Proxy System Modernization: SEC Issues Concept Release Seeking Comment on Perceived Deficiencies in the U.S. Proxy System and Potential Regulatory Responses

Sullivan & Cromwell LLP - July 22, 2010

On July 14, 2010, the SEC issued a concept release seeking public comment on various aspects of the proxy solicitation and voting system for U.S. public companies. In its release, the SEC, noting that it had not conducted a comprehensive review of the proxy system in nearly 30 years, identifies three general topics, consisting of ten detailed sub-topics, on which it requests comment to assist it in determining whether to propose changes to the system. The release also poses a multitude of possible changes to address perceived proxy system deficiencies, as well as inviting comment on alternative approaches. The topics and sub-topics on which the SEC requests comment are as follows:

Accuracy, Transparency and Efficiency of the Proxy Voting Process

  • Over-voting and under-voting of shares.
  • Allowing shareholders to confirm how their shares were voted.
  • Securities lending issues, including whether issuers should provide earlier notice of matters to be voted on at shareholder meetings to permit lenders to recall shares before the relevant record date.
  • Reasonableness and competitiveness of proxy distribution fees.

Communications and Shareholder Participation

  • Issuers’ ability to obtain information about and communicate with shareholders.
  • Encouragement of retail investor voