Plea to Dismantle Broadridge Monopoly

Last month, I wrote to Chairman Mary Schapiro of the SEC about dismantling the monopoly Broadridge (BR) enjoys counting electronic proxy votes for all US public companies.

Wednesday, I wrote to Senator Mel Martinez (R-FL), who serves on the Senate Banking Committee, about the matter.

August 5, 2009

VIA FAX

The Honorable Mel Martinez
U.S. Senate
Room 356 – Russell Senate Office Building
Washington, D.C. 20510
202-224-3041
(Fax) 202-228-5171

Re: Encouraging the SEC to dismantle the Broadridge monopoly

Dear Senator Martinez:

I am an individual investor and hedge fund manager based in Naples, FL, who is concerned about shareholder voting and communications issues.

I would like to urge you to write to SEC Chairman Mary Schapiro and ask her and her fellow Commissioners to break up the monopoly currently enjoyed by Broadridge (ticker: BR) in overseeing electronic proxy voting for all public companies. I have also recently written to the Chairman on this matter (see the end of this letter).

The foundation of our capital markets is a “one shareholder, one vote” system for running our public companies. On an annual basis, shareholders get to voice their approval or disapproval about the way their representatives are running the company on the Board of Directors and in Senior Management. Broadridge is the company which is solely responsible for counting those votes. It has a monopoly.

Last August, after Broadridge released the results of the Yahoo! (YHOO) annual shareholders’ meeting vote, there was a large protest made by Gordy Crawford of Capital Research (one of the largest mutual funds in the country) who questioned the veracity of the results. Because of Mr. Crawford’s stature, the fact the Capital Research was one of the largest Yahoo! investors, and the intense media interest in the Yahoo! voting results, Broadridge was forced to verify the results. They later admitted their results had been far off the mark from the actual ones.

Although Broadridge said the problem was a simple “truncation error” made by a computer, it’s clear when you look at the actual results and the ones first reported that there was human error involved. What was shocking about the incident was that it likely would never have been reported had Gordy Crawford not spoken up. It makes me wonder how many other errors made by Broadridge are never reported or acknowledged.

I understand that the only check and balance over Broadridge’s monopoly is that they have to submit regular “updates” to the SEC. I don’t believe this is sufficient, given the importance of these voting results.

I also understand from those who work in Investor Relations at corporations using Broadridge that they are often frustrated by monopolistic pricing demands placed on them by Broadridge for using their services.

In my view, investors and public companies would be best served by allowing another company to compete with Broadridge. Let the best provider to companies and shareholders be successful. It’s that spirit of competition and innovation which has served our country so well.

I hope you will consider writing to Chairman Schapiro about this matter. Although the SEC has many issues it is tackling at the moment, breaking up the Broadridge monopoly will help make our companies more competitive and risk-conscious than they previously had been. This certainly would have served them and the whole American economy well in the past 5 years.

Thank you.

/Eric M. Jackson/

Eric M. Jackson, Ph.D.
Managing Member
Ironfire Capital LLC

The previous letter was sent on July 16, 2009 and can be found at:

http://seekingalpha.com/article/149402-sec-should-break-up-broadridge-monopoly

Comments

[4Foolz:]

Please disclose your position in BR stock. Sounds like you are trying to profit from shorting the stock and posting this drivel. As I posted on your previous attempt to bash the company (and drive the stock price down,) your argument is full of holes. I'll copy/paste my comments to that publication as you did your letter in this one:

"So, your argument for breaking up the BR "monopoly" is bringing up the Yahoo proxy mistake as an example and claiming that surely there are other mistakes that were missed? BR is a software company. That's like saying that there are bugs in Windows that haven't been 'reported' yet. Oh no! All software companies make mistakes. Its human nature to miss something in the code or testing of the software. But all that aside, how does this tie into your argument that BR has a monopoly and it should be broken up? So, if there were another 10 software providers of proxy, surely there will NEVER be any mistakes made in proxy counts?

And you also imply that BR doesn't let other companies participate in the proxy business. What exactly is BR doing that is preventing others from entering the business? While you think up of an answer, I'll give you one - MOAT. Its a large infrastructure investment, along with building a reputation that is preventing other companies in participating in this business model. It was also their first mover advantage by having SEC accept e-proxy as a method of delivery. So, since when is MOAT considered a monopoly? Should SEC break up Apple because their iPod business has over 70% market share, with MOAT created by their iTunes software?

I can continue to poke holes in your letter, but I already wasted too much time..."

Aug 06 12:19 PM

[Saqib:]

Eric seems to have valid concerns about " mistakes that might not have been reported" but unless he comes up with a better solution - he does not present a viable alternative- it is useless to argue . BR is not a monopoly- not in the legal sense and as noted above nothing stops another company from competing against it. If the company was smart enough to come up with the idea of e-proxy , it stands to reason that it should benefit from it. And i do not agree with the crucification of the company for one mistake. Its like saying that yesterday such and such person was convicted for such and such crime ... therefore its evident that many more criminals are walking around uncharged, unconvicted.
My point is that what BR is doing is very important and it is very important that it needs to be done properly. ( and the SEC is aware of its responsiblity to ensure that it performs its duty in line with requirement!)
But thats a far cry from saying the company has a monopoly and so is careless and so needs to be punished. Eric must come up with a better argument or will have to write many more letters, i am afraid.!
Saqib I Ahmed

Aug 10 10:30 AM