US SEC proposes Internet "e-proxy" postings

Kevin Drawbaugh

WASHINGTON: Corporations would be allowed to post proxy statements and annual reports on Web sites, instead of sending the bulky documents through the mail, under a plan proposed on Tuesday by federal regulators.

The U.S. Securities and Exchange Commission voted 5-0 to put the plan out for a 60-day public comment period, with a final vote by the commission expected to follow later.

Aimed at saving postage and printing costs, the so-called "e-proxy" measure is also seen as a way to possibly cut the costs to shareholders of mounting proxy contests and giving them more power to challenge corporate managers.

Under the proposed rule, investors would still have to get a postcard notice in the mail telling them a proxy statement and annual report had been made available online. In addition, investors wishing to continue receiving printed matter could request it.

"Studies show that today 75 percent of Americans now have access to the Internet and this percentage is rising steadily ... The percentage of investors with Internet access is even higher," said SEC Chairman Christopher Cox at a meeting.

The proposal, if adopted early next year, probably would not be in place in time for the 2006 proxy season but likely would come into play in 2007, said Alan Beller, director of the SEC's corporation finance division.

The SEC requires corporations to issue a range of disclosures and documents to the agency and investors, including annual and quarterly reports and proxy statements.

Proxy statements contain information about matters to be decided by shareholder votes, such as director nominations and resolutions, as well as disclosures of senior executive pay. They are distributed before shareholder meetings.

The present system of mailing out proxies is costly, but past efforts to reform it have been stymied by concerns that online distribution could exclude off-line investors.

The e-proxy rule, if adopted, would be optional and companies preferring to continue sending out printed matter would be free to do so, SEC officials said.

The proxy process overall has been an SEC flash point in the post-Enron period, with its focus on corporate governance.

Discussion at the meeting on the e-proxy proposal led SEC Commissioners Cynthia Glassman and Paul Atkins to raise a related, but separate issue -- control of shareholder lists.

The Business Roundtable, a lobbying group for corporate chief executives, last year asked the SEC to look into giving companies more direct access to shareholders, many of whom today shield their identities through a system in which intermediary banks and brokers hold shares in "street name."

The system protects the anonymity of shareholders who like it that way and forces companies to distribute proxy materials through the intermediaries, most of which hire business services group Automatic Data Processing Inc. to do the work.

The e-proxy initiative will not change this, but Atkins and Glassman said they want more discussion about the Business Roundtable's petition for rule-making, which blasted the existing system as "cumbersome, circuitous and expensive."

Beller said the SEC staff is considering the petition.

Beyond reducing costs, the e-proxy rule could help dissident investors promote their own resolutions by using the on-line notification process, said SEC officials.

Earlier this year, a push by former SEC Chairman William Donaldson to win more proxy clout for shareholders fizzled amid opposition from within the SEC and from corporate lobbyists.

By sharply reducing the cost of distributing proxies, the e-proxy measure could give investor activists a new and affordable way to put their own resolutions before other shareholders, weakening managers' grip on the proxy process.