THE U.S. Securities and Exchange Commission is expected to vote on rule changes next week that will make it easier for companies and shareholders to use electronic forums, blogs, and other forms of social media for their shareholder meetings.At a meeting on Wednesday November 28, the commission will “consider whether to adopt amendments to the proxy rules under the Securities Exchange Act of 1934 to facilitate the use of electronic shareholder forums.”
As I blogged in July, the shareholder forum proposals were contained in one (PDF 376 KB, 96 pages) of two controversial “proxy access” proposals put forward by the SEC. However, the shareholder forum proposals have largely been lost in the uproar by investors over the SEC’s proposals to limit proxy access.
Now it appears that the commission under Chairman Christopher Cox will carve out the shareholder forum proposal as a separate item. I think this is a good idea because the shareholder forum proposal is a good one.
As proposed, it is possibly the most forward-thinking and practical regulatory development for Web-based investor communication and engagement I’ve seen from the SEC to date. This is because it seeks to get regulators out of the way of shareholders and companies talking to one another online.
In the July proposal, the SEC says it is not seeking “to devise an approved regulatory version of an electronic shareholder forum.” Rather the commission wants to provide clarity to companies and shareholders and remove barriers to the Internet being used for shareholder-corporation engagement.
“Rather than prescribe any specific approach to an online shareholder forum in the proxy rules, the proposed amendment is designed to remove any unnecessary real and perceived impediments to continued private sector experimentation and use of the Internet for communication among shareholders, and between shareholders and their company,” says the proposal.
The SEC says that “a myriad uses of the Internet to facilitate shareholder communication are already well under way, and as technology continues to develop, individuals and entities will find increasingly creative ways to address the challenges they face in presenting proposals to companies, determining support for proposals among other shareholders, conducting referenda on non-binding proposals, and organizing online petitions to management, among other potential activities. The Commission strongly encourages these developments.”
The commission says that traditional shareholder meetings provide “limited opportunities” for discussion between shareholders and corporate boards and management. It says that given “the opportunities for collaborative discussion afforded by the Internet and related technological innovations … the proxy system may not be the only, or the most efficient, means of shareholder communication with management on purely advisory matters.”
Of course, it has become increasingly important in recent months for the SEC to provide clarity to companies and shareholders on the rules for using the Web in proxy solicitations. Dell Inc. recently launched the first investor relations department blog by a large U.S. company. The company has indicated that it plans to use the blog and formally launch it at the company’s upcoming annual meeting in December.
And, as we have documented in our guidelines of online shareholder meetings, AMERCO’s recent experiment with a shareholder forum for its August shareholder meeting proved to be a success for the company and its shareholders.
While there has been a lot of investor anger over the proxy access rules and Chairman Cox’s determination to push forward with a rule ahead of the 2008 proxy season, there is a silver lining of sorts in the form of the shareholder forum proposal, assuming it is approved largely as proposed.
Update on November 28, 2007: The SEC approved the forum rule today.