Speech by SEC Commissioner:
"Assessing The Proxy Voting System To Ensure It Serves Investors"
Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
July 14, 2010
In the words of Congress, fair corporate suffrage is an important right that should attach to every equity security.1 To ensure this right, Congress entrusted the Commission to control the conditions under which proxies may be solicited2 by promulgating rules in the public interest or for the protection of investors.3 As outlined by Congress, the longstanding goal of the proxy system is to restore to shareholders their traditional ability to control the corporation4, and it is vital that this system is effective.
In undertaking a review of the proxy system, it is essential to focus on these principles and to understand the elements of a credible proxy system. First, the persons casting the vote must have information about the matters to be voted on. Second, votes must reflect the independent judgment of the voter, and must be cast in an environment free of undue influence. Third, votes must be accurately counted, and independently verifiable.5
The SEC last engaged in an in-depth study of the proxy voting system in 1976. It is an open question whether developments over the past 34 years have affected the fundamentals of this system. To that end, the staff is engaged in a new study that should enable us to assess whether the proxy system remains credible and effective. Today's concept release is part of that effort.
Conducting an effective study
To study the proxy voting system, the staff must first engage in fact-finding. Today's release solicits public comment on a number of potential issues with and changes to the proxy system, ranging from old ideas from the 1970s, such as more issuer control over investor communications, to newer concerns, such as empty voting. Many of these concerns and regulatory changes have been brought to the staff's attention by issuers, their representatives, and industry groups, and the concept release includes dozens of references to their concerns and to their letters. By contrast, there are fewer concerns and regulatory changes suggested by investors. This might be expected given the differences in resources, interests, and the organizational nature of these two groups.
In our experience, investors, particularly individual investors, often do not comment in significant numbers. As a result, they are often absent from decisions that ultimately impact them. Accordingly, it is incumbent on the Commission to increase their voice by affirmatively seeking out their views. The SEC did exactly that in 1976, when it surveyed nearly 100,000 investors, and received over 23,000 responses.
A similar effort to reach out to investors is now needed. A broad survey of investors, focusing on their views about the delivery of information, ease of voting, and impartiality and credibility of the system, would help to inform and to bring more balance to the current staff study of the proxy system. This is an effort that must be undertaken before any recommendations for significant action are put forward by the staff.
Today, the Commission begins its public review of the proxy voting system and it is imperative that this review focus on the principles and elements of a credible proxy voting system. I thank the staff for their work in preparing this release, and look forward to their future efforts to assess whether the proxy system is effective for investors.