The Securities and Exchange Commission has proposed changes to its proxy rules aimed at improving the notice-and-access model for furnishing proxy materials to shareholders, allowing more flexibility regarding the format of the Notice sent to shareholders and giving guidance on the Notice requirements.

The SEC is also proposing a new rule that will permit issuers and soliciting shareholders to include explanatory materials regarding the process of receiving and reviewing proxy materials and voting, as well as revisions to the time frame for delivering a Notice to shareholders when a soliciting person other than the issuer relies on the notice-only option.

Comments on the 42-page proposing release are due 30 days after publication in the Federal Register.

The tweaks to the so-called e-proxy rules come on the heels of proposed rule changes to require issuers to include shareholder nominated directors in their proxy statements if certain conditions are met, proposals to amend the rules to enhance the disclosures that issuers are required to make about their pay plans and governance, and the approval of a New York Stock Exchange rule change that eliminated broker discretionary voting for uncontested director elections.

The SEC adopted the notice-and-access model requiring issuers and other soliciting persons to post their proxy materials online and furnish notice to shareholders in 2007. Large accelerated filers had to adopt the model in 2008, and all other companies and soliciting persons adopted it in 2009.

The proposing release cites concerns about lower shareholder response rates when the notice-only option is used. Under the notice-only option, an issuer must send a Notice of the Internet availability of the proxy materials to shareholders at least 40 days prior to the shareholder meeting to which the proxy materials relate. Soliciting persons other than the issuer must send the Notice by the later of 40 days prior to the meeting or 10 days after the issuer first sends its Notice or proxy materials to shareholders. Shareholders can request copies of the proxy materials.

The proposing release notes confusion among some shareholders about how to access the proxy materials online or request a paper copy and vote their shares. For instance, some shareholders attempted to indicate their voting instructions by returning a marked copy of the Notice.

Rather than requiring soliciting persons to include a detailed legend that "may seem like boilerplate language to shareholders," the Commission is proposing to require that the information appearing on the Notice address certain topics, without specifying the exact language to be used.

"We hope the flexibility will allow issuers and other soliciting persons to develop a more effective explanation of the importance and effect of the Notice, including to provide clearer guidance for shareholders as to how to access the proxy materials online, request a paper copy of the proxy materials, and vote their shares," the release states.

The SEC also proposes to revise the rules to permit issuers and other soliciting persons to accompany the Notice with an explanation of the notice-and-access model.

Finally, the release seeks comment on ways to improve the mechanics of the notice-and-access model and to increase shareholder participation. Among other things, the release asks whether the Commission should consider adding requirements that would limit an issuer's ability to use the notice-only option where the issuer has experienced a decrease in shareholder participation as a result of using the notice-only option for distribution to some portion of its shareholders, how the notice-and-access model has impacted costs, and whether a 30-day (rather than a 40-day) deadline for delivery of the Notice would improve implementation of the notice-and-access model. The release also asks whether the SEC should consider proposing suspension of the notice-and-access rules until a later date to provide more time for shareholders to understand and be better prepared for the notice-and-access model.

Compliance Week will provide readers with the full details of the proposals in an upcoming edition.