Wednesday, December 02, 2009

Corporate Secretaries Society Comments on SEC Proposals to Improve Proxy Notice and Access

By James Hamilton, J.D., LL.M.

The Society of Corporate Secretaries and 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 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 work 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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