In the latest of our conversations with corporate governance executives, we talk to Helen Kaminski, assistant general counsel at Sara Lee Corp. The $12.3 billion food business was an early adopter of the notice-and-access rule approved last year to streamline dissemination of proxy materials, and Kaminski oversaw Sara Lee’s efforts.

DETAILS

Kaminski

Helen Kaminski is assistant general counsel, corporate & securities for Sara Lee Corporation.

Helen joined Sara Lee in April 2000 and is responsible for all aspects of Sara Lee’s securities law compliance program, including Sara Lee’s filings with the Securities and Exchange Commission and the New York Stock Exchange and Sara Lee’s Section 16 and insider-trading programs. She also oversees and advises Sara Lee’s general counsel and Board of Directors regarding corporate governance matters, including compliance with the NYSE’s governance rules and the Sarbanes-Oxley Act and serves as the Secretary of the Audit, Compensation and Employee Benefits and Finance Committees of Sara Lee’s Board of Directors.

Before joining Sara Lee, Helen worked for Neal, Gerber & Eisenberg, Chicago, IL, as a partner in the corporate and securities practice from 1997 to April 2000, and as an associate attorney from June 1993 to 1996. Prior to that she was an associate attorney with Jones, Day, Reavis & Pogue in Washington, D.C.

How did Sara Lee decide to use notice-and-access for its recent shareholder meeting?

We knew the rule was going to take effect a couple of months before we mailed. Our stockholder meeting is the last Thursday in October. We were primarily persuaded by two things: cost savings and sustainability. We’re really trying to do our work in a more sustainable fashion. We wanted to see if we could take advantage of both of those [benefits].

What concerns and questions did you have at the start of the process?

One thing that we were really concerned about was the timing. Under notice-and-access, you have to have your materials available and sent out at least 40 days before your meeting; we tended to be around 32 to 35 days. So, we would essentially have to have our materials done a week earlier than normal. A second factor was really trying to determine if we would save money. There’s a break-even point, where mailing in bulk on Day 1 is actually cheaper than having to deliver paper when people call into request it, because then you’re mailing first class.

We tried to do a break-even analysis to see at what point it would be cheaper just to mail to everybody and the likelihood of getting to that point. That was the big unknown … how many people would call in to request [paper]. Since we were one of the early adopters, we really didn’t have other companies’ experience to rely on.

How did you do that analysis?

We primarily worked on that in-house. We talked to Broadridge because they’ve done our mailings for the last couple of years, both registered and street side. The big thing we needed from them was the cost on their side. They also gave us some information based on their experience on how many stockholders actually call to ask for paper copies. There were also a couple of tools available online. Our investor relations group really took the lead on this. They plugged in the costs at different print runs and different stockholder requests for paper copies, and we tried to get some ballpark of where the break-even was.

ON NOTICE

How does the notice-and-access rule affect investors? Proxy-processing firm Broadridge provides survey results from 96 early adopters below.

Early experiences with the notice-and-access rule adopted last year by the Securities and Exchange Commission—more commonly known as the e-Proxy Rule—show that, so far, worries about getting a quorum haven’t proven true. Still, statistics based on 96 early adopters show the rule did trim the response rate among retail investors. That’s according to figures from proxy processing firm Broadridge, which processed more than 100 meetings using notice-and-access as of Feb. 29.

Chuck Callan, head of regulatory affairs for Broadridge, tells Compliance Week that concerns about quorum “didn’t materialize for these issuers.” He does note, however, that if broker-dealer votes were eliminated (as proposed under an amended NYSE Rule 452), “those concerns would reappear. We think fewer issuers would choose to use notice-and-access without the broker vote.”

For the 61 companies that held their meetings as of the end of January, 89 percent of shares were voted in 2007, compared with 92.5 percent in 2006, according to Broadridge. Broker votes on proposals related to routine matters accounted for 36.6 percent of shares voted in 2007, versus 36.4 percent in 2006.

