The rise of notice and access
Companies have long used technology to achieve greater efficiency and reduce costs. While this most commonly applies to production processes, it is equally applicable to shareholder communication and proxy voting.
Late last year many experts were predicting a highly active and volatile proxy season. But as companies struggled to stay profitable in the worst economic crisis since the 1930s and investors tried to process a constantly changing regulatory landscape, the expected rush of shareholder activism failed to materialize. Instead, many investors seemed prepared to work with companies to achieve corporate improvements.
One area where cost savings and efficiencies were achieved during the most recent proxy season is the application of notice and access, with an increasing number of companies and investors becoming comfortable with the idea of electronic distribution of proxy statements and other voting materials. That said, 2010 was a challenging year for notice and access as regulatory changes put pressure on companies’ ability to secure votes.
In order to measure the use of notice and access during the 2010 proxy season, Bowne and Mediant Communications conducted a survey of 329 public issuers asking them various questions about a range of shareholder communication and voting issues.
Of the group, which mostly comprised large accelerated filers, 42 percent have adopted notice and access; of those, 53 percent opted for a stratified approach. This involves sending a full set of hard-copy voting materials to a selected group of shareholders while distributing materials to others via electronic methods.
A question of cost
The primary driver for companies adopting notice and access is cost reduction. According to the study, 77
percent of respondents cite costs as the reason for adoption, although there are other reasons, such as enhanced communication (nine percent of respondents) and environmental issues (two percent).
It’s important for companies to undertake a full review of the shareholder base and work with experts to estimate the potential appetite for hard-copy delivery. Getting the design and language of the card correct – and there are strict legal requirements for what can and cannot be included in the notice – is also important. Almost two fifths (39 percent) of respondents say their companies consider the annual meeting and accompanying proxy materials as a marketing and educational opportunity. These companies are less likely to opt for notice-only delivery because they fear loss of outreach to shareholders and a reduction in valuable branding and marketing opportunities.
Costs can vary significantly according to sector and market size. Larger companies could potentially reduce print runs of annual reports and proxy circulars by millions of copies, thus achieving significant savings. This generally isn’t true for smaller firms, however. Additionally, if a company chooses to send a notice only it must make all other documents available online, which requires setting up a separate section of the corporate website. Some companies feel the need to create firewalls and passwords to ensure only genuine shareholders can get access to the information. For larger companies, especially those in the technology sector, this is fairly easy to achieve; such systems may even have been in place for several years. Other companies may need to build or adapt websites and other electronic platforms, which can be time-consuming and expensive.
Is it worth it?
Before assuming your company will realize significant
savings, therefore, it is important to understand the
process and all its potential pitfalls. The best place to turn for that information is probably corporate peers that have already been through the process and are prepared to share their experience. Beyond that, there is a range of professional service providers that would be more than willing to offer assistance. Making these decisions most commonly falls to the corporate secretary or members of the legal department.
While an increasing number of companies may be happy to adopt tools like notice and access, very few are using other forms of technology to connect with investors. The Bowne/Mediant Communications survey shows that a mere 10 percent of respondents claim to use social media like Facebook and Twitter as part of their
shareholder communications strategy, and only a further 10 percent admit to having considered or discussed the idea of using such tools in the future.
As 2010 continues it is possible that more companies will look to adopt notice and access, albeit after careful consideration to ensure voter turnout is maintained. The benefits can be considerable, but rushing in and getting it wrong can cause great damage – so prepare well.
