Statement by SEC Chairman:
Opening Statement at SEC Open Meeting
Chairman Christopher Cox
U.S. Securities and Exchange Commission
November 29, 2005
Good morning. This is a meeting of the Securities and Exchange Commission under the Government in the Sunshine Act on November 29, 2005.
The subject of today’s meeting is consideration of a proposal to make Internet access an acceptable way for investors to get their proxy materials.
But before we turn to that subject, I want to take a moment to recognize the contributions of a distinguished public servant, and a great American.
This is our last meeting before the retirement of Bill McDonough, the Chairman of the Public Company Accounting Oversight Board. It’s a fitting occasion to recognize the profound impact he has had on this important new organization. He has been the Board’s most important founding father. He has laid the foundation and set the course for the PCAOB for years to come. This holiday season, all of us on the Commission, and all of our professional staff, wish Bill and his family the very best.
Now, with Thanksgiving behind us, and the holiday season in full swing, we’ve got to move on to new challenges. With all of the stores right next door at Union Station, it’s difficult not to notice the proliferation of electronic gadgets being advertised as the perfect holiday gift. We can only guess how many Americans will get a USB key as a stocking stuffer, or a cell phone that takes pictures and surfs the Web, or even an iPod that plays not only MP3s, but video. While we may still romanticize about traveling over the river and through the woods to grandmother’s house in a horse-drawn carriage, most of us reach our destination by planes, trains, and automobiles. And some of those jet planes have live TV, some of the trains have wireless Internet, and some of those automobiles have GPS guidance and a friendly robotic voice to tell us where to turn.
Just as technology has revolutionized the way we travel, it’s also dramatically changed the way we communicate and share information. Today, investors seeking to protect their hard-earned money have opportunities to gather information about prospective investments in real time, via the Internet. There is more information than ever before at an investor’s fingertips. And with the timeliness of information as important as its quantity, the Internet’s instant transmission of data is an investor’s best friend. In the months and years ahead, as investors increasingly migrate to the Internet, the SEC will continue to work to make the very best information available to them online.
It has been many years since the Commission first envisioned a paperless filing system. Over 20 years ago, the EDGAR electronic filing system was inaugurated on a pilot basis as the first step toward achieving that objective. We’ve come a long way since then.
Today, and every day, thousands of investors are viewing corporate filings online, at the SEC’s website. From registration statements, to annual reports, to quarterly reports, to proxy and information statements, an investor no longer has to travel to one of the Commission’s Public Reference Rooms, or pay a service bureau to find and copy information.
And that’s not all. Investors today can have access not only to the raw data from the SEC’s website, but also to analyses of it that can also be readily obtained on the web. This is only the beginning. The ultimate goal is to put investors in the driver’s seat when it comes to information about, and control over, their money.
Ten years ago, the Commission first provided formal guidance on the electronic delivery of disclosure documents under the Securities Act, the Exchange Act, and the Investment Company Act. Even in that long-ago first interpretive release, the Commission stated that the electronic distribution of investor information had the potential to dramatically enhance investors’ ability to access, research, and analyze data.
The Commission stated its belief that the widespread use of electronic delivery of information had multiple benefits for investors, and for SEC registrants. Without any rule changes, the Commission gave the green light to electronic delivery.
In the ensuing decade, the Commission has continued to provide consistent and uninterrupted guidance that electronic delivery is to be encouraged. Just a few months ago, the Commission adopted Rule 172 under the Securities Act, which provides for electronic delivery of the final prospectus.
The proxy rules are one of the last remaining areas where paper delivery is still the norm, rather than the exception.
This morning we’re considering whether to make Internet delivery an acceptable way for investors to get their proxy materials. Companies, and others sending proxy statements, would have to provide postcard notice to each investor that proxy materials are available on a specified website. The investor could, if he or she chose, simply call a toll free number (or use email) to choose to have a paper copy delivered the old fashioned way, at no cost.
A variety of benefits could flow from this proposal.
A significant investor benefit of using the Internet as the delivery platform is that investors will cast more informed votes. The tragic fact is that today, few ordinary investors read the proxy statements, which are written more like insurance policies against lawsuits than shareholder friendly guidance.
But since most investors are already online, and more are coming online every day, we can use that as the wind at our back to make disclosure more accessible. Internet delivery is but the first step in this process. Down the road, I hope that we can exploit the potential of the Web to provide disclosure that can be customized to each investor's tastes starting with clear summaries, and drilling down into as much detail as one wishes. By aiming our rules at the creation of more investor-friendly data that can be analyzed and massaged with free or inexpensive software tools online, the SEC can help put more, and more useful, information in front of investors than ever before.
Of course, the most revolutionary long-run benefit of the Internet for shareholders will be the eventual elimination of the sometimes prohibitive costs that proxy solicitation currently entails. Undoubtedly, in the future, it will reduce to near zero the cost of communicating with fellow shareholders.
For example, soliciting parties other than companies would have a less costly, highly effective, and virtually instant means of waging a proxy contest. Investors would have more timely access to their proxy materials. And of course, as companies save a considerable amount of money in printing and postage costs – those savings would directly benefit the shareholders who own the companies.
Studies show that today, 75% of Americans now have access to the Internet, and this percentage is rising steadily, and among all age groups. The percentage of investors with Internet access is even higher. And those who use the Internet, are really using it. Nielsen estimates that the average American Internet user spends 80 hours a month online at work, and another 30 hours at home – all told, over 25% of their waking hours is spent online. Not surprisingly, most Internet users know how to search through text, with techniques that vary from a simple "control-f" to elaborate algorithms.
It should be obvious, but a proxy statement that is delivered online is searchable, whereas the printed copy is not.
Not only is a manual search of often lengthy documents time consuming, but it can also be inaccurate. It's not hard to imagine reading through an 80 page document and missing the detail you're looking for.
Wasting resources – in this case, time, money, and paper is of course in itself a detriment to investor wellbeing and our nation’s economy that shouldn't be overlooked. Even the environment, not to mention mail carriers’ backs, may be a bit better off if this proposal is adopted.
Alan Beller, our Director of the Division of Corporation Finance, will give us a more detailed description of the proposals. But before that, I’d like to emphasize the Commission’s interest in hearing from as many investors as possible about these proposals.
It’s important for us to know what individual investors think, because this proposal is designed for their benefit. And, since the Commission long ago moved to an electronic comment process, all anyone has to do is send an email to the address in the release. Comments can also be provided in paper form; the instructions for mailing are also in the release.
The comment process is important to us. It’s the reason that today’s action is only a proposed rulemaking.
I have no doubt that not every investor will prefer Internet access to their proxy materials. That’s why the proposals would permit investors to request a copy of the materials without charge if they so desire. And I should add that I don't foresee the SEC ever eliminating the requirement of printed document delivery for any investor who wants it.
Some investors will always prefer to avoid computers at any cost. In a nation of 300 million people, we can't have a one-size-fits-all approach. But even investors who continue to get their proxy statements mailed to them will benefit from electronic delivery, because it's their money we'll be saving.
Now I’ll recognize Alan Beller, who will give detailed information on this proposal.