Notice-and-access did appear to reduce the percentage of accounts voted. Overall, 28.7 percent of accounts voted in 2007, compared with 37 percent in 2006. The response rate among retail accounts, excluding managed accounts and those who had previously consented for electronic delivery, fell from 18.3 percent in 2006 to 4.4 percent last year. In shares voted, retail holders accounted for 12.6 percent of shares voted in 2007, down from 28.8 percent the previous year.

“What we see is those retail investors who have relatively larger share positions tend to vote,” Callan says. “So it is having some negative impact on voting, but we’re not seeing a 75 percent drop.”

“I’d say notice-and-access is available as an option for all issuers that would like to use it and feel it makes sense,” Callan adds. “We’re seeing companies of all different sizes and types and companies with more than just routine proposals on their agenda use it.”

Of 96 companies that used notice-and-access through Jan. 31, 38 percent had fewer than 10,000 beneficial shareowners. The same percentage had a non-routine proposal on their ballot.

As expected, requests for paper have been very low. Of all shareowners receiving a mailing, just 5.8 percent were sent a full set of paper proxy materials. Of that group, 5 percent were existing consents to receive a full set, while less than 1 percent overall were on-demand requests.

If the goal of notice-and-access is to give companies an alternative that could save them money, then the rule is working, Callan says. “In terms of addressing potential concerns about the drop-off in retail vote participation, it’s early, but the rules do contain some flexibility and features to address that,” he adds.

For instance, issuers can use a “slice and dice approach” to stratify their mailings, as many have been doing, Callan says. They can continue to send a full set of materials to investors who voted in the past, those with certain size ownership positions, or to foreign shareholders, while others only receive a notice. A handful of companies have also availed themselves of an option to mail a second reminder notice mailing 10 days after the first, typically with a ballot.

To see the text of Broadridge’s report, “Notice and Access: A Statistical Overview,” see box above right.

—Melissa Klein Aguilar

One big comfort was, when we did this analysis, we realized that even if we were way off on how many stockholders called to request paper, it wouldn’t bankrupt Sara Lee. It would’ve put us over budget, but the margin of error was a little wider because we’re not talking about really expensive processes. So, we figured if we’re going to do it, we should do it this year while the New York Stock Exchange rule [Rule 452] is still in effect on broker votes. We thought it was a lower-risk proposition to try it and see what happens.

How much of your shareholder base is institutional versus retail?

That was a big consideration for us. We think about 65 to 70 percent of our shares are held by institutions. However, we have a very loyal retail base. Sara Lee has been public since the mid-1940s. We have a very large group of people who have been stockholders for many, many years. From our interactions with our retail owners on our spin-off transactions, we could tell that a lot of them really don’t use the Internet much. So, we were really concerned that they wouldn’t vote, or that they would feel alienated.

Did you take any special steps to address that concern?

We negotiated with Broadridge so that when we directed stockholders to the Website to access the materials and then to vote, we directed to them to Sara Lee’s corporate Website … We created a special Webpage that didn’t take cookies. Once people got to that page and clicked to access the documents, they went to Broadridge’s site. But as far as the stockholder was concerned …they were going to our page. I think that was really helpful.

The other thing we did was a lot of training in-house. We had a training session with our transfer agent, all of our investor relations folks, corporate communications—anyone who might get a call from a stockholder. We walked them through what to do and if a stockholder was having difficulty ordering a paper copy, we would just order it for them … and opt them out of notice-and-access.

How did you use notice-and-access? Did all shareholders only get a notice, or did you to continue to send some shareholders a full set of paper materials?

We have a lot of employee [shareholders] who use the Internet as part of their jobs. In the last two years, for those employees, we have used notice-and-consent for electronic delivery. For those people, we did the same thing this year.

For our international stockholders, which was about 12,000 addresses, we mailed them the full documents. We figured that, for them, to have to do a one-off mailing if they called to opt-out would be really expensive, and they might not get it in time. For everyone else, essentially the United States and Canada, we used notice-and-access.

Once the decision was made to use notice-and-access, was there anything else that you did to get the company ready or to get your shareholders ready?

