(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.)
Commenters Submit Views on Internet
Delivery of Proxy Materials
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.
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