(The news featured below is a selection from the news covered in the Federal Securities Law Reporter, which is distributed to subscribers of SEC Today.)

Standing Advisory Group Discusses Specialists and Litigation-Related Clauses

The comment period on the SEC's proposal to permit companies to furnish proxy materials via the Internet closed on February 13 with over 100 commenters submitting their views. While some view the proposal as a cost effective way to provide proxy materials and annual reports, others warned of unintended consequences and costs.

The Business Roundtable noted that the SEC has failed to act on its 2004 rulemaking petition on shareholder communications and urged the SEC to address those issues, particularly companies' communications with beneficial owners who hold their shares in street or nominee name, as part of its rulemaking project. The Society of Corporate Secretaries and Governance Professionals also urged the SEC to expand the rulemaking to address the existing distribution system for shareholder meeting materials.

The Business Roundtable outlined its concerns with the proposal's approach to the role of intermediaries in the "notice and access" method of distributing proxy materials. The Roundtable said the complex and circuitous process of communicating with street and nominee holders would be entrenched if the proposal is adopted. Automatic Data Processing, Inc., the largest provider of shareholder communications services, on the other hand, believes the current system is reliable and efficient. ADP submitted the results of a number of studies that found a preference for the current rule over the proposed rule and the potential for decreased shareholder voting if the proposal is adopted.

Institutional Shareholder Services said the proposal would likely facilitate wider access to proxy materials, lower costs and increase voter participation. The Securities Industry Association, however, said the proposal would add costs to the current proxy delivery system, at least during the implementation stage. SIA said the current system works well and has achieved major savings. 

The AFL-CIO raised concerns that the proposal would increase the role of broker voting in corporate elections. Brokers have no fiduciary obligation to vote in shareholders' best interests, the AFL-CIO noted, and they routinely vote in favor of management on routine proposals. The current rule that permits brokers to vote if the beneficial owner provides no instructions at least 10 days before a meeting undermines the incentive for companies to seek maximum shareholder participation in elections, the organization explained. In the AFL-CIO's view, no ballot item submitted for shareholder approval today is so routine that brokers should have the ability to vote without instructions from the beneficial owners. The AFL-CIO suggested that the electronic delivery of proxy materials should be permitted only where broker voting is not permitted. 

The New York State Bar Association wrote that the cost savings depend on the unknown opt-out rate of shareholders, among other factors. Issuers may have to print enough paper copies to satisfy all shareholder requests and then may end up with excessive amounts, the Bar observed. The Bar suggested that the SEC allow standard rate mailing of requested proxy materials instead of first class and increase the time period for fulfilling requests. The Bar said the SEC also should establish a deadline by which shareholders must request either paper or email delivery.

The New York State Bar was also among a number of commenters that urged the SEC to permit the notice and access model for business combinations. The Investment Company Institute also supported the use of the notice and access model for business combinations and asked that it be extended to include investment company shareholder reports. The SEC's decision not to permit the notice and access model in these instances suggests that it has not fully embraced the model, according to ICI. ICI also suggested that intermediaries be permitted to use the notice and access model for their customers even if the issuer chooses not to use it.