SEC mandates online proxy materials

THE U.S. Securities and Exchange Commission (SEC) today voted to make all companies post their annual meeting materials on their websites.

Full details of the rules won’t be known until the SEC posts the final rule on its website, but as it was explained today large companies will have to post their proxy materials on the web starting January 1, 2008 with smaller companies having to comply a year later.

Companies will have two main options under the final rule:

1. They can mail a full package of information to shareholders as they do now, but with the added provision that they must also post the materials on their websites; or,
2. Use the SEC’s “notice-and-access” model where they send a notice to investors telling them how to access the proxy materials on the web or request printed materials to be mailed to them.

There is a third option where companies can send print materials to some and use the notice-and-access model for others. In either case, the website hosting the proxy materials cannot breach the anonymity of shareholders using the site, which is a direct shot at Nasdaq-owned Shareholder.com and its clients.

Usability of online materials, California conflict

There was no word today on what the formatting requirements will be for the online materials for those using the “full package” method, though I expect that companies using that “option” won’t have to meet any hard usability requirements as they must if they use the “notice-and-access” model.

That makes sense because it would likely be an intolerable additional expense to force every company to provide both PDF and HTML versions even while they are still incurring the expense of mailing proxy materials to all of their shareholders.

Also no word today on whether the SEC will water down the usability requirements for companies saving money by taking advantage of the “notice-and-access” model. As I blogged last week, there’s some talk about the SEC allowing companies using the “notice-and-access” model to post their proxy materials in PDF only, a move that I think would undermine disclosure effectiveness for large numbers of mainly retail shareholders.

Another wrinkle for which there doesn’t seem to be answers yet is whether companies in California will be able to use the “notice-and-access” model. As Broc Romanek at TheCorporateCounsel.net blogged earlier this week, there might be a conflict with California state law. This came up at today’s meeting, but no one had any firm answers.

There’s a lot about the e-proxy process in the U.S. that makes your head spin, but I guess we will have to wait to see the final rule release. The video webcast archive of today’s meeting is available. The proxy portion starts at 2:10:45. Here is the opening statement which explains the requirements quite well, if you read it twice.

The bottom line: proxy materials must be posted on your website and you can’t track who is using them.

Other activities at today’s meeting are covered extensively by others:

• SEC Proposes Easing Foreign-Company Accounting Rules (Bloomberg)
• US SEC adds mutual funds to new data format (Reuters)

Update:

On July 26, 2007, the SEC posted the final rules requiring online proxy materials (PDF 424 KB, 72 pages). I was wrong about companies using the full package option not having to meet the requirements for providing their materials in formats convenient for both on-screen viewing and printing. The commission requires all online proxy materials to meet this requirement, regardless of whether you’re using the notice-and-access model or the full package delivery option.

Related items on this topic:

Is Shareholder.com client breaching SEC privacy rules? (July 10, 2007)

My bad experience with first e-proxy notice (July 04, 2007)

SEC to go back on e-proxy usability? (June 15, 2007)

E-proxy: do it for love, not money (June 14, 2007)

Dominic Jones

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