e-Proxy Voting Results; Credit Crisis; SEC Nominees

The latest statistics have arrived on Corporate America’s use of “notice and access,” or e-proxy rules, this season. Two trends are clear: savings are up, and retail voting is down.

That’s according to proxy processing firm Broadridge, which has compiled data on 566 companies that have used the new notice-and-access rules that went into effect at the start of this year. Through the end of April, 70 percent of those companies have at least 10,000 beneficial holders and realized an estimated $132 million in savings on printing and postage costs, says Chuck Callan, Broadridge’s head of regulatory affairs.

“Right now, there tend to be mostly bigger companies using notice-and-access,” Callan says. “We have yet to see the smallest companies really take advantage of it.”

The e-proxy rules allow companies to post proxy materials online and only send investors a short written notice of where they can review them, rather than send full paper copies of proxy materials as has been the historical norm. Companies can still send paper documentation if they choose.

Retail voting from investors who only receive a notice of materials available online, however, has plunged. The percentage of retail shares voted, excluding e-delivery and broker votes, fell from 34.3 percent in 2007 to only 15.8 percent this year; voting response rates for retail accounts fell from 21.2 percent to 5.35 percent. (Of the 566 companies Broadridge is tracking, 164 had held their annual meetings by the end of April.)

Equally telling is that when companies both send online notice and a full set of paper materials, the response rate soars back up to 66.3 percent. Callan says that may mean companies should use a “slice-and-dice approach” to keep voting response rates high, such as by sending paper materials to retail account holders who own a certain number of shares.

The average quorum fell from about 90 percent to about 88 percent. Callan says the drop off in retail participation isn’t reflected in the quorum numbers because of New York Stock Exchange Rule 452 (the “broker vote” rule), which allows broker-dealers to cast votes on routine matters for uninstructed shares. The NYSE had proposed amending the rule to make director elections a non-routine matter, eliminating most broker votes. That measure has stalled at the SEC.

Among the companies that used notice-and-access, 11.4 percent of shareholders received full sets of proxy materials, either due to prior consent to receive a full set or because issuers stratified their mailings. Overall, only 0.85 percent of shareholders received a notice and then requested a full set of proxy materials. That number is in line with expectations for on-demand requests of 1 to 2 percent, but it is higher than the previous 0.45 percent of shareholders requesting full sets through March 31.

Callan notes that there was one contested solicitation by a shareholder at a small issuer using notice-and-access, but the matter was settled before the issuer’s annual shareholder meeting. “That’s a first,” he says. “We haven’t seen any data to indicate an increase in contested solicitations because of notice-and-access.”

Anecdotally, Callan says companies that have used notice-and-access “are very positive about it.” In addition to the cost savings on printing and postage, “They’re pleased they’ve been able to bring about some sustainability benefits,” he says.

Still, he says, companies are concerned about the drop in retail participation. “Some issues are sensitive to the needs of those shareholders and want to make sure they have an opportunity to participate,” he says.

IOSCO Speaks on Sub-prime Crisis, Credit Ratings Agencies

An international group of securities regulators has offered its advice on the causes and implications of the credit crisis, as well as recommendations it wants securities regulators to take to avoid future problems.

A report released last week by a task force of the International Organization of Securities Commissions, or IOSCO, focuses on the market for structured finance products and the specific areas where the task force identified failings last November. The report includes 11 recommendations for future IOSCO work to address failings in the private structured finance market. The recommendations focus on issuer transparency and investor due diligence; risk management and prudential supervision; and valuation and accounting issues.

Cox

Securities and Exchange Commission Chairman Christopher Cox, co-chair of the task force, said in a statement that the report “makes clear that, while financial innovation is to be encouraged and plays an important role in the allocation of capital and risk, new financial products need to be accompanied by a thorough analysis of the risks as well as benefits they may bring. Recent events have shown … how great is the need for increased co-operation between regulators in developing and implementing international principles of regulation.”

Meanwhile, IOSCO’s Credit Rating Agency Task Force issued a 33-page report modifying its Credit Rating Agency Code of Conduct. The changes come amid questions about the quality of the credit ratings for financial instruments backed by U.S. sub-prime mortgages, which have figured prominently in the recent global market turmoil. The policies and methodologies used by credit rating agencies have come under scrutiny as well.

The proposed reforms call for ratings agencies to disclose whether any single customer and its affiliates make up more than 10 percent of the agency’s annual revenue; to establish policies and procedures for reviewing the past work of analysts that leave the agency; and to establish and implement a formal review function responsible for periodically reviewing the methodologies and models the agency uses.

For the full text of both reports and other related resources and coverage, see the box at right.

Senate Moves on SEC Appointments

The SEC will move a little closer this week to returning to a full complement of commissioners, as the Senate Banking Committee holds an important hearing to review the fate of three nominees.

The committee is slated to hold confirmation hearings today, June 3, on the pending nominations for Luis Aguilar and Elisse Walter, two Democratic nominees; and Troy Paredes, a Republican nominee.

Aguilar

Aguilar and Walter would replace Roel Campos and Annette Nazareth, who left the SEC last year. Paredes would replace Paul Atkins, who has given his notice and wants off the Commission as soon as a replacement is confirmed.

Aguilar and Walter have both held posts at the SEC in the past. Aguilar, a former SEC staff attorney, is a now a partner in the Atlanta office of the law firm McKenna, Long & Aldridge. He also previously served as the general counsel, executive vice president, and corporate secretary of Invesco. If confirmed by the full Senate, he would serve for the remainder of a term expiring June 2010.

Walter

Walter is senior executive vice president for regulatory policy and programs at the Financial Industry Regulatory Authority and is a former deputy director of the SEC’s Division of Corporation Finance and former general counsel of the Commodity Futures Trading Commission. She would serve the remainder of a term expiring June 2012.

Paredes has been nominated to replace Atkins for a five-year term beginning in June. He is a law professor at Washington University, and previously a corporate and regulatory lawyer in California.

Filling those vacancies could renew calls for the SEC to reconsider shareholder access to the proxy in director elections. Following a controversial vote last year to adopt a rule that essentially killed proxy access until at least 2009, Chairman Christopher Cox pledged to revisit the issue when the SEC has a full complement of commissioners.