A plan from the Securities and Exchange Commission to revise its so-called “e-proxy rules” is a welcomed effort to reverse a troubling drop in voting by retail shareholders, but won’t be enough to address voter apathy and the larger problems associated with the proxy process.
That has been the general reaction to the SEC’s proposal, which was out for public comment through Nov. 20. The Commission wants to halt the decline in retail voting with amendments to its notice-and-access rule, which requires companies to post their proxy materials on the Web and then mail a notice to shareholders telling them where to look online or how to request paper materials by mail.
The proposed amendments were published in October after research showing that voting among retail shareholders, which has never been high to begin with, fell off a cliff for companies that adopted the notice-only option to distribute materials. (Companies that also still send paper proxy materials have fared somewhat better.) Making matters worse, a New York Stock Exchange rule that eliminates broker-dealer voting in director elections takes effect next year; the combination of the two rules has many worried that companies will struggle to achieve a quorum of voters for the annual meeting season.
Overall, commenters supported most of the proposed changes to make the e-proxy rules more flexible—but most also said the SEC must do more to combat retail vote apathy and to overhaul the proxy process generally.
Morgan
“The trend of lower voting participation by retail shareholders … goes well beyond notice-and-access or the specific option employed,” wrote Jeff Morgan, president and chief executive of the National Investor Relation Institute. He and others urged the SEC to consider retail voter participation as part of a broader examination of proxy mechanics and related shareholder communications processes. The SEC has pledged to undertake a comprehensive review of the “proxy plumbing.” The Commission staff is currently working on a concept release to address issues related to proxy voting mechanics, although when it may arrive is still unclear.
The SEC’s proposed fixes would, among other things, give companies more flexibility in the format of the notice they send shareholders alerting them that proxy materials are available online. They would also allow issuers and soliciting shareholders to include materials along with the notice to better explain the process to shareholders.
The proposing release cited anecdotal evidence that some shareholders were confused about how notice-and-access works; many attempted to indicate their voting instructions by returning a marked copy of the notice.
“Although we acknowledge that notice-and-access may not be the right solution for every issuer … it should be left as a viable option for every issuer.”
—Neila Radin,
Head of the Securities Law Committee,
SCSGP
Several commenters, including Intel Corp., the Altman Group, and Broadridge’s Independent Steering Committee, suggested that the SEC allow issuers to send proxy-voting cards along with the notice, to increase the likelihood that retail shareholders would cast votes. For example, Computershare recommended allowing issuers to include a proxy card with an accompanying business reply envelope and a summary of the proxy statement promoting all available voting methods to shareholders: mail, telephone, and Internet.
Promoting the telephone voting number on the stand-alone notice could potentially increase participation without the cost of a second mailing and allowing the enclosure of a proxy card, reply envelope, and summary proxy statement would encourage shareholders to vote, wrote David Drake of proxy advisory firm Georgeson and Paul Conn of Computershare Global Capital Markets.
Other commenters, including the U.S. Chamber of Commerce and the Society of Corporate Secretaries & Governance Professionals, said the SEC should implement a “client-directed voting model,” in which investors would be able to provide brokers and custodians with standing instructions on matters to be voted on at companies in which they own stock. Under the new NYSE rule, shareholders must provide specific voting instructions to broker-dealers before the broker-dealer can cast ballots in any director election.
SOME COMMENTS
The following comments on the Securities and Exchange Commission’s notice-and-access proposal were posted on the SEC’s Website:
The Notice & Access model, while a viable option for many Issuers, is not economically efficient,
nor practical, for most due to the standard processing fees PLUS the ancillary N&A fee schedule.
Despite what Broadridge posts on their website, printing and mailing does NOT average out to be
$5.20 per package. That is a total fabrication and Broadridge has been challenged on that since
2007. In many cases, Broadridge has mailed material in a much more expensive fashion than
they should. This increase in postage actually makes the financial case for Broadridge when their
24 Field Representatives begin selling the N&A model to Issuers around the country. Each new
N&A client is a commissioned sale for the Broadridge Rep. They are not looking out for the
Issuers budgets. (In my humble opinion).
—Mike Spelman,
Director Financial Print Sales,
DG3
We propose that the SEC consider enabling issuers to send proxy cards (and business
reply envelopes) along with first Notices. We believe that the voting system should be directed
at providing shareholders with options suitable to engage them in the process, not additional
hurdles to participation. The proxy card sent with Notices should include the following
language: “I have made my decisions with full knowledge of the availability of a proxy
statement.” We would also support the inclusion of a legend on Notices indicating that the form
should not be used for voting on matters, and that only a separate proxy card or Voting
Instruction Form should be used for submitting votes.
