Risk & Compliance

Investor Group Concerned about E-proxies

The SEC's proposal, according to the Council of Institutional Investors, may give brokers too much influence over votes at annual meetings.
Stephen TaubFebruary 14, 2006

The Council of Institutional Investors has asked the Securities and Exchange Commission to proceed slowly with proposed rules that would allow companies to post their proxies on the Internet, reported the Financial Times.

The group, which represents pension funds with assets totaling more than $3 trillion in value, reportedly asserted in a letter to the SEC that the regulator’s proposal may give brokers too much influence over votes at annual meetings.

The CII pointed out that up to 80 percent of shares are held by banks and brokers on behalf of shareholders, wrote the FT, and the identities of those beneficial owners are unknown by the companies in which they are invested. Under New York Stock Exchange rules, the newspaper explained, brokers can vote on behalf of beneficial owners who have failed to provide proxy instructions by 10 days before the annual meeting.

Allowing companies to post proxies on the Internet “may cause confusion” and result in “a drop off in the number of shareholders voting and a corollary increase in broker votes,” the group reportedly asserted in its letter. “Increasing the number of broker votes because shareholders are unfamiliar with a new disclosure delivery system is an unacceptable potential side-effect of the proposed rule.”

The CII also reportedly claimed that according to its research, nearly 20 percent of shareholders do not have Internet access.

Under the SEC’s proposed rule, the FT observed, companies would still be required to print and mail proxy statements and annual reports to shareholders unless those investors chose to receive them electronically — which could potentially save companies as much as $500 million in printing and postage costs, according to the Associated Press.

If approved by the SEC, the new rule would take effect in 2007.

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