At its meeting on Wednesday, December 13, the Securities and Exchange Commission adopted amendments to its proxy rules that would permit, but not require, a public company to furnish proxy materials to shareholders using the Internet beginning July 1, 2007. The e-proxy rules are intended to decrease substantially the cost of proxy solicitations and make it more cost-effective for persons other than the company to undertake their own solicitations.
How the Rules Work.
Under the new rules (which are not yet available in final form), a company wishing to do an e-proxy solicitation must post proxy materials on a web site and send notice to shareholders at least 40 days before the meeting date. This initial notice, which may not include a proxy card, must be in plain English and must advise shareholders of the date, time and place of the meeting, the availability of e-proxy materials, the matters to be considered at the meeting and a toll-free number, e-mail address and website that shareholders may use to request paper or e-mail copies of proxy materials. Companies must provide paper or e-mail copies within three business days of a shareholder request. Once a shareholder makes a request for paper or e-mail copies, it remains in effect for future solicitations for that shareholder. Brokers, banks and similar intermediaries will be responsible for delivery of notices and paper or e-mail copies of materials to beneficial owners of street-name shares.Persons other than the company who wish to make e-proxy solicitations will be required to comply with similar "notice and access" rules, but may limit solicitations to shareholders who have not previously requested paper or e-mail copies of materials.
Proposal for Mandatory E-Proxies.
In addition to adopting these rules for a voluntary e-proxy system, the SEC also proposed making the e-proxy system mandatory for solicitations not involving business combination transactions.What This Means for Proxy Battles.
The voluntary e-proxy rules finalized by the SEC may have a substantial impact on the balance of power between public companies and shareholder activists after July 1, 2007. They may result in a significant increase in dissident director slates and other proposals and in greater effectiveness of dissident opposition to management proposals. The 2007 proxy season will be a time to assess the final rules and plan for the future.Other SEC Actions.
In addition to adopting the e-proxy rules, the SEC also voted to repropose new rules liberalizing SEC deregistration by foreign private issuers and to propose interpretive guidance for corporate management to improve Sarbanes-Oxley Section 404 implementation.The SEC's press releases describing these and other actions taken at the December 13 meeting are here.
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