DESPITE a dramatic drop in individual investor participation at companies using the new E-proxy process for their annual meetings, the US Securities and Exchange Commission (SEC) is studying “rulemaking refinements” that could make it easier for more firms to use the model.
Introduced little over one year ago, the E-proxy process allows company investor relations departments to send a bland notice to investors telling them how to order company reports to be mailed to them, or where they can find clunky online versions on the web.
However, retail investors have understandably failed to respond to the new model, leading to a dramatic 73% falloff in the number of retail accounts voting or receiving essential information about their investments.
40-day deadline could be relaxed
But the wholesale lack of retail investor participation does not appear to be a major cause for concern at the SEC or the companies it regulates. The SEC’s director of corporation finance John White this week revealed that the SEC may relax the deadline for notices to be mailed to shareholders, which would make it easier for more companies to use the E-proxy process.
Currently, the rules require companies to mail notices to shareholders 40 days in advance of the annual meeting date. This provision has prevented many companies from using the notice-only approach because they aren’t able to prepare their materials so far in advance.
But in a speech on Monday at an American Bar Association meeting in New York, White said the 40-day requirement was designed to allow companies to send a second mailing 10 days later that included the proxy card, which is not included with the first mailing. In practice, however, few companies have done a second mailing. One that did — Microsoft — has reported that it had little impact on improving turnout.
White said his division was “definitely open to hearing your experiences here and determining if there is something that can be done to address [the 40-day deadline].”
Big bucks, high quorums, little worry
The SEC’s apparent lack of concern about poor retail shareholder participation may be because it has had virtually no impact on companies being able to reach quorums for their meetings. Companies using the model achieved average quorums of 86% this year.
The high quorums are a result of most company stock being held by big institutional investors who are obliged to vote their shares. Brokerage firms also can cast votes on routine matters even if their clients have not instructed them to do so, including in director elections.
Another reason no one is particularly concerned is because companies are saving a huge amount of money. As of June 30, 653 companies have saved more than $140 million using the notice-and-access approach, according to figures compiled by Broadridge Financial Solutions, which processes around 70% of voting shares in US companies.
In his speech, White said it was his “hope that we will see [retail shareholder participation] improve as more companies use e-proxy, and learn how to adjust its features, as investors become more familiar with electronic voting, and as more investors desiring paper copies make their one-time election.”
He said the SEC was also looking at allowing companies to include “educational material” about the E-proxy process with their notices, but that this was tricky because companies could use these mailings to influence the vote without shareholders having access to complete information.
Some companies have blamed the low retail vote on the SEC’s strict language requirements for the notices, and on the poor design of notices sent to street name shareholders by Broadridge, which is predicting a 40% adoption rate for notice-only proxy mailings in 2009, up from 28% this year.
But White said Broadridge had made efforts to improve their notices, “so hopefully this will not continue to be the issue that it has been this season.”
E-proxy is about delivery. Low voting is just a symptom.
Frankly, I think everyone is missing the boat on the real problem, which is that investors are not taking delivery of their proxy materials. Even when they go online to vote, they’re mostly not accessing the materials before they vote. Broadridge did a study of what people did when they went online after receiving a notice, and 90% voted without looking at the proxy materials. The SEC staff have that study, but it has never been mentioned in a speech.
All of this emphasis now by Broadridge and the SEC on increasing the retail vote is wrongheaded. It is treating a symptom of a bigger problem. The emphasis should be on increasing delivery or the number of shareholders who go online to read their proxy materials and then vote their shares with the benefit of knowing who and what they’re voting for or against.
Uninformed investors are the worst kind, and for an investor protection agency such as the SEC to be party to a system that exacerbates investor ignorance is an outrage. I’m surprised this isn’t a big political issue yet.
Improved notices might get a few more people to go online to vote their proxies, but they won’t do anything to improve delivery of the proxy materials. Until companies start investing in creating compelling and engaging online shareholder meeting campaigns and year-round online experiences for their shareholders, e-proxy will continue to be a failure.