SEC Proposes Amendments to E-Proxy Rules

October 20, 2009

On Oct. 14, 2009, the Securities and Exchange Commission (SEC) proposed amendments (Release No. 33-9073) to the proxy rules to improve the notice and access model for furnishing proxy materials to shareholders. The main reasons the SEC cited for proposing these amendments are the sharp decline in voting over the past two years by retail shareholders who only received a notice regarding the availability of proxy materials, rather than receiving paper copies of the proxy materials, and apparent shareholder confusion regarding the operation of the notice and access model.

The proposed amendments are designed to:

  • provide additional flexibility regarding the format of the Notice of Internet Availability of Proxy Materials (Notice) that is sent to shareholders;
  • permit companies and soliciting shareholders to include explanatory materials regarding the process of receiving and reviewing proxy materials and voting; and
  • alter the timeframe for delivering a Notice to shareholders when a soliciting shareholder relies on the notice-only option.

The Release also provides guidance about the current requirement for the Notice to identify the matters to be acted on at the shareholders’ meeting.

In the Release, the SEC encourages companies to actively educate their shareholders on the notice and access voting model. The SEC also announces that the Office of Investor Education and Advocacy has been tasked with developing a program to educate shareholders about the mechanics of notice and access voting and to inform shareholders of their rights under this model.


In 2007, the SEC adopted a “notice and access” model for the delivery of proxy materials to shareholders. This required all public companies and soliciting shareholders to post their proxy materials on a web site and to furnish a notice of the availability of these materials to shareholders. This was intended to promote the use of the Internet as a reliable and cost-efficient way of making proxy materials available to shareholders.

Public companies and soliciting shareholders are allowed to use either of two options to provide the proxy materials to shareholders. Under the notice-only option, shareholders would only receive the Notice indicating, among other things, where shareholders could access the proxy materials on the Internet. Under the full set delivery option, shareholders would receive the Notice as well as paper copies of the proxy materials. Companies and soliciting shareholders may also use the notice-only option for some shareholders and full set delivery for other shareholders.

Companies who have used the notice-only option for some or all of their shareholders have seen a sharp decline in retail shares voting compared to the number of votes cast by shareholders who receive the full set of proxy materials. According to Broadridge Financial Solutions, Inc., the number of retail shares voting dropped by 52% in 2008, the first year the notice and access rules were in effect. In 2009, the number of retail shares voting slipped slightly compared to 2008. Given this decrease in retail shares voting as well as reports that the SEC has received about shareholders’ confusion relating to the Notice, the SEC proposed the amendments discussed below.

Proposed Amendments

Currently, the SEC rules impose strict requirements regarding the content and format of the Notice. The proposed amendments would require that the information to be included in the Notice would address certain topics but would not specify language that would be used. These topics include an indication the communication presents only an overview of the more complete proxy materials, the website address, and instructions regarding how a shareholder may request a paper or e-mail copy of the proxy materials. The SEC hopes this added flexibility will allow companies and soliciting shareholders to develop a more effective explanation of the importance and effect of the Notice and to provide clearer instructions for shareholders as to how to access the proxy materials online, request a paper copy of the proxy materials and vote their shares.

The existing rules also prohibit the types of materials that may accompany the Notice when a company or soliciting shareholder elects to use the notice-only option. The SEC is also proposing to revise the rules to permit companies and soliciting shareholders to accompany the Notice with an explanation of the process of receiving and reviewing the proxy materials and voting. However, companies and soliciting shareholders would not be permitted to send materials designed to persuade shareholders to vote in a particular manner, change the method of delivery or explain the basis for sending only a Notice to shareholders.

Additionally, the SEC proposes to amend the notice deadlines for soliciting shareholders. If soliciting shareholders choose to use the notice-only option, they would be allowed to file a preliminary proxy statement within 10 days after a public company files a definitive proxy statement and to send their Notice to shareholders no later than the date on which the soliciting shareholders files their definitive proxy statement with the SEC.

The proposed rules also contain a technical amendment to allow registered investment companies to accompany the Notice with a summary prospectus, which mirrors another amendment the SEC adopted earlier this year.


The Release also provides guidance about the current requirement for the Notice to identify the matters to be acted on at the shareholders’ meeting. The SEC states that the Notice does not need to mirror the proxy card. Rather, the Notice should note each matter that will be considered at the meeting. Examples include “election of directors” or “ratification of auditors.”

Comments Sought

The SEC is seeking comments on specific issues that are not changed by the proposed amendments in addition to general comments on the proposed rule changes. These topics include: the effects of possibly shortening the deadline for delivering Notices to shareholders under the notice-only option by 10 days; possibly disallowing a company from using the notice-only option if the company has experienced a decrease in voting response after implementing the notice-only model; and whether the SEC should address fees charged by service providers relating to the implementation of the notice and access model.

Additionally, the SEC seeks comments on what factors may be contributing to the decrease in shareholder participation and is asking for suggestions on how to increase the voting rates under the notice and access model. Comments are due on or before Nov 20, 2009.

Issues for Consideration Regarding the Proposal

In July of this year, the SEC approved an amendment to New York Stock Exchange Rule 452 that eliminated broker discretionary voting for uncontested elections of directors at shareholder meetings held on or after January 1, 2010. Brokers will need to receive instructions from shareholders to vote in any director elections. It is expected that the number of votes cast in director elections will decline as a result of this amendment. This anticipated decline coupled with the decline in the retail share voting generally when a shareholder only receives the Notice will be of great concern to many companies. While the SEC states that they are proposing amendments to the notice and access rules so that companies can better educate their shareholders on the voting process, companies should not expect to see a sharp increase in shareholder voting, at least in the first year.

While it is not certain if the proposed amendments to the e-proxy rules will be in effect for the 2010 proxy season, companies should still carefully consider whether to use the notice-only option next year. Companies should survey whether their shareholders who hold in street name generally give voting instructions to their brokers. Additionally, companies should think about whether the number of shareholders who vote will decrease if they only receive the Notice about the proxy materials. Companies with a large retail base or low voting history for non-routine matters may want to consider full set delivery for at least a portion of their shareholders.

McGuireWoods LLP assists clients in complying with their corporate governance and public reporting obligations and we are actively monitoring developments in these areas. We are ready to assist you to comment on the proposed rules and to assist you in preparing to respond to any changes.