SEC Approves NYSE Proposal to Scrap Printed Annual Reports

By IR Web Report Staff

SHAREHOLDERS of New York Stock Exchange-listed companies are being given a firm nudge into the Internet Age after the US Securities and Exchange Commission (SEC) approved the exchange’s proposal to scrap the wholesale mailing of printed annual reports.

However, the move is only expected to benefit foreign companies that are not subject to the SEC’s proxy disclosure requirements. US companies listed on the NYSE will still have to send printed materials to shareholders until the SEC changes its own delivery rules, something it has proposed to do under its “e-proxy” plans.

Under the exchange rules approved last week, NYSE-listed companies can stop mailing annual reports to their shareholders if they post the reports on or via a link on their websites and issue a news release telling investors how to obtain the reports. Companies will have to mail printed reports free of charge to shareholders who specifically request them.

Significantly, all NYSE-listed companies will be required for the first time to have and maintain a website.

Usability ignored

The rule change for online annual reports is silent on usability requirements for the documents. It allows companies to fulfill the requirements by simply providing access to their SEC filings on Forms 10-K, 20-F and 40-F in the EDGAR database, formats that are cumbersome and hard to use.

Automatic Data Processing, a company which derives significant business from providing annual reports and proxy statements to shareholders, strongly opposed the rule change. It argued that fewer shareholders would review the materials before casting their votes while costs would be shifted to shareholders themselves.

In approving the NYSE proposal, the SEC said: “The Commission believes that electronic delivery may offer shareholders immediate access to financial information and greater ability to search such information. The Commission also believes that the proposed rule change may lead to significant cost savings for listed companies, savings that will ultimately accrue to those companies’ shareholders.”

In November last year, the SEC issued its e-proxy proposal that would allow issuers to use the Internet to satisfy proxy statement and annual report delivery requirements. At the time, the commission said the proposal would cut costs and make it easier for shareholder activitsts to launch their own proxy solicitations.

The SEC’s proposed rule, which has yet to be approved, drew many comments. Some comments voiced concern about the impact on older individual shareholders who do not have Internet access. Other comments supported the change but recommended the SEC put in place specific requirements for the usability of online proxy statements and annual reports to encourage investors to use them.

According to Broc Romanek, Editor for TheCorporateCounsel.net and a former SEC staffer, companies have been required to send printed annual reports to shareholders since as far back as 1895.

SEC’s order approving the NYSE rules (PDF 59KB, 15 pages)

Law firm memo from Mayer, Brown, Rowe and Maw (pdf 56KB, 3 pages)