A lawyer at a major company that tried e-proxy, a fulfillment agent and a governance adviser brought the issues surrounding notice and access into focus at this year’s Corporate Secretary East Coast Think Tank on May 7. The early adopter was a large-cap tech company, and its corporate counsel laid out the thinking behind moving proxy communications online. He declined to be named.
There were a number of reasons for choosing notice only, the most basic being the potential for cost savings in communicating with the company’s 2 million shareholders. The company was a good candidate since it doesn’t use its annual report for marketing. Institutional investors, who are more comfortable with electronic voting, typically vote 70 percent of its shares, so it knew it could meet quorum. ‘It also made sense from a sustainability perspective and as a technology company to be seen as a pioneer,’ he said.
Still, there were some concerns and challenges. The company had to accelerate the proxy preparation process by seven to 10 days in order to get the notice out the required 40 days before the annual meeting. The key concern for the CFO and general counsel was the potential loss of the retail vote.
Those votes did fail to come in at their usual numbers, so the firm mailed a reminder to a targeted subset of shareholders owning between 200 and 999 shares, but that didn’t move the needle much. According to the latest figures from Broadridge Financial Solutions, 4.6 percent of retail shareholders voted so far this season at companies using e-proxies, a decline from the 19.2 percent in the previous year. The sudden drop-off suggests that shareholders just aren’t reading the e-proxy notice or are confused about what to do with it. The in-house counsel complained that it reads like it was ‘written by a lawyer or a bureaucrat, or a lawyer who is a bureaucrat.’
There is hope for some evolution of what’s permissible with the notice, ‘but it’s not a shareholder-friendly document and it doesn’t serve the objective of the initiative,’ he said. ‘We wasted 10 days iterating over whether we could change the document. If you want to do that, I’d suggest you start your interaction with the SEC, say, six months before you want to mail and maybe you’ll get some kind of informal relief from them.’
Governance advisers are watching. Linda Scott, a senior consultant with Governance for Owners, pointed out that issuers may focus more on institutional investors as voting skews toward them and that votes this year on shareholder proposals like ‘say on pay’ were garnering less support than expected, perhaps a consequence of the e-proxy.
Still, it’s clear that management groups responsible for the annual meeting are looking more closely at who owns their shares, such as the split between registered and beneficial owners, said Bridget Hughes, the director of proxy and e-proxy services for Bowne. ‘I think it’s been an eye-opener for a lot of people. After this year or next year, people are going to know their balance and hopefully how better to communicate with them.’