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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Opening Statement at the SEC Open Meeting


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

Washington, D.C.
July 14, 2010

Good Morning. This is an open meeting of the U.S. Securities and Exchange Commission on July 14, 2010.

Today we consider issuing a concept release that will seek input from the public on a wide variety of issues involving the infrastructure that supports the U.S. proxy voting system. This infrastructure, through which more than 600 billion shares are voted at more than 13,000 shareholder meetings each year, is an integral component of our country’s corporate governance.

The proxy is often the principal means for shareholders and public companies to communicate with one another, and for shareholders to weigh in on issues of importance to the corporation. To result in effective governance, the transmission of this communication must be — and must be perceived to be — timely, accurate, unbiased, and fair.

It has been nearly 30 years since the Commission last conducted a comprehensive review of the proxy voting infrastructure. Since then obviously, much has changed — shareholder demographics, the structure of share holdings, technology, and the potential economic significance of each proxy vote. With all of these changes, it is time to once again ask the fundamental policy questions that led to the development of the current infrastructure, as well as to examine issues that, three decades ago, either did not exist or were not considered significant.

Elements of the Release

As our staff will explain in greater depth in a moment, the concept release focuses on the accuracy and transparency of the voting process, the manner in which shareholders and corporations communicate, and the relationship between voting power and economic interest. The release includes in-depth analyses of, and questions concerning, a number of specific issues:

  • First, the over-voting and under-voting of shares, which may occur when there is (for a variety of reasons) a mismatch between the number of an issuer’s shares held by a broker-dealer at the Depository Trust Company and the total number of those shares credited to the broker-dealer’s customers’ accounts.
  • Second, vote confirmation, which currently only exists in limited circumstances but is an objective shared by both many investors and many issuers.
  • Third, proxy voting in the context of securities lending. Rather than passing judgment on the merits of securities lending, this release examines the relatively narrow question of whether the lenders of securities need information sooner about the content of upcoming shareholder meetings than they now generally receive it. Such earlier notification could allow an investor to decide whether to recall their shares and regain their right to vote these shares. Also, the release explores whether mutual funds and closed-end funds should be required to disclose the number of shares that a fund votes at a particular meeting, in addition to how that fund votes.
  • Fourth, proxy distribution fees. These fees, which are charged to issuers, are required to “reasonably reimburse” broker-dealers for the costs of forwarding proxy materials. Maximum fees are set by stock exchange rules and, since they have not been revised since 2002, we believe it is appropriate to re-examine the fee structure.
  • Fifth, issuers’ ability to communicate with beneficial owners of securities. It has been 25 years since the creation of the “OBO/NOBO” system which provides the ability of shareholders to keep their identities confidential from the issuer. With fresh insights, we will examine whether those policies still represent the most appropriate regulatory response to the competing interests of privacy versus effective shareholder-corporation communications.
  • Sixth, removing barriers or disincentives to retail investor voting participation, including:
    • Improving investor education.
    • Enhancing brokers’ Internet platforms.
    • Permitting advance voting instructions for retail investors.
    • Enhancing investor-to-investor communications.
  • Seventh, data-tagging proxy-related materials. At the suggestion of the Commission’s Investor Advisory Committee, the concept release seeks comment on whether data-tagging proxy-related data, such as information relating to executive compensation and director qualifications, might enhance a shareholder’s ability to analyze issuer disclosures and to make informed voting decisions, and what such efforts might cost.
  • Eighth, the phenomenon of “empty voting,” which generally occurs when the right to vote is disconnected from the economic interest in the outcome of that vote. This can occur as a result of certain hedging strategies; the sale of one’s shares after the record date but before the annual meeting; voting of unallocated shares in an ESOP; and certain stock lending. The release requests input on the scope and significance of “empty voting” in our markets; the costs versus benefits of these practices; whether certain issuers are more vulnerable to “empty voting” than others; and whether regulatory responses (such as increased transparency) are warranted.
  • And finally, the role of proxy advisory firms will be examined. Both companies and investors have raised concerns that proxy advisory firms may be subject to undisclosed conflicts of interest, may fail to conduct adequate research, or may base recommendations on erroneous or incomplete facts. The release will fully probe these issues.

Before we hear more details about the release, I have a very long list of staff members to thank for their contributions:

From the Division of Trading and Markets, thank you to Jamie Brigagliano, David Shillman, Tom McGowan, Jerry Carpenter, Sharon Lawson, Susan Petersen, Terri Evans, and Andrew Madar. From the Division of Investment Management, thanks to Susan Nash, Sarah Bessin, David Grim, Mark Uyeda, Ned Rubenstein, Dan Kahl, Brian Murphy, Holly Hunter-Ceci, and Alberto Zapata. From the Division of Risk, Strategy, and Financial Innovation, thank you to Henry Hu, Josh White, Scott Bauguess, Ayla Kayhan, and Alex Lee. Thank you also to Lori Schock, Rich Ferlauto and Judy Burns with the Office of Investor Education and Advocacy, and to Timothy Geishecker from the Office of International Affairs. Thank you to our colleagues in the Office of General Counsel, specifically David Fredrickson, Lori Price, and Sarah Buescher. And to the Division of Corporation Finance, thank you to Meredith Cross, Brian Breheny, Tom Kim, Mauri Osheroff, Michele Anderson, Paul Dudek, Larry Hamermesh, Mark Green, Anne Krauskopf, Heather Maples, Nick Panos, Ray Be, Greg Belliston, Sebastian Gomez Abero, Steve Hearne, and Kim McManus.



Modified: 07/14/2010