Not really. One of the lessons we learned was that the notice itself is not really clear. The Broadridge template was hard to understand. This year our goal is to work with them to make the notice itself a little clearer on what it is and what stockholders have to do to vote and to get paper copies.

We also didn’t do any type of advance mailing [last year]. This year, we’re thinking of putting a flyer in the dividend notices and posting something on our Website that lets people know that for this year’s annual meeting, we’re taking advantage of notice-and-access. Last year it was still so new and we weren’t quite sure how much we had to do, so we didn’t really do a full communications push.

Our hope is that those people who wanted paper copies opted out of notice-and-access last year, so that this year will be a little smoother.

What role did Broadridge play?

For us, it wasn’t tremendously different. We’ve used Broadridge to do all of our mailing, both the registered and the broker side, for the last four years because we didn’t have the in-house resources. They were very responsive. They helped us convert the documents for online versions. They also gave us updates on how many requests had come in for paper copies and what our supply was, since that was one of our big concerns. They tallied our votes for us as well. That part hasn’t changed.

What were your expectations for the impact this might have on voting?

I was very concerned that the vote would drop, that there would be people who wouldn’t go through the effort of going to our Website to see the documents and vote or who just wouldn’t understand. We were pleased that our quorum only dropped about 5 percent. Obviously, we wish it hadn’t dropped at all, but I was expecting … in the range of 10 percent or higher. So, it did go down a little bit, and we think most of that was from the retail side.

What about cost savings?

We reduced our print run about 70 percent from the prior year, which saved us 50 percent on printing and paper costs. We initially expected to save a lot on Broadridge’s fees, which includes postage costs, because we weren’t mailing as much, but the way Broadridge restructured its fees, much of our postage cost savings we ended up paying in the form of processing and set-up fees. Overall, we saved about 10 or 11 percent on Broadridge’s fees.

We had printed about 280,000 pieces last year. In 2007, we printed 75,000 to 80,000. So as far as our sustainability goals, we feel very successful.

[For the 2007 meeting] we mailed about 17,000 paper copies. We mailed 14,000 the first day, and we had 3,000 requests from the mailing date to the meeting date. It was really low; far less than 10 percent of our stockholders called in to request paper copies. I was expecting 20 to 25 percent, so I was pleasantly surprised.

Overall, how did your first experience with notice-and-access compare with your expectations?

Our expectations were fairly low. We thought we might just break even. We expected a lot more people to call in for paper copies. So, on that side, we were thrilled. I think our expectations about some of our retail holders not liking notice-and-access were pretty much as expected. We had some stockholders who were pretty vocal at our annual meeting. So, we were a little disappointed that everything we tried to do to make it easier wasn’t satisfactory to them. But I think our expectations were pretty much met.

So, you did get some feedback from your stockholders?

Yes, a vocal minority. Some people got the notice and weren’t sure what it was. We got a handful who actually voted using the notice form and mailed it to us because they didn’t quite know what to do with it.

What other challenges did you encounter?

The biggest challenge was trying to figure out how many copies of the documents to print. We print our annual meeting materials in three separate documents: the financials, the glossy annual report, and the proxy statement. We really felt like we were guessing. We worked with our printing company, R.R. Donnelley, and they were able to offer us something fairly close to print on demand, so that if we ran out of documents they could do a second print run at a reasonable price. That helped us to be aggressive in cutting our print run. That was probably the area we had the most anxiety over: that we were not going to print enough and when people started calling [for paper], we wouldn’t have any on hand to meet the three-day required turnaround time.

What will you do differently this year as far as e-proxy goes?

I think we will work on our communications to make sure that stockholders are aware that this is the process we’re going to use again this year and so they understand when they get the notice what steps they have to go through. We also want to try to make the notice itself a little clearer and make it easier for them to opt-out.

How are you going to try to increase your savings again this year?

We will definitely lower our print run even further. We will probably also try to streamline the print versions [of our documents]. If most people are going to access the documents online, then we should focus our efforts on making sure the online versions are user-friendly and easy to read and print off and maybe spend a little less time on our glossy annual reports and printed material.

Thanks, Helen.

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