December 15, 2005
Rule changes to allow issuers to furnish proxy materials by posting them on the Web are long overdue, and requiring shareholders to opt-out of your notice and access model is the right approach. It should lead to lower proxy solicitation costs as presumably a large percentage of the millions of shareholders who do not vote will not opt-out. Hence, an issuer will avoid the printing and mailing costs with respect to these non-voting shareholders. Further, if one assumes that non-voting shareholders will consciously or unconsciously find it unnecessary to print out the posted materials which is a safe assumption printing costs will not be shifted to these shareholders. Thus, the issuer and all of its shareholders will benefit from the cost savings.
With that said, many shareholders will continue to want hard copies of proxy materials, and rightly so. A computer screen is a poor substitute for a paper copy, and some shareholders will not have computers, or will not have web access, or will not have printers, or will not want to absorb the cost of printing the materials themselves. Additionally, while the opt-out structure is an efficient way to weed out shareholders who have no need or desire for hard copies, the structure is not perfect. It will result in cutting off some non-voting shareholders who actually want the materials. With these considerations in mind, your proposal should be revised to make it easier for shareholders to opt-out of the notice and access model/opt-in to paper delivery. Specifically, your proposal appears to require continuous opting-in for paper delivery, i.e., a shareholder who wants the traditional hard copy proxy materials would have to submit a request prior to each and every shareholders meeting. The rules should provide a means by which a shareholder could permanently designate her desire to receive hard copies, subject to her later revocation, instead of requiring repeated requests.
On another note, I do not agree with you that the notice and access model should be inapplicable to proxy materials related to a business combination transaction. You offer three reasons for your position: business combination transactions 1. are highly extraordinary events for some companies, 2. often involve registered securities triggering prospectus delivery requirements, and 3. typically involve long and complex proxy statements.
Reason 1. is curious given your proposal allows the use of the notice and access model for proxy fights, which are more extraordinary than business combination transactions and are often coupled with proposed business combination transactions. Reason 3. is also curious considering a major objective of your proposal is to enable issuers to reduce proxy material printing and mailing costs. In that light, it makes little sense to assert that the notice and access model should not to apply to long and complex documents. The longer the document, the more expensive the printing and mailing. If page length is truly a concern, a better approach would be to set a page maximum for which the model can be used as opposed to a blanket exclusion of all business combination transactions. Reason 2. does make sense, although requiring hard copy delivery of proxy materials when a proxy must be delivered really goes without saying considering that the proxy statement and prospectus are typically combined in one document. And, like reason 3., reason 2. does not support a blanket exclusion of all business combination transactions from use of the model. A better approach would be to allow use of the model for business combination transactions that do not require delivery of a prospectus.
On a final note, for long releases such as this one, it would be helpful if the table of contents of the release included page numbers.