The SEC may also want to consider allowing the Notice and proxy cards to be
accompanied by a new “short summary” of issues to be voted on (allowing excerpts from the full
proxy statement filed with the SEC). This short summary would be similar in scope to the
Summary Prospectus that the SEC is now permitting investment companies to send to
shareholders. The “short summary” would include a link to the full proxy statement as available
online, and include a note: “If you do not have access to the Internet, you can call (XXX-
XXXX), after which a full copy of the proxy statement will be mailed to you within 48 hours.”
Since the Commission already allows a summary prospectus to be used in place of a mutual
fund’s complete prospectus, the same standard should also be applied to proxy statements.
—Kenneth L. Altman,
President,
The Altman Group, Inc.
Improving the Clarity of the Notice. To address this, it is important to allow companies more
control in how they present the notice-only process to their shareholders. To that end, we agree
with the Commission’s proposal to allow a company to provide an explanation of the process as
part of the notice. It is also important for a company to be able to describe, in its own terms, the
details of the notice-only process as opposed to adhering to a boilerplate legend. Amendment of
the timeframe in which an issuer must send the notice to shareholders would also be an
improvement as shortening the timing from 40 to 30 days prior to the shareholder meeting
should speak louder to shareholders about the timeliness of their vote.
Investor Education about the Notice Method. In addition, Calvert welcomes the educational
program that the Commission’s Office of Investor Education and Advocacy is initiating to
inform shareholders about the efficiencies offered through Internet availability of proxy
materials.
—William M. Tartikoff,
Senior Vice President, General Counsel,
Calvert Investments
—Ivy Wafford Duke,
Assistant Vice President, Deputy General Counsel,
Calvert Investments
Source
View All Comments on Proposed e-Proxy Rule (November 2009).
Another idea was to allow issuers and agents to e-mail all shareholders with the voting notification, along with instructions for requesting a full proxy package, as recommended by BNY Mellon Shareowner Services.
Other Details
The SEC also proposed reducing the advance-notice period for soliciting persons (other than the company) relying on the notice-only option from 40 to 30 days. While the Commission didn’t propose changing the advance-notice date for issuers, it sought comment on doing so—and the proposal was overwhelmingly supported by most commenters, including Computershare, Intel, the U.S. Chamber, NIRI, and the Association of Corporate Counsel.
Klafter
Cary Klafter, Intel’s vice president of legal and corporate affairs and corporate secretary, wrote that the additional 10 days would give issuers the added flexibility to use notice-and-access, while still providing stockholders enough time to request and receive paper copies of the proxy materials if they wish.
Charles Rossi, president of the Securities Transfer Association, said other problems with the present system must be addressed as well, including the fees charged by Broadridge, which he said “has a virtual monopoly on the distribution of proxy materials.”
Rossi said some STA members reported that fees under notice-and-access actually increased, canceling out the anticipated cost savings and precluding some companies from sending reminders or second mailings to shareholders. Moreover, he said, the current system of proxy distribution generally makes issuer communication to their shareholders “difficult and expensive.”
STA is part of the Shareholders Communication Coalition, a group that has been pressing the SEC to eliminate the Non-Objecting Beneficial Owners (NOBO) and Objecting Beneficial Owners (OBO) classification in the proxy voting system. The coalition also includes NIRI, the Society of Corporate Secretaries & Governance Professionals, the Business Roundtable, and the National Association of Corporate Directors.
While commenters generally agreed that the SEC must do more work to iron out the kinks in its e-proxy rules, the vast majority also opposed one SEC question about whether notice-and-access should be suspended outright.
“Although we acknowledge that notice-and-access may not be the right solution for every issuer given variations in shareholder composition, it should be left as a viable option for every issuer,” a letter from Neila Radin, head of the securities law committee of the SCSGP, stated. “Concerns about notice-and-access, such as its effects on retail voter participation, should be addressed not by eliminating the notice-and-access model, but by modifying and enhancing the process.”
That’s not to say everyone supported keeping notice-and-access in place. IRWebReport.com editor Dominic Jones urged the SEC to scrap the whole thing and let shareowners opt into electronic delivery on a company-by-company basis.
“The notice-and-access system has failed,” Jones wrote. “Tweaking the notices will do little to change the fundamental flaws. It should be scrapped and issuers should work to provide online experiences that will encourage their shareowners to opt into the superior and more environmentally friendly e-delivery system.”
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