Companies lukewarm to e-proxy option.

• Author: Marshall, Jeffrey
• Position: GOVERNANCE

The looming question about the U.S. Securities and Exchange Commission (SEC)'s new electronic proxy rule is not "deal or no deal," but is it a big deal?

It may be, in time, but plainly isn't yet. The rule, which went into effect January 1 for large accelerated filers (companies with more than $700 million in public float), is still too new to truly evaluate, and even this coming proxy season may not provide an answer. Some observers think it could be a year or two before companies decide just how they want to approach the rule: send a stand-alone notice of the availability to provide proxy materials online, or incorporate that notice into traditional proxy materials (for an explanation of the rule, see box, "What the SEC Rule Says").

The impetus for the new rule seems to have come from the SEC's belief that widespread Internet availability has made online delivery of proxy materials a viable option, and that shareholders who elect online delivery wouldn't need printed materials. That, of course, could save considerable printing costs and help the environment by reducing the tonnage of proxy-related paper currently wending its way into landfills.

In its printed rule, the SEC says, "We expect that the reductions in printing and mailing costs and the potential decrease in the costs of proxy contests to be the most significant sources of economic benefit to investors of the amendments."

Just what those savings are, of course, will vary by company. Thomson Financial, in its survey of investor relations officers (IROs) last year, found that for an "average" company with 35,000 shareholders, adopting the electronic proxy option could shave proxy costs by $160,000 a year. That's close to the total saved by Applied Micro Circuits Corp. (see sidebar, "How the New Rule Helped One Company Save," on page 24), which chose the "notice-only" option last year for smaller shareholders.

SEC Runs the Numbers

In a lengthy analysis of its own, the SEC looked at the number of proxy pieces mailed by Automated Data Processing (ADP) in 2005 and estimated that issuers and other persons soliciting proxies from beneficial owners (in effect, shareholders) spent approximately $481.2 million in total postage and printing fees to distribute paper proxy materials to them.

Based on the assumption that 19 percent of shareholders will choose to have paper copies sent to them when an issuer relies on the notice-only model, the SEC estimated related yearly savings ranging from $48.3 million to $241.4 million, depending on what percentage of companies choose that model.

Projections about companies' adoption of the rule are only informed speculation at this point. "Unfortunately, there's not a lot [of research] out there," says Barry H. Genkin, a partner with law firm Blank Rome LLP in Philadelphia.

Company reaction to date is largely based on data from only a dozen early adopters, whose cumulative savings amounted to just over $500,000, according to research from Broadridge Investor Communications Solutions...