Full-set delivery wins most shares: NIRI survey
Nov 13, 2009
With e-proxy, retail voting is down while costs haven’t dropped as much as expected
Companies adopting notice and access (N&A), or e-proxy, but still using the full-set delivery model garnered 2009’s best proxy vote turnout, according to a new survey. In a wide-ranging member poll conducted by NIRI and the Society of Corporate Secretaries and Governance Professionals, 93 percent of companies that sent complete hard copy proxy materials had more than three quarters of total shares voted along with better retail turnout compared with other distribution models.
The survey also shows that many companies are shifting away from a notice-only model to a hybrid approach. Nearly half of respondents chose a hybrid model in 2009 compared with 42 percent in 2008. The report notes that, overall, companies have few major implementation problems and tend to nail down the mechanics of e-proxy within a cycle or two.
E-proxy models are under scrutiny by IR professionals especially in light of SEC amendments to NYSE Rule 452, eliminating broker discretionary voting of clients’ uninstructed shares – typically a big slice of the total retail vote – in director elections.
‘It’s not just business as usual,’ says Jeff Morgan, president and CEO of NIRI. ‘People need to be mindful of what the changes to NYSE Rule 452 will mean in combination with notice and access.’
In an executive alert issued this week, Morgan warned: ‘Companies can no longer count on the retail vote to elect directors nominated by management... While the notice-only model of notice and access may save costs, it hasn’t improved the retail vote. Full-set delivery led to the best vote turnout [in the survey].’
Morgan says companies, especially smaller ones with significant retail shareholder bases, should ensure they have a retail strategy, analyzing past voting results to determine the possible impact of Rule 452 changes. His report’s suggestions include initiating a retail investor voting education campaign, reviewing any majority voting bylaws, retaining a proxy solicitor, cultivating relationships with the proxy advisory firms and ensuring at least one routine proposal is included on the proxy (for example ratifying auditors) in order to ensure quorum.
The poll also indicates skimpy cost savings with e-proxy. ‘There had been the expectation that [cost savings] would be a lot larger,’ says Morgan. ‘That hasn’t occurred.’
Still, first time users are faring best. One third of them say total spending was 75 percent to 99 percent of last year’s; 16 percent saw no savings while 8 percent actually saw costs rise, partly as a result of a bump in service provider costs.
Overall, most N&A adopters reduced print runs; respondents who didn’t either used full-set delivery or were content with last proxy season’s levels. The majority of companies were also content with service providers used in the process. As for shareholders, they seem indifferent to the scheme, with 78 percent of respondents reporting neutral feedback or no feedback from their shareholders.
Paul Schulman, executive managing director at the Altman Group, a proxy solicitation firm, believes the combination of amended Rule 452 and N&A will lead to the practical exclusion of many retail shareowners from the corporate election process. ‘Smaller-cap companies – the ones that could benefit most from the savings in N&A – are, in effect, precluded from using it,’ says Schulman.
He advocates giving US companies direct access to their shareholders through an all-beneficial owners (ABO) process. ‘The elimination of Rule 452 will increase solicitation costs for companies,’ says Schulman. ‘But the adoption of ABO would lower them because rather than having to chase down a lot of smaller shareholders, you can solicit a smaller number of larger ones whose names you now have access to.’
By Jeff Cossette