(The article featured
below is a selection from Corporate
Governance Guide Update, which is
available to subscribers of that publication.)
Corporate Secretaries Society Comments on SEC Proposals to Improve Proxy
Notice and Access
The
Society of Corporate Secretaries & Governance Professionals strongly
supports the SEC’s proxy notice and access model and the Commission’s
proposals to enhance the model so more investors will use it. In 2007, the
Commission amended the proxy rules by adopting a notice and access model
requiring companies to provide their proxy materials on a website and furnish
notice of the material's availability to shareholders. The notice and access
model was intended to promote the use of the Internet as a reliable,
cost-efficient and environmentally-friendly means of making proxy materials
available to shareholders. However, some of the mechanisms in the rules have
discouraged companies from taking full advantage of the notice and access model.
In addition, the notice and access model has had the unintended consequence of
lowering participation by retail shareholders compared to previous voting
levels.
In an effort to improve implementation of the notice and access
model, the SEC proposes to revise the legend requirements in the rule to make
them more flexible, revise the deadline applicable to soliciting persons other
than the issuer to reconcile the rules and better coordinate them with the
Commission staff’s review process, and permit issuers and other soliciting
persons to accompany the Notice with explanatory materials regarding the process
of receiving and reviewing the proxy materials and voting.
In its comment letter, the Society urged the SEC to decrease the
notice period from 40 to 30 days for the company in order to encourage more
companies to avail themselves of notice and access. After surveying its members,
the Society found that a number of companies have been discouraged from using
the notice and access model due to the difficulty in meeting the 40-day notice
mailing requirement. The Society reasoned that giving companies an extra ten
days to prepare the proxy would be a way to encourage them to use the notice and
access model. The Society believes that thirty days is an adequate time for
shareholders to request and receive hard copy materials.
The Society also believes that retail shareholder engagement in
the proxy process will be enhanced if retail shareholders are educated about
their voting rights. One way to do this is to allow and promote better and more
frequent communication by companies and the Commission regarding notice and
access to shareholders. Since shareholders are more likely to focus on
educational materials when they are directly relevant, reasoned the Society,
companies should be permitted to provide shareholders with educational materials
along with the notice. These educational materials can be beneficial on
different levels. They can help explain the notice, inform shareholders how to
vote, clarify that proxy materials are currently available on the company's
website, and set forth general information about the proxy voting process.
Current proxy rules do not allow companies to send a voter
instruction form or proxy card along with the notice when complying with their
obligations under the proxy rules under the notice and access model. The Society
asked the SEC to allow the proxy card or voting instruction form to be included
with the notice. After sending the notice, companies must currently wait at
least ten days before forwarding a voter instruction form or proxy card. The
Society believes that it would facilitate retail shareholder voting and reduce
shareholder confusion to include a proxy card or voting instruction form, with a
return envelope, with the first notice mailing. Shareholders are more likely to
take action and review the proxy materials and return a proxy card or voting
instructions if they receive the form with the initial mailing.
Finally, the Society said that client directed voting is a tool
that would increase shareholder engagement with the notice and access model.
Under client directed voting, a shareholder would be invited to provide his or
her broker or bank custodian with advance standing instructions on the voting of
certain appropriate types of proposals. Any standing instructions provided would
then later be reflected on the notice cards that the shareholder later receives
in connection with particular annual meetings.
In the Society’s view, this effectively personalizes the notice
card because the card would reflect the shareholder's own pre-registered
preferences. Shareholders who have already invested their time to register for
client directed voting and provide standing instructions, would be more likely
to follow up after receiving a notice card that has been personalized in a
manner consistent with those instructions. As the proxy materials will be
available on the website at the time the shareholder receives the notice, the
shareholder would always be provided the opportunity, after reviewing the proxy
materials, to override any standing instructions.
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