Speech by SEC Commissioner:
Remarks at the Open Meeting:
Internet Availability of Proxy Materials
Commissioner Roel C. Campos
U.S. Securities and Exchange Commission
December 13, 2006
Thank you. I'm also pleased to support the new rules regarding Internet availability of proxy materials, and I'd like to congratulate the Corp Fin staff for their fine work. I certainly support the idea of using technology to increase efficiency and reduce costs, while at the same time ensuring that we maintain or improve investor protection. I think I speak for all of my colleagues in saying that we are also concerned with the so-called digital divide and the impact on shareholders who are on the wrong side of that divide. The rules today and the discussion about the permanent paper delivery option deals with much of that concern. And it is my hope that today's rules are the first steps toward a regime that modernizes shareholder voting and communications, while ensuring the confidentially of shareholders who wish to remain anonymous and while liberalizing the ability of shareholders to have access to the proxy process.
At the outset, though, I do have a word of caution. The proxy delivery system is complex, particularly as it relates to shareholder proposals under Rule 14a-8; the role of brokers and banks and their agents; and the impact of broker discretionary voting for directors, which may now be nearing its end. Further, for too long, shareholders - even large institutional shareholders - have had basically no real ability to cast a meaningful vote for directors or to significantly influence the election of directors, absent a costly and time consuming proxy contest. I certainly understand that today's rules aren't designed to deal with shareholder access directly, but I think we must be careful that any new rules don't inadvertently place more restrictions on shareholder access.
With that said, I don't think our new rules do any such thing. I raised a number of issues when we first proposed our Internet proxy rules, and I'm happy to see that virtually all of my concerns were addressed. First, I'm pleased to see that we listened to the commenters and have decided to require that the Notice be sent out separately without the proxy card, and that the proxy card and the proxy materials remain together through the same electronic medium. As many have noted, keeping the proxy card with the rest of the proxy materials helps to improve informed voting, which is a critical aspect of our proxy rules. I do note, however, that the final rules permit an issuer to send out the proxy card without the proxy materials ten days after sending out the initial Notice. This is somewhat of a compromise, and I was initially concerned because this would permit the proxy card to be separated from the rest of the proxy materials. Ultimately, however, I think the outcome is acceptable. First, the proxy card must still be accompanied by the Notice, which contains information regarding where the shareholder can find the rest of the proxy materials. Second, under our pre-existing rules, companies may send out a proxy card by itself immediately after the initial delivery of the proxy card and proxy materials, so I don't think our new rules are significantly more permissive.
Switching topics, I also like the fact that the new rules allow shareholders who desire paper proxy materials to make a one-time permanent request for paper, and further, that shareholders can make a single request for paper with respect to all securities held in a particular brokerage account. I think this new revision reflects an appropriate balance between our goal to allow issuers (and eventually shareholders) to save money by permitting electronic delivery, while still not over-burdening shareholders who either do not have Internet access or who would simply prefer paper. We shouldn't lose sight of the fact that we're switching from a model that requires an affirmative "opt in" for electronic delivery, to a model that requires an affirmative "opt out" of electronic delivery. This is a significant change. In this regard, it seems prudent and fair to allow a permanent opt out.
I'm also pleased to see that the new rules contain appropriate safeguards to ensure the confidentiality of shareholders who desire to remain anonymous. To that extent, the rules explicitly state that companies and their intermediaries must maintain the websites in a manner that does not infringe on the anonymity of shareholders who visit the website. Further, allowing and requiring beneficial owners who request paper to do so through their brokers also helps to ensure confidentiality.
We've received comments suggesting that the SEC adopt rules to promote an investor communications technology suite or chat room, for lack of a better word. From what I understand, such a website could, among other things, allow companies to leverage technology to improve communications among shareholders, provide for better disclosures, and even allow for a more efficient means for shareholders to present proxy proposals. I want to emphasize that nothing in our new rules prevents us from considering such a proposal in the future, and indeed, it is my hope that today's rules are a step in that direction. That approach will of course include many complexities, though.
Before I get to my questions, let me conclude by addressing shareholder participation levels and cost savings, and I guess I'll use those subjects to discuss our proposal to make Internet delivery of proxy materials mandatory. At the outset, I think that all of us on the Commission are hoping to see issuers realize cost savings, while at the same time we don't want to see voting levels decrease. That said, I think we have to note that, in the comment process, we received data suggesting that perhaps cost savings would not in fact occur, or at least would not be as significant as we might anticipate, and further, that levels of shareholder participation would decrease. I'm also very sensitive to concerns that our rules might discriminate against certain types of shareholders, which I know is a concern to all of us. Now, I think we may have addressed those concerns by changes that we've made since the proposing stage, particularly our change allowing a permanent opt out. Further, I think the data indicates that a significant majority of shares, if not shareholders, already vote electronically or telephonically. But that said, the ultimate answer to the question about costs is that our new rules are wholly voluntary - issuers are not required to do a single thing differently. If an issuer doesn't believe that it will see cost savings from Internet delivery, then it will choose not to allow it. Moreover, by permitting our rule to go into effect on a voluntary basis, we will have a limited opportunity to evaluate the effect on shareholder voting levels without taking the more significant step of requiring every company to permit Internet delivery.
This is why I'm somewhat concerned about moving immediately to a mandatory system, without first having the benefit of a full proxy season of voluntary Internet delivery. My concerns are somewhat mitigated by the fact that we're proposing that our mandatory rules be effective only for large accelerated filers during the 2008 proxy season, with all other companies having another year to comply. That said, I'm looking forward to commenters' views on mandatory Internet delivery of proxy materials.
I'm just going to ask one question, and it concerns the broad topic of shareholder access. Given that our Internet delivery rules apply to soliciting persons other than issuers, it stands to reason that costs to shareholders seeking to solicit proxies would also decrease. This would seem to be the case especially because non-issuers are not required to send information statements to shareholders from whom no proxy is sought, and further, because our new rules do not require soliciting persons to send a Notice to every shareholder. But, during the comment period, we received a comment that printing and paper costs account for only a small minority of the costs of a proxy contest. Obviously, the significant costs are professional costs - legal and solicitation fees. So, I was just wondering what you thought about that data, and whether you believe that the new rules would make it easier and/or less costly to mount a proxy contest.
Thanks. It's been long day, so let me finish up. I really appreciate all of the hard work by the Corp Fin staff in putting together these final rules, and I'm very pleased to support them. I also support issuing proposed rules on mandatory Internet delivery, and I think we need to look carefully at the comments we receive before moving to final rules in that regard. Thanks very much.