CORRECTED-BREAKINGVIEWS-Deficient shareholder democracy spoils QQQ ballot

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Corrects Brian Hartigan's title in paragraph four to Invesco Capital Management CEO, not Invesco CEO.

By Jeffrey Goldfarb

NEW YORK, Dec 19 (Reuters Breakingviews) - Talk about a vote of no confidence. Invesco’s IVZ.N QQQ, the $400 billion exchange-traded fund that tracks the Nasdaq 100 Index .NDX, struggled to secure the 51% support needed from investors to overhaul its outmoded design, an update that slashes fees and was painstakingly approved on Friday. It’s the clearest sign yet of how deep the plumbing and apathy problems run in U.S. shareholder democracy.

When QQQ started in 1999, it was one of only 30 such funds. It’s now among the biggest of more than 4,300 U.S.-listed ETFs overseeing some $13 trillion in assets. The industry also has moved past Invesco’s trailblazer, embracing flexible open-end structures instead of the restrictive model more popular at the time of QQQ’s inception.

Invesco's changes allow QQQ to reinvest cash dividends, lend securities and reduce the expense ratio to 0.18% of the fund’s average annual net assets from 0.2% today. For investors, it was a no-brainer.

Invesco Capital Management CEO Brian Hartigan told share owners in August: “Voting is quick and easy.” If only it were truly so. His chirpy message preceded a 123-page proxy statement loaded with the same sort of dense explanations companies send stockholders every year inviting them to weigh in on corporate governance and other matters. Most end up in the trash before they’re opened.

Four months later, still short of the 51% threshold, QQQ adjourned its special shareholder meeting a second time to round up more support. There are quirks that help explain why more owners weren’t actively opting to save money and modernize the fund, including institutional managers that don’t cast votes as a rule or simply go along with the majority.

The bigger issue is a system that despite making electronic progress befuddles Main Street and engenders inertia. Retail turnout slipped to 28%, the lowest in nine years, according to Broadridge Financial Solutions. Exxon Mobil's XOM.N sly solution is to let mom-and-pop shareholders give standing orders to vote with the board. Other attempts to get investors involved are off to a slow start. Since BlackRock BLK.N started letting its index-fund holders vote their shares, only about 22% of those eligible, representing more than $800 billion, have opted into the program.

There has to be a better way. For all the technological upheaval in finance, the proxy-voting establishment has failed to take full advantage. Although some investors use brokerage apps to vote, only 1.3 billion of the 544 billion shares that Broadridge processed came through its own. With retail investors gaining clout online through trading sites like Robinhood, broadening retirement funds and other ways, there’s reason to think an entrepreneurial ballot box revolution is overdue.

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CONTEXT NEWS

Money manager Invesco said on December 19 that shareholders of its QQQ Trust, Series 1, voted to approve proposals tomodernize the exchange-traded fund's structure. The special shareholder meeting had been adjourned twice because the measures did not yet have the 51% support needed for passage.

The ETF, created in 1999, has about $400 billion under management and tracks the Nasdaq 100 Index. It is converting from a unit investment trust to an open-end fund with nine members serving on a new board of trustees. As part of the change, QQQ's expense ratio will drop to 0.18% of the fund's annual average net assets from 0.2%.

(Editing by Peter Thal Larsen; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on GOLDFARB/jeffrey.goldfarb@thomsonreuters.com))