Proxy 2.0

Aug 01, 2008
<p>More companies moving proxy materials online</p>

It’s the first anniversary of notice and access, the controversial SEC rule allowing, and will soon mandate, that companies move proxy communications online. In recent months, companies have expressed some well-documented wariness of the concept, mostly over concerns about losing retail voters. But the cost savings and logic continue to push them to the internet.

E-proxy is stirring up rapid innovation in shareholder communications. Turning away from clumsy PDFs or maze-like HTML, companies are building strong websites for their annual reports and proxy statements, rich with interactive features and video to help win the support of institutional investors while luring back the retail vote. 

As of April, 566 corporate issuers had decided to adopt internet availability of proxy materials, according to Broadridge Financial Solutions. Individual shareholders are also electing for internet delivery of shareholder materials in much greater numbers, according to Chuck Callan, a senior vice president of regulatory affairs for Broadridge. In 2007 his firm delivered documents via the internet to nearly 14 million accounts, up 13 percent compared with 2006, and a record high.

The drastic fall in retail voting – the latest statistics show that just 5.35 percent of retail holders at companies using e-proxies submitted ballots, compared with 21.17 percent the year before – remains a problem. Smaller shareholders don’t seem to be registering that a shift is happening, perhaps because of potential inadequacies in the initial notice that has to be used for notice and access.

In any case, use of the internet should increase. While the SEC didn’t make it mandatory to adopt e-proxy, companies are being obliged to offer it. ‘This was the first major meeting season under notice and access for most big companies,’ says Charles Rossi, executive vice president of Computershare. ‘Many are still sending the full package by mail, but all accelerated filers with market caps over $700 million were required this year to post material online. Next year, all firms will have to.’

New look

Companies are using the shift to do things with online versions of the annual report and proxy statement that can’t be done with paper. The first-generation approach was merely to post PDF or HTML versions of the annual report; the emphasis now is on navigability.

ExxonMobil’s IR website this year began presenting highly interactive versions of its annual report and proxy statement that have the exact look of the hard-copy versions. Users can see thumbnails of the documents, read them in single or two-page layouts like a magazine, view a linked table of contents, search keywords and even vote if registered.

The aim was for a more digestible presentation than the traditional, massive, unsearchable PDF downloads. ‘Investors are using the technology to work through a 144-page document,’ says ExxonMobil IRO David Henry of the site, which was produced using Computershare’s EnVision product. ‘Books have become more complicated; you need a road map.’

There are also add-ons made possible by the internet. Mediant Communications, a proxy distribution and processing company, has a service called Professor Proxy that allows individual shareholders to call up a glossary to help explain resolutions and ballot language in layman’s terms. ‘It makes for a better voter experience,’ says Sherry Moreland, Mediant’s director of issuer services.

The internet opens up opportunities for even higher-impact presentations using audio and video. This year, Broadridge and Nike posted video messages from executives alongside their online proxy documents. They are not SEC-sanctioned parts of their investor materials, but they do offer a window on company thinking. Nike chairman Philip Knight mostly sticks to soft topics like ‘human potential’ and ‘the future of sports’, but he also has comments on the firm’s cash strategy.

‘There’s so much talk about voter apathy,’ says Cal Donly, vice president of Ellen Philip Associates, a shareholder services company. ‘Why not have a speech or presentation? I think shareholders would be pleased someone took the trouble to do that.’

Momentum is pointing in this direction. ‘We’re in a YouTube society,’ says Anne Faulk, CEO of Swingvote, a shareholder delivery and communication company. ‘Instead of having someone slog through 18 pages of compensation disclosure, you could have the CEO explain why you did what you did.’

Embedded video is something companies like Mediant and Swingvote are already running on proxy voting platforms, which they construct for institutional investors. In Swingvote’s case, in a partnership with RiskMetrics Group, the company can place an issuer’s or dissident’s message onto an institution’s voting platform next to RiskMetrics research.

Good timing

These messages reach the more than 2,300 institutional investors that subscribe to RiskMetrics as a way to help manage the hundreds, or thousands, of ballots they must vote each year. The timing and immediacy of this effort is what makes it effective. ‘You are talking to the largest shareholders as if you are in the room with them,’ Faulk explains.

Proxy solicitors also recognize video’s potential. ‘I’ve seen it used occasionally in proxy fights,’ says Bruce Goldfarb, president and CEO of Okapi Partners. ‘It’s a method that can provide a good one-way sound bite.’

Under SEC rules, issuers or solicitors can’t push out their message to objecting beneficial owners (OBOs). But OBOs could ‘pull’ a web message at their discretion. ‘Companies have been struggling with how you actually talk to people through all these barriers,’ Faulk says.

There is a final factor involved in making the internet a hub for proxy communications: the creation of internet shareholder forums run by the issuers. The SEC has been encouraging them as a place for responsible management-shareholder dialogue, where an issuer could poll shareholders on ‘say on pay’, for example, or get their views on new strategy. So far, however, companies seem resistant, Faulk says, perhaps wanting more safe harbors around what executives say or fearing the possibility that someone will hijack the conversation.

While this new world is not yet fully realized, the direction is marked. ‘The idea that each company will have its own communications platform and collaborative tools, so there are all kinds of ways you can connect with investors 365 days a year? That’s absolutely coming,’ Faulk predicts.

This article ran in the July issue of IR magazine.

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