E Proxies and the Need for Access

The Commission recently adopted Rule 14a-16, requiring companies to post their proxy materials on the Internet.  Internet posting is mandatory.  Some have used this requirement as a justification for denying or downplaying the importance of shareholder access. (Take a look at Jeffrey Gordon's piece on the subject).  By using electronic delivery and reducing the costs of a solicitation, shareholders can nominate directors and distribute their own proxy materials. 

Even with electronic delivery, insurgent shareholders must incur costs.  They will need to pay the costs of drafting a proxy statement and putting it up on a web site that conforms to SEC requirements.  There will also be costs associated with notifying shareholders of the availability of the material.  Nonetheless, there is a more profound problem.   

The WSJ (Kara Scannell) noted the recent evidence presented by Broadridge on how the e-proxy process is going.  According to the report, only 4.58% of the retail shares receiving notice and access of the 80 companies studied actually voted.  This compares with 19.19% the year before when everything was being done by hard copies.  The total quorum percentage fell from 91.64% to 88.40%, a number that may overstate the number of shareholders actually voting since it includes beneficial owners and these owners can be voted by brokers when voting instructions are not received. 

One possible impact, as Scannell notes, is that the failure to return proxies may provide other shareholders with accentuated influence.  As the article notes:

• The decline in the participation of individual shareholders could give larger institutions and corporate activists greater sway on company matters. Hedge funds and unions, for example, are becoming increasingly vocal on matters such as executive pay. In a sign that institutions are getting more aggressive, the SEC this proxy season has received more requests from companies seeking to disallow shareholder proposals than in years past.

The data suggested that the use of notice and access resulted in cost savings.  The cost savings, however, were apparently calculated by assessing the difference between mailing full sets of materials and mailing only the notice.  The data does not appear to include the other costs associated with notice and access, particularly the costs associated with placing the materials on the Internet. 

In other words, for insurgents, the cost savings are at best unclear.  What is clear, is that use of notice and access makes getting out the votes harder.  In short, there is nothing in the e-proxy process that displaces the need for access.