm, look at its registered shareholder base and
create a program to move those registered shareholders to street
shareholders. We’re going to make it really easy for any shareholder that
wants to migrate, so there’s significant benefit to the issuer from a
servicing point of view.’
Analysts at Zacks Equity Research are mostly positive about Broadridge’s
future growth prospects. Now that Broadridge has successfully sold its
securities clearing business to a subsidiary of Penson Worldwide, Zacks says
the firm will be able to ‘focus solely on revenue opportunities associated
with securities processing and outsourcing services. Moreover, we remain
optimistic on Broadridge’s strategic acquisitions and potential product
launches.’
Zacks also warns, however, that ‘weaker market activity during the
recession’ and ‘significant competition from companies such as HD Supply,
DST Systems and State Street, which have increased pricing pressure for the
company’, could cause problems for Broadridge in 2012.
While some might worry about Broadridge becoming too big and dominating
several markets, Schifellite questions what type of proxy system there would
be if Broadridge wasn’t as big and expert at what it does. ‘If you go back
20 years ago, brokers were doing this work themselves individually,’ he
reminds opponents. When other firms refused to pay for infrastructure
improvements to tabulate shareholder votes, Broadridge did it and provided
the service to those who needed it. ‘We were the first to implement many
technologies, and everyone has benefited,’ Schifellite adds.
With Broadridge in place, Schifellite reasons future changes in the proxy
system are likely to go much more smoothly and be less costly. ‘If you are
going to break [the process] apart, all I see is that value starting to slip
away and costs starting to rise,’ he says.
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