Logistics of E-Delivery
The Internet has become an essential utility for American businesses and homes, but the extent to which individual investors are ready for an all-digital world has fallen into question over a rule proposal from the Securities and Exchange Commission. The proposal, issued in December, would require shareholder proxy voting materials to be delivered to shareholders electronically by default -- a reversal of the current default paper-based method of delivery. In order to receive printed information, investors would be required to specifically request paper delivery.
The proposed rule would implement a "notice and access" model by which issuers would be required to make proxy materials available on a publicly accessible Web site and notify shareholders of that availability at least 30 days before a meeting or vote. Additionally, the notice and access model would stipulate that any shareholder may request printed versions of these materials at no charge, and that requested materials must be furnished within two business days.
The SEC contends that the migration to electronic delivery of materials would save issuers and transfer agents printing and mailing costs. Additionally, the SEC expects that disseminating information electronically will reduce the considerable boundaries for engaging in proxy contests, thus increasing shareholder value by making challenges to corporate governance more manageable.
The move also supports SEC Chairman Christopher Cox's publicly stated interest in adopting new technologies. "It basically just acknowledges the increased and continued progression in the way electronic delivery is being made more feasible," says William Harris, assistant general counsel, Mellon Investor Services (MIS), a Jersey City, N.J.-based transfer agent that supports the rule. "This is a natural step in the SEC's evolution in the use of electronic media for shareholder communication."
But some argue that while the rule has the potential to reduce industry costs, if individual investors don't warm up to online delivery, the rule may end up inadvertently increasing costs for issuers, which would have to deliver printed materials on an ad hoc basis, eliminating the cost efficiencies of mass production. Cynthia Richson, corporate governance officer at Columbus, Ohio-based Ohio Public Employees Retirement System (OPERS), says she supports the intention of the rule proposal, but suggests that the American individual investor isn't ready for the SEC to "flip the switch" on online material delivery. "We think it's too much too soon," she states, suggesting the SEC take a gradual approach instead of immediately saying, "It's electronic only and the burden is on you, shareholder."