SEC should focus on access in “notice & access”

AFTER a long delay, the U.S. Securities and Exchange Commission has finally proposed tweaks to its failed “notice and access” process for delivering shareholder meeting materials on the web.

The model, which essentially transfers the decision to receive materials electronically or in print from shareowners to companies, has resulted in a  dramatic drop in the number of retail shareowners who participate in annual meetings.

It has also meant that millions of passive individual investors receive little or no information about the companies whose securities they own.

A better notice about a meaningless process is still meaningless

These unintended consequences of the rules have been a source of deep concern — and some embarrassment — to SEC commissioners and staff. The proposed changes published yesterday (PDF 370KB, 42 pgs)  are meant to remedy the problem of plunging participation.

Unfortunately, the proposed changes don’t go far enough. They address only the “notice” aspect of the model. The tweaks are designed to give companies more leeway to jazz up the notices that are mailed to investors and include “educational” information about the N&A process.

However, on fixing the critical “access” part of the process — what shareowners get when they actually go online — the proposals are strangely silent. And that is why the changes will fail to fix the mess that N&A has created.

Even if more people go online due to improvements to the notices, what they’ll experience online will teach them that responding to the notices is a meaningless exercise.

There is a precedent for this already, and the SEC should be aware of it because it was communicated to them during the comment period when N&A was first proposed. Under the e-delivery regime, where shareowners opt in to receiving materials via email and the web, millions of people who initially opted in later withdrew from the program, citing a range of usability and security concerns.

The same has been and will continue to happen with N&A. Some people will respond to the new notices, but they’ll quickly become inured to them.

Putting real access into “Notice & Access”

If shareowners are ever to move to the web as their primary communications channel with companies, there needs to be a compelling and meaningful prize waiting for them when they do go online.

Poorly designed online annual reports, proxy statements and voting forms are not that prize. Shareowners want to engage with the companies whose shares they own. They want to be acknowledged and respected. They need the ability to hear and talk to executives and directors. They need information in formats they can actually use and, yes, understand. The SEC and issuers need to be thinking less like FASB and more like Facebook.

In my opinion, the SEC’s failure to address the “access” shortcomings of the rules stems in part from who the SEC staff and commissioners listen to when considering anything to do with proxy fulfillment issues. Mostly they listen to issuers and Broadridge Financial Solutions , the near-monopoly shareholder fulfillment firm.

Broadridge and most of its issuer advisors don’t get online communication. They’re good at logistics, but not communication. Indeed, it’s not in Broadridge or issuers’ interests to see the SEC address the “access” side of N&A because it could mean more work for companies and less business for Broadridge’s crummy annual report and proxy statement “conversion” services.

Sure, Broadridge will argue that they’re pioneering new online communications with their Investor Network forums and their virtual annual meetings. And I’ll give them credit for at least trying to push things forward.

However, these new tools from Broadridge are themselves failing. They’re failing because issuers are trying to outsource their accountability for communicating with shareowners.

But the simple fact is you can’t outsource accountability. You have to show up and be counted. When directors and executives show up online, their shareowners will, too.