Alert October 20, 2009

SEC Proposes Amendments to Rule Requiring Internet Availability of Proxy Materials

The SEC voted to propose amendments to Rule 14a-16 under the Securities Exchange Act of 1934 (the “Rule”) which requires that proxy materials be made available on the internet and that shareholders receive notice regarding the availability of those materials (the “Notice”).  (For more detail on these requirements, see the July 31, 2007 Alert.)  When distributing proxy materials, issuers generally have two options: (i) send only the Notice to shareholders or a subset of shareholders (the “Notice Only Method”) or (ii) use the traditional method of mailing full proxy materials, along with or including a Notice, to shareholders or a subset of shareholders (the “Traditional Method”).  The proposed amendments are designed to facilitate the response of shareholders who have received a Notice under the Notice Only Method.

Shareholder Response to the Notice Only Method in the 2009 Proxy Season.  The release proposing the changes (the “Proposing Release”) cites the results of a third-party survey of response rates in the 2009 proxy season for corporate issuers that used the Notice Only Method for some of their shareholder base versus those for issuers that used the Traditional Method exclusively.  Among other findings, the survey indicated that when issuers used the Notice Only Method for some shareholders and the Traditional Method for other shareholders, the response rate of retail (non-institutional) shareholders receiving only the Notice was half that of retail shareholders receiving the full set of materials.  While not concluding that any aspect of the Notice Only Method is reducing shareholder response rates, the Proposing Release indicates that the proposed amendments are designed to remove regulatory impediments that may be reducing shareholder proxy response rates.

Proposed Changes.  In summary, the proposed amendments would, among other things:

  • provide additional flexibility regarding the format of the Notice by eliminating the Rule’s specific legend requirements while still requiring that the information appearing on the Notice address the same topics; 
  • allow proxy issuers to accompany the Notice with an explanation of the Notice Only Method, which would be limited to addressing the process of receiving or reviewing the proxy materials and voting;
  • expand the types of documents a mutual fund may provide with a Notice to include the mutual fund summary prospectus; and
  • allow a non-issuer soliciting person to file a preliminary proxy statement 10 days after the issuer files its definitive proxy statement and send its Notice to shareholders no later than the date on which it files its definitive proxy statement with the SEC.

Identification of Matters to be Acted On.  The Proposing Release also notes that issuers are not required to follow the formatting and content requirements of Rule 14a-4, which governs proxy cards, when identifying in the Notice each separate matter to be acted on at the meeting.  Identification of each matter to be considered at the meeting “(e.g., election of directors; ratification of auditors; approval of a stock option plan, etc.)” is sufficient.

Public Comment.  Comments on the proposed amendments are due no later than November 20, 2009.