November 22, 2009
From an investor protection perspective, the problem with Notice and Access is not low retail voting. The problem is that investors are not receiving annual reports or proxy statements to inform themselves about the financial condition and governance of the companies whose securities they own. This undermines the investor protection mandate of the SEC because uninformed investors are more likely to make bad investment decisions and are more easily duped.
Broadridge's statistics show that fewer than 2% of the people who receive a notice of internet availability actually request printed materials to be mailed to them. And when people do go online to cast their votes, which is very rarely, fewer than 1% actually review the issuers proxy materials before casting their votes. This is partly because the design of Broadridge's voting website encourages this behavior, and partly because issuers online proxy materials are uninviting and barely usable, notwithstanding the SEC's unenforced requirement that materials be in a format convenient for onscreen viewing.
Consequently, under Notice and Access fewer than 2% of retail shareowners are receiving the essential information they need to make informed investment and voting decisions. The 75% decline in voting by retail shareowners is merely a symptom of a more serious problem. Notice and Access is making ordinary investors less informed and less engaged than ever before. All the statistics point to this being the case.
To make matters worse, various commentators now suggest that the Commission allow issuers to mail a proxy card or VIF to shareowners along with the Notice of Internet Availability, but without the proxy statement and annual report. This probably will increase retail voting, but it also will encourage uninformed voting and voting in favor of the board's recommendations without due consideration of the issues. That is not good for investor protection.
I am 100% in favor of electronic access to usable and understandable disclosure information. I wish that ever retail shareowner was engaged and interested enough in their investments to take the time to review the materials that companies produce.
However, companies need to produce better, more usable materials and they need to engage their shareowners year-round, not just because the SEC and the exchanges say they must, but because they truly want to keep their owners informed and engaged.
In my view, the only way to ensure that companies will step up to the plate and produce better online experiences for their shareowners is to scrap Notice Access and let shareowners opt in to electronic delivery on an issuer by issuer basis when individual shareowners think it is appropriate.
Under an opt-in e-delivery system, issuers that provide good online experiences for their shareowners will achieve higher rates of consent from their shareowners than those that provide low-quality online disclosures. And if an issuer fails to maintain the quality of the online shareowner experience it provides, it will likely see shareowners rescinding their consents. This happened when e-delivery was first introduced. Shareholders initially greeted it with enthusiasm, but after a year or two of poor online experiences at the hands of issuers, millions withdrew their consents (see ADPs comment letter on the original voluntary Notice and Access proposal).
Opt-in e-delivery is a better system because it gives the shareowner the right to choose when they are comfortable receiving an issuers materials electronically. It is better because it eliminates any paper being sent to shareowners who opt in (there are no printed notices or envelopes with e-delivery).
And it is better because it puts the onus on the issuer to work to convince shareowners that the web is a superior option by providing usable and understandable online materials.
Notice and Access undermines investor protection by making it harder for shareholders to inform themselves and by taking away their right to choose when it is appropriate to receive information from an issuer electronically.
Notice and Access encourages issuers to send materials to those investors who own the most shares and who probably have the least need for the printed materials in the first place. And it has now led issuer groups to ask the commission to encourage uninformed voting by sending shareowners proxy cards with no disclosure materials attached, an intolerable idea from an investor protection standpoint.
The Notice and Access system has failed. Tweaking the notices will do little to change the fundamental flaws. It should be scrapped and issuers should work to provide online experiences that will encourage their shareowners to opt-in to the superior and more environmentally friendly e-delivery system.
Thank you for the opportunity to comment.