E-proxy misunderstood

I AM seeing a number of reports and law firm memos that are failing to grasp the fundamental objectives of the SEC’s voluntary and proposed universal e-proxy process.

There’s an interesting article from Corporate Secretary magazine that quotes a couple of folks who think retail investors aren’t ready to give up printed proxy statements and annual reports.

Hello! What planet are these people on? Do they think most retail investors care whether their proxy statements are printed on paper or posted on the Web? No, they don’t.

The vast majority of people don’t care, period. And that explains why so few retail investors bother to cast their votes at annual meetings.

It’s about engaging apathetic shareholders

The reality is that most printed proxies end up in the garbage never being read. Most retail investors can’t distinguish a proxy statement from a life insurance contract. It’s all just gray gibberish on dead trees to them.

And that’s actually what the whole e-proxy initiative aims to address. It’s about changing the widespread apathy of retail shareholders towards proxy matters and getting them engaged in their investments. If you read the e-proxy adopting release and listen to the webcast of the December 13, 2006 you would get this.

What the SEC staff and commissioners are trying to do is end a wasteful and outdated system and replace it with a better one that takes advantage of the Web to make it easier and more attractive for retail investors to get involved in their companies’ corporate governance.

The idea is that the interactivity and immediacy of the Web — if used properly — can engage people in something that’s worth them getting involved in. Those who currently are engaged via the paper-based model will still be engaged, but it’s the 80% to 90% who don’t vote that the SEC wants to capture via the Web.

It’s about improving online documents, not ending print

The e-proxy initiative is not about ending printed reports but about improving the attractiveness of online documents. That’s what it has always been about.

Interestingly, no one has stopped to ask why the SEC has insisted from the start that companies cannot rely on their Edgar proxy filings to meet the e-proxy rule. Yes, because SEC filings suck for usability and almost no one would read them.

I’ve recently read a couple of law firm memos that go into extraordinary detail on the nuts of bolts of the new e-proxy process. But the worrying thing is that they completely fail to see the big picture about what the SEC wants companies to do with their online documents.

The intention, the spirit, the hope, behind the e-proxy initiative is to make online annual disclosure documents easier and more attractive for retail investors to find and use. It’s about getting companies to communicate better with their shareholders and getting shareholders to have their say in the way companies are governed.

That’s why the SEC explicitly requires companies to provide both printable and online HTML versions of the annual disclosure documents. I know the significance of this provision is lost on a lot of people who don’t understand the difference between Word, PDF, HTML or .gif, but it’s a huge part of the e-proxy initiative.

Essentially, companies that want to save money on their print bills will have to make sure that they have attractive and easy-to-use online versions to take their place.

With easier to use and more engaging online documents available to them, along with online access to vote their shares, the thinking is that more retail shareholders will be motivated to get involved.

And that’s what will happen. But only if those online documents are attractive and easy to use.

And in return companies can save a lot of money

Companies that choose to take advantage of the e-proxy process will save a lot of money by slashing their printing and mailing costs. That’s proven. It’s not a guess.

If you don’t believe me, do as the SEC suggests and send a survey with your current 2007 proxy mailing asking shareholders to let you know what they want.

I bet you get less than a 12% response rate — about the same percentage as will ask for printed materials if you use the e-proxy process next year.

Related:

With e-proxy, SEC signals it gets the Web

SEC’s e-proxy rule a boost for IR website usability

NASDAQ pushes firms to flout SEC web privacy rules

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