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LI's Broadridge: Wall Street's quiet back office

Broadridge Financial Solutions employees work at their investor

Broadridge Financial Solutions employees work at their investor communications facility in Edgewood on May 3, 2018.  Credit: Johnny Milano

Broadridge Financial Solutions Inc. is the  $11.7 billion Long Island business that most people have never heard of even though it touches their lives in myriad ways.

The Lake Success company delivers billions of documents to shareholders each year and processes trillions of dollars in stock trades each day. 

If you've received a proxy statement -- the form asking you to vote your shares to elect a company's board of directors -- it likely came from Broadridge. If you've traded stocks through E*Trade or Raymond James, Broadridge executed your transaction. Your credit card bill may have come from Broadridge, too.

And it all started in the back bedroom of an East Northport house.

Richard J. Daly founded Broadridge's largest division, investor communications, in his then-East Northport home in 1987. He stepped down as CEO Jan. 2, handing the reins to Timothy C. Gokey in  the company's first leadership change since it went public 12 years ago. Daly is now executive chairman.  

A low profile suits Broadridge because it serves as Wall Street’s back office, performing routine but vital work for the biggest stock brokerages and mutual funds. The company dominates the market in two of its core businesses. It runs the board elections for almost every U.S. public company and delivers proxies and other  financial statements to 80 percent of North American households, executives said. Proxy season, the company's busiest time of the year, begins next month. 

“Broadridge plays a very critical role,” said Padma Kadiyala, a finance professor at Pace University’s Lubin School of Business in Pleasantville, in Westchester County.

The fact that they aren’t well-known is their greatest strength because it means people are quite satisfied with the work they are doing,” she said. “The only reason back-office companies are in the news is if they did something wrong, such as reporting something inaccurately.”

Broadridge is Long Island’s second-largest public company by revenue after medical supplies distributor Henry Schein Inc. in Melville. Broadridge reported revenue of $4.3 billion for the 12 months ended June 30, up 5 percent from a year earlier. Profit climbed 31 percent year over year, to $428 million. The company has a stock market value of $11.7 billion.

About 2,300 people work for the company locally, most at several large factories in Edgewood. They are part of a worldwide workforce totaling more than 10,000.

Daly is quick to point out that he didn’t invent the idea of brokerages and investment funds outsourcing the delivery of proxy statements, annual reports and other documents to investors. He just came up with a better method for doing it in the late 1980s, he said.

“The opportunity for the better widget was to become an undisclosed agent” that mails documents under the brokerage’s name, not the back-office company’s name, said Daly, 65. “The big boys were never going to outsource this work if the materials went out in someone else’s name. It would look like they had sold their clients’ names, and confidentiality was still meaningful…I proposed to put each brokerage’s material out in their own name.”

He was no stranger to delivering proxies.

As a young accountant Daly audited the proxy service Independent Election Corp. of America,  which at the time delivered proxies under its own name. He soon joined the company and rose to chief operating officer before taking a job with a large brokerage.

Daly eventually shifted his focus back to proxy delivery, proposing to turn his new concept into a company.  He won the support of Arthur Long, a Garden City consultant on corporate takeovers, who pledged to raise $3 million for the venture. 

However, Long died months later, in May 1988, and Daly sought new investors to turn his idea into a business. He had already spent about $7,000 for a computer (now displayed in the lobby of one of Broadridge’s offices) and hired software engineer Charlie Weber, a former Independent Election employee.

At this point, the fledgling enterprise was based in the basement of Weber's St. James home. 

Daly ultimately sold his idea to payroll giant ADP of Roseland, New Jersey, which then hired him to start the proxy delivery business in 1989. ADP Proxy Services grew rapidly, thanks to Daly’s contacts at brokerages and investment banks.

“Wall Street is based on trust to this day, and the relationship between the ops [operations] executives is a bit of a fraternity,” he said. “So I had a lot of relationships. This wasn’t some wild entrepreneurial fling.”

ADP bought Independent Election in 1992, and Daly moved the combined operation to Edgewood. A year later the company suffered a public embarrassment when its computers lost shareholder votes during some board elections, causing anxiety for the affected public companies, according to reports in Business Week and other publications. 

Daly was surprised when ADP’s CEO came to Edgewood to reassure him, not fire him, as they split a tuna sandwich for lunch, he recalled.

The computer glitch was resolved, and Daly moved up the corporate ladder. He said he was considered for ADP president but didn’t get the job. He thought about quitting, he said, until the ADP board told him in 2005 of plans to spin off the proxy delivery and brokerage services division as an independent public company – with Daly as CEO.

Months after Broadridge shares began trading in 2007, the country plunged into a financial crisis and 18-month recession.

“Many of Broadridge’s largest broker-dealer clients were under significant pressure: Some went away and merged into other companies; others wound up acquiring other companies,” said Peter J. Heckmann, a stock analyst who follows Broadridge for D.A. Davidson & Co. in Great Falls, Montana. “But Broadridge continued with its strategic plan to invest in technology, including digital services and software platforms, to grow its business.”

He and others said investors have purchased Broadridge shares because of the company’s rising profit and revenue since the recession. It has acquired 18 businesses in the past five years including a unit of DST Systems, which specializes in delivering credit card, utility and medical bills.

“They have done a great job of executing on their growth plans and building on a track record of predictable and consistent earnings growth,” Heckmann said.

Investors aren’t the only ones benefiting from Broadridge’s success. Employees have more opportunities for advancement, receive cash bonuses based on customer satisfaction and can take three days off with pay each year to participate in volunteer activities.

Eve Kossmann, a 21-year employee, joined the company to gain more auditing experience and stop commuting from Northport to New York City and New Jersey, where she had worked for retailers Caldor and Macy’s. She now is a vice president responsible for quality management at seven Broadridge factories.

“You can build a career here,” said Kossmann, 55.  “Broadridge allowed me to have a career close to home, and to raise a family on Long Island, which is incredibly important to me.”

Employees such as Kossmann who have extensive knowledge of investor communications are one reason new CEO Gokey said he has no plans to move Broadridge. In 2012 the company was courted by the governors of 11 states, executives said at the time.

“There’s a lot of very specialized knowledge embedded in the associates that we have here. … So moving wouldn’t make sense from a business perspective,” he said.

Still, Gokey, 57, predicted “the mix of associates will change over time” as tasks shift to product management and technology from production of printed materials because documents are increasingly being delivered via email instead of postal mail. Today, the company sends more than 65 percent of proxies and mutual fund reports electronically.

Gokey said he expects Broadridge's profit to climb 9 percent to 13 percent per year over the next three years.  The company plans to continue investing in software that streamlines back-office functions and helps clients to become more efficient, he said. Broadridge already is using artificial intelligence, blockchain and cloud technologies.

“We have transformed over the past five years really beyond recognition from where we were…We are much more technology driven,” he said. “And five to 10 years from now, we’re going to be unrecognizable from where we are now ... We can be the on-ramp to the new technologies that our clients need.”

Broadridge stands out among providers of back-office services in its focus on long-term relationships over completing one sale, according to Bharat Masrani, CEO of TD Bank Group in Toronto.

He said Broadridge has given TD employees more time to work with customers. “They help deliver substantial efficiencies to our processes ... around letter production and delivery, and digital archives,” he said.

TD has been a Broadridge customer for 20 years, and Masrani said he’s been impressed with executives’  willingness to accept responsibility when problems occur.

“If things are going well, there is always this need to look for better ways,” Masrani said. “And when things aren’t going so well, they take ownership of it and say, ‘How can we work together to fix this.’ ”

Gokey joined Broadridge in 2010 as chief corporate development officer after being passed over for CEO of tax preparer H&R Block.  He had overseen Block’s  more than 14,000 retail tax offices and 130,000 employees for five years.

Gokey was educated at Princeton University and Oxford University, where he earned a doctorate in finance as a Rhodes scholar.  He's from North Dakota but said he loves the ocean, taking his 40-foot sailboat out on Long Island Sound with his son and daughter as crew.

The Broadridge board's selection of Gokey to be CEO culminated a 10-year process to identify Daly's successor. The board also agreed last year to Gokey’s plan for Daly to remain with the company as an adviser on Securities and Exchange Commission and stock exchange regulations, relationships with key customers and efforts to boost shareholder participation in proxy votes.

Daly said he had planned to join a private equity firm: “I was going to get back to my entrepreneurial roots."

He recounted a conversation with Gokey: “I told Tim, ‘I’m never going to do anything that would conflict with Broadridge. I’m going to bleed Broadridge until I die.’

“And Tim said, ‘Why wouldn’t you stay here and help me?’ ”

Daly responded, “Tim, you’re going to be CEO. You don’t want the old guy around.”

Gokey said, "But I do."

BROADRIDGE TIMELINE

1987 – Richard J. Daly starts a business in the back bedroom of his East Northport home to deliver proxy materials for brokerages

1988 – ADP buys Daly's idea.

1993 – ADP  introduces electronic delivery of proxy materials

2001 – ADP's brokerage services unit tops $1.1 billion in revenue, up from $500 million three years earlier

2007 – ADP spins off brokerage services unit as a public company, Broadridge Financial Solutions; Daly named CEO

2010 – Timothy C. Gokey joins Broadridge; company introduces proxy voting by mobile devices

2012 – Broadridge considers leaving Long Island after being wooed by 11 state governors; stays after receiving  tax breaks

2017 – Broadridge announces $126-million modernization of its Edgewood facilities and plans to create 262 jobs;  tests patented blockchain technology for proxy voting  

2018 – Broadridge added to S&P 500 stock index; 

2019 – Gokey becomes CEO; Daly moves to executive chairman

SOURCES: Broadridge Financial Services Inc., Newsday research

BROADRIDGE AT A GLANCE

What it does: Delivers financial information to investors on behalf of public companies, mutual funds and financial institutions; processes financial transactions; sells  software for financial advisers

Headquarters: Lake Success

Employees: More than 10,000 including 2,300 on Long Island

Revenue (2018): $4.3 billion

Profit (2018): $428 million

CEO: Timothy C. Gokey since Jan. 2.

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