IT LOOKS as if many of Microsoft Corp.’s (NASDAQ: MSFT) shareholders — who presumably should know a thing or two about technology — are not comfortable using the Web.
The software giant was initially hoping to become one of the first U.S. companies to save money by relying on the Internet to deliver information and have its shareholders cast their votes online at its upcoming annual meeting on November 13.
But now the Redmond, Washington-based company is resorting to old-fashioned snail mail in a costly effort to encourage shareholders to return their voting instructions.
The move comes after Microsoft decided to make the shift to default Internet delivery of its annual meeting materials under a new Securities and Exchange Commission (SEC) rule known as the “notice and access” delivery method.
Poor user experience, confusing process
In late September, Microsoft began mailing short, colorless notices to its shareholders telling them how to access its annual report and proxy statement, and then vote their shares online. Depending on how they held their stock, shareholders were referred to services hosted by outside suppliers which have been criticized for failing basic usability and accessibility standards.
Microsoft shareholders who hold their stock in brokerage accounts in the name of their financial institutions were asked to visit http://www.investorEconnect.com, which is hosted by Broadridge Financial Services (NYSE:BR). Meanwhile, those with stock certificates or who are listed in the company’s stock register were directed to http://mellon.mobular.net/mellon/msft/, which is hosted by Bank of New York Mellon (NYSE:BK) via privately-owned Mobular Technologies.
Follow-up mailing provides postage-paid envelope
However, in a step that suggests the company has not attracted as many shareholders to vote online as it had hoped, Microsoft on Tuesday notified the SEC that it had decided to send its brokerage firm shareholders a follow-up mailing that contains a voting card they can return in a postage-paid envelope provided by the company.
In part, the latest mailing by Broadridge on Microsoft’s behalf says in all-capital letters and heavy legalese:
“We have previously sent you proxy soliciting material pertaining to the meeting of shareholders of the company indicated. According to our latest records, we have not as of yet received your voting instruction..”
Some Microsoft shareholders have been disappointed and frustrated by Microsoft’s new Web-based process, its use of third-party vendors to host its online annual report and proxy statement, and by the poor usability of the vendors’ versions of Microsoft’s documents.
In a comment posted last week in response to a prior story I wrote, shareholder George Thacket says of Microsoft’s annual report: “It is unreadable even on the largest font setting.” He said he will in future request paper documents “so I can read what issues I am voting on.”
And just yesterday, IR Web Report received a phone call from a desperate Microsoft shareholder complaining that she has been unable to locate her shareholder account number to vote her shares. She found us after a Web search. (No, we couldn’t help her.)
Censorship, human rights proposals on sensitive ballot
Microsoft’s annual meeting has two shareholder proposals on the agenda dealing with human rights issues. William C. Thompson, City of New York Office of the Comptroller, has submitted a proposal to the meeting on Internet censorship. It calls on Microsoft to stop supplying the governments of countries like Burma and China “with equipment or training designed to facilitate the censorship of Internet communications.”
John C. Harrington, President and CEO of Harrington Investments, Inc. and author of “Investing with Your Conscience” has put forward a proposal for Microsoft to establish a Human Rights committee of the board that would review and make policy recommendations regarding human rights issues, using the US Bill of Rights and the Universal Declaration of Human Rights as “nonbinding benchmarks.”
Microsoft’s board is recommending that shareholders vote against the two shareholder proposals, which each require a majority yes vote to be approved. According to Yahoo! Finance, big institutional investors and mutual funds like those of Fidelity, Vanguard, Barclays and T. Rowe Price hold two-thirds of Microsoft’s shares.
When retail shareholders, who tend to vote in line with company recommendations, fail to exercise their franchise, the votes of activist institutional investors have more clout and increase the likelihood of shareholder proposals achieving the required thresholds for approval.
Warnings sounded from start
At the time when the SEC first proposed its e-Proxy process in December 2005, several commentators including myself cautioned that shareholders could be put off by the poor usability of online investor documents unless regulators required specific standards and companies made an effort to improve the online user experience of their websites for investors.
While the SEC did incorporate requirements that companies provide their proxy materials in formats that are convenient for onscreen reading and for printing, companies and vendors have largely ignored the requirement, while the SEC does not appear willing to confront companies on the issue.
However, the point may be moot as it appears that many companies are wary of adopting “notice-only” delivery of their proxy materials. IR Magazine reports that a survey by Thomson Financial of 85 companies finds that just 28% are planning to use the “notice-only” method, while 54% are undecided and 12% plan to use it selectively.
My advice to companies, as more fully explained in our guidelines for online shareholder meetings, is to plan ahead and start prepping shareholders for a notice-only style meeting months in advance. You also need to design an online shareholder meeting destination that engages and validates shareholder participation.
Current approaches as conceived by Broadridge and the transfer agents may work for companies that have a heavily institutional ownership base, but any company with more than 15% – 20% of its stock in the hands of retail investors should pull out all the stops.