Though the Securities and Exchange Commission has made it easier for public companies to provide proxy materials via the Internet, many issuers are not taking advantage, according to a report from New York-based law firm White & Case.
Under the SEC’s new rule, effective 1 January, companies can mail shareholders a notice that their proxy materials – a proxy statement, annual report and proxy card – are available online, rather than mailing the full materials. “We conducted the study to assist our clients in deciding whether they should adopt the new method and how to best implement it,” says White & Case partner Colin Diamond. The firm reviewed the 2007 proxy statements of the 78 Fortune 100 companies that conducted their annual meetings between 1 January and 8 May.
According to the study, sent to the firm’s clients on 16 May, only 19 companies decided to provide their shareholders with a notice that proxy materials were available online: Allstate Corp., American Express, AmerisourceBergen Corp., Caterpillar, Chevron Corp., Hartford Financial Services Group, Halliburton Co., Hewlett-Packard Co., Honeywell International, Intel Corp., Lowe’s Companies, Marathon Oil Corp., United Parcel Service, Prudential Financial, Sysco Corp., Wachovia Corp., Wellpoint, Wells Fargo & Co. and Valero Energy Corp.
Previously, investors who wanted electronic delivery of corporate documents had to give explicit permission to either the issuer or their bank or brokerage firm. Under the new notice-and-access method, investors that want to receive a paper copy of the proxy materials must request them.
Large accelerated filers – generally companies with more than $700 million in market capitalization held by non-affiliates – must make proxy materials available online even if they continue to mail the full documents. The requirement will apply to all companies making proxy solicitations after 1 January, 2009.
According to White & Case, the companies that provided the e-proxy notices took differing approaches. Hewlett-Packard and Marathon Oil said they mailed full proxy materials to all non-US shareholders, while Caterpillar and Wells Fargo provided an e-proxy notice to a “majority” of shareholders. Wells Fargo said it was testing the approach to determine whether to send shareholders only e-proxy notices for future meetings. “Other companies may have also adopted a test-the-water approach without expressly disclosing it,” says White & Case.
Prudential Financial said it was providing a full set of proxy materials to shareholders who voted in 2007 and a notice to all others.
While the SEC has said the rule’s objective is to capitalize on the wide availability of the Internet to reduce corporations’ mailing and printing costs, the modest interest from many of the largest companies indicates concerns about the possibility of low shareholder turnout, said Diamond.
A survey issued last month by Broadridge Financial Solutions, the largest distributor of proxy mailings in the US, appears to support such beliefs. According to the study of 92 companies who held their annual meetings before 31 March, 13.9% of retail shareholders who were issued an e-proxy notice voted, compared to 31.4% the prior year, when they received full proxy materials. Broadridge said that only 0.45% of shareholders who received the notices during that period requested the full materials.
Diamond noted that companies might be encouraged to adopt the e-proxy notification method if the number of retail shareholders voting using electronic means increases. Companies could also opt to use a more targeted approach to the notice-only method, mailing full proxy materials only to shareholders who voted in the prior year or years.
The SEC could increase adoption, said Diamond, by permitting the notice to be accompanied by a proxy card or other means of voting, rather than requiring a ten-day delay. “It is likely that only a small number of retail shareholders read the proxy statement in detail, and those wishing to do so are able to download it from the Internet before voting,” said Diamond.