As companies await the final details of the Securities and Exchange Commission’s mandatory e-proxy rule, which takes effect for large accelerated filers next year, some are getting their feet wet by testing out the voluntary notice-and-access model that went into effect July 1.
Among those giving the voluntary notice-and-access model a trial run for their upcoming annual meeting is Frederick, Colo.-based UQM Technologies, a $6.7 million developer of alternative energy technologies with roughly 8,000 shareholders. About 15 percent of the company’s outstanding shares are held by institutions.
French
As soon as the voluntary rule was adopted, UQM’s treasurer and chief financial officer, Donald French, decided to explore the notice-and-access model for its annual shareholders meeting, which takes place Aug. 22. Both the potential cost savings and the ability to spare some trees appealed to the company.
“I asked our chief executive officer if it was something we would be interested in doing,” French tells Compliance Week. As a small company with 53 employees and three top executives calling the shots, the decision to go forward was made easily and quickly, he adds. The CEO and the company’s directors were immediately supportive.
“When we started evaluating the process, the two things we considered potential deal killers were difficulty of implementation and whether our transfer agents would be ready,” says French.
Neither proved to be a problem. Computershare serves as a transfer agent for UQM’s registered shareholders, while Broadridge (formerly known as ADP) manages its street name accounts. Both companies said they would be ready to go July 1, the first day companies could use the SEC’s voluntary rule.
Indeed, Broadridge spokesman Lyell Dampeer says there has been “a tremendous amount of interest” in the voluntary rule among the firm’s clients. Broadridge distributed almost 1 million notices to shareholders during the first week of July.
For UQM’s part, French says implementing the notice-and-access model didn’t require much time or extra effort for the company. The process was handled internally by him, an assistant, and one IT specialist, he says. “The amount of hours devoted wasn’t significant. I’d estimate that between all three of us, we maybe spent 40 hours total sorting this out.”
French says the transfer agents “had more work to do” to prepare, since they had to revamp some of their systems to meet the requirements of the SEC rules.
According to Dampeer, the bulk of the work is finishing the meeting agenda earlier and creating and filing the correct documents. Companies that have decided to use notice-and-access must make additional choices about whether to send notice only to some or all of their shareholders and how many paper packages they’ll need to print.
Under the notice-and-access model, UQM shareholders are mailed a paper notice of the annual meeting with instructions for viewing its annual report and proxy statement online, for voting online or via a toll-free phone number, and for obtaining print materials, if they prefer.
Previously, French says UQM only posted its quarterly reports online and didn’t offer an electronic voting option. Dampeer notes that street-side clients that opted to do so could vote electronically through Broadridge’s platform.
To use the rule and accommodate the requirement that the notice be sent at least 40 days prior to the meeting, the company moved back its record past July 1 and its meeting date from the first week of August to the third week. Since it didn’t create any conflict with state law and UQM’s directors were on board with the idea, changing those dates wasn’t a problem, French says.
How much will UQM save using the notice-and-access model? Treasurer and Chief Financial Officer Donald French declines to give a specific dollar figure, but says the company expects to spend only 30 percent of what it spent on printing and mailing costs last year. “The magnitude of dollars is substantial,” he says.
Claudia Holcombe, director of client and industry initiatives at Computershare, says most companies have a record date roughly 35 days prior to their meeting. Some may either have to change their record date (if they can under their state law) to meet the 40-day rule, or use a false record date to do a mailing and then do another one on the real record date, she notes.
Holcombe says Computershare encourages clients that want to use notice-and-access to set their record date at least 50 days prior to the meeting.
Where Savings Emerge
How much will UQM save using the notice-and-access model? French declines to give a specific dollar figure, but says the company expects to spend only 30 percent of what it spent on printing and mailing costs last year. “The magnitude of dollars is substantial,” he says.
French pegs UQM’s cost in previous years at $3 to $4 per shareholder. “If we can eliminate that cost across a large percentage of our shareholder base and instead send them a [notice in a] first-class envelope, that’s a major savings,” he says.
Dampeer says savings of 70 percent “are not unrealistic.” But he cautions that those savings may be less for companies that already have high suppression rates—the percentage of shareholders who aren’t mailed a proxy package, either because they’ve already elected to get their materials electronically or because multiple shareholders in a family have been “householded” so they only get one package.
For companies that mail a notice only, Holcombe says Computershare estimates savings of about 70 percent, if five percent of shareholders request paper. Even if 30 percent of shareholders request paper, she says, companies can see savings of about 30 percent. Holcombe expects requests for paper to be in the “low double digits, at a maximum, and not higher than 10 or 15 percent.”
Both Holcombe and Dampeer say determining how many paper copies to print to fulfill shareholder requests is the biggest issue for most companies planning to use the notice-and-access model.
Based on Computershare’s estimate that only about 18 percent of registered retail shareholders fill out a paper proxy and mail it in, French says UQM decided to print 30 percent of the amount of materials it printed last year. Since shareholders must affirmatively elect to get a hard copy under the voluntary model, French expects few to do so.
“We suspect less than five percent of our shareholders will request paper,” he says. “The 30 percent figure allows for the fact that we could be dramatically wrong. The remainder will be used by our investor relations department to fulfill investor requests for materials during the rest of the year.”
Both Holcombe and Dampeer have heard concerns from issuers about how a notice-and-access model might affect shareholder participation—a question still unanswered today. Many commenters raised the subject when commenting on the SEC’s mandatory e-proxy rule and said it merited delaying the mandatory rule’s implementation date. The SEC ignored those concerns.
Participation levels were a consideration at UQM, French says, but “We think the vast majority of our shareholders will see this as an enhancement.”
In addition to saving money and trees, French says an advantage of making the proxy materials and annual report available online is the easy ability for shareholders to navigate them to find the information they want. Shareholders access indexed documents that are hyperlinked, “so if they’re only interested in seeing what management makes, they can click on the executive compensation link and it takes them right there,” he says.
In addition, documents mentioned in the annual report or incorporated by reference are also hyperlinked. For example, where its proxy materials mention UQM’s Code of Business Ethics and audit committee charter, there are hyperlinks to those documents, so shareholders can quickly access them online.
While some companies, such as UQM, are only mailing notices to their shareholders, Dampeer and Holcombe say many (particularly larger issuers) plan to mail paper to some shareholders—for example, those who voted last year and those with high share positions—and notices to others.
Dampeer says that issuers concerned about “specific ballot items and that want to maximize their vote returns” are likely to send all of their shareholders hard copy materials. In addition, he notes that some consumer products companies “with recognizable brand names” are still leaning toward full paper distribution “because their annual report is part of their brand reinforcement strategy.”
No comments yet