NIRI survey predicts 56% e-proxy adoption

HOW should we read the results of a National Investor Relations Institute (NIRI) survey that finds 56% of respondents plan to use the new default web delivery option for their annual reports and proxy statements this year?

That figure, which is based on responses in November from 482 members, seems high given that at the end of December 2007 Broadridge had just 40 issuers committed to doing a notice-and-access campaign for their upcoming shareholder meetings.

Of course, it is still early in the proxy season, so many companies may not have committed yet. And Broadridge is not the only show in town, although with more than 90% of the Street Name accounts under its control, anything that does not go through Broadridge is probably inconsequential.

It may just be that the people responding to NIRI’s survey are the interested ones who have actually looked at the issue. NIRI says it invited 3,137 corporate members to participate and 15% or 482 responded.

That would generally be a fairly predictive sample but in this case I’m not so sure. Doing a notice-only campaign requires advance planning. If in November many of NIRI’s corporate members hadn’t yet considered the question and didn’t see a reason to participate in the survey, then it seems likely that they’re not going to be in a position to do a notice-only mailing even if they wanted to.

Notices telling investors how to get their annual reports and proxy statements must be mailed at least 40 days before the meeting, but service providers need finished materials 10 days before that. Unless you were thinking about and working towards that 50-day deadline back in November, I can’t imagine most companies being in a position to do a notice-only annual meeting this year.

Nonetheless, the survey results are fairly predictable and provide insight into why companies are, or are not, using the notice-only option. Companies that plan to do notice-only annual meetings are overwhelmingly driven by tantalizing savings. Oddly, environmental benefits, which are often used as a justification in companies’ public communications, are not mentioned in NIRI’s release.

Those who say they won’t use the notice-only option this year say they want to see what happens at other companies first. They also express concern about potential negative impacts on their relationships with shareholders. That posture seems wise in light of the dramatically lower retail participation rates seen in early notice-only meetings.

NIRI’s full news release about the survey follows:

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NIRI Finds Companies Split on Notice and Access Adoption for 2008

Many Organizations Await Lessons from Early Adopters Who Are Driven to the New Rules by Expected Cost Savings

VIENNA, Va.– The National Investor Relations Institute (NIRI) today announced the findings of its recent survey regarding the plans of its members to adopt the new “notice and access” or “e-proxy” rules for the 2008 proxy season.

On July 26, 2007, the SEC adopted new rules that require companies to provide shareholders with the option of receiving proxy materials either electronically or in traditional hard-copy form. Issuers may provide proxy materials to shareholders via either the “notice only option,” the “full set delivery option,” or a combination of these methods. A full description of the delivery methods is available in the final rule posted on the SEC’s Web site: http://www.sec.gov/rules/final/2007/34-56135.pdf. The new rules were effective for large accelerated filers on January 1, 2008, and will be effective for all other companies on January 1, 2009.

NIRI’s study of notice and access adoption by its members shows that we are currently in a period of rapid transition. While slightly more than half of survey respondents are planning to adopt in 2008, nearly as many are taking a wait-and-see approach. Whether the promise of significant cost savings becomes reality, however, remains to be seen.

Key Findings

• A slight majority (56%) of survey respondents indicated that they will be adopting new notice and access rules in 2008.
• The decision by these companies was largely determined by the high expectation of cost savings. Seventy-nine percent of those adopting the new rules report that they expect to save money in the process, which was the key driver for the decision.
• Respondents currently adopting notice and access plan to slash print runs and spend considerably less than they did last year on printing and mailing. That said, fees to service providers may reduce these savings.
• For those adopting notice and access in 2008, top concerns include ensuring investor satisfaction with the new process, predicting print quantities, and maintaining vote returns.
• For those not adopting this year, the primary reason was a desire to learn from the experiences of early adopters (65%).
• Ninety-one percent of early adopters, (those that have adopted or are planning to adopt for the 2008 season), indicate that notice and access will result in fewer printed materials.

Survey Results

Adoption rates are relatively uniform across market cap size.

Slightly more than half of all respondents (56%) indicated that they would be adopting the new notice and access proxy distribution model for the 2008 proxy season. There were small differences based on market cap, with larger companies – those with market capitalizations of greater than $5 billion – showing the highest rates of adoption.

Those who are adopting the new rules are doing so largely because of the anticipated cost savings.

Seventy-nine percent of survey respondents indicated that they expect to save money under the new plan. In point of fact, the greatest proportion of respondents indicated that they expect to spend in 2008 less than half of what they spent in 2007 on hard copy distribution. The vast majority (91%) intend to print fewer meeting materials as a consequence of notice and access. More than half of the remaining respondents plan to adjust their print runs in 2009 after monitoring the request levels for hard copies in 2008. Other major considerations were the SEC requirement to comply (52%) and a low perception of value for the hard copy reports, also at 52%.

Service Providers will play an important role in notice and access adoption.

Ninety percent of survey respondents plan to use a third-party service provider to help meet notice and access requirements. Most indicated that they plan to use a single service provider. Respondents that indicated “other” were in some cases undecided and in other cases were using multiple third parties. A few respondents expressed concern about the fee structures charged by agencies and the possibility that these fees will reduce savings. In any case, 2008 will create opportunity and responsibility in equal measure for the service providers catering to the needs of investor relations officers (IROs). For the IRO’s part, relationship management and communication skills will be critical components of a successful transition to e-proxy.

Top concerns expressed by IROs include customer satisfaction/service, miscalculating print numbers, a drop in voter participation, inexperience leading to mistakes in compliance, and costs associated with compliance.

Nearly 40% of adopters identified concerns related to the new notice and access requirements. Our respondents consistently mentioned the issues below in the following order of frequency:

• Customer service and satisfaction questions
• Predicting print quantities
• Maintaining vote return levels
• Managing costs and realizing savings
• Errors and inexperience, particularly related to meeting timing requirements
• General uncertainty about engaging in a new process

About the Survey

The electronic survey, which investigated the plans of NIRI members to adopt notice and access for the 2008 proxy season, was conducted in November 2007. A total of 3,137 corporate members were invited to participate, and 482 (15%) members responded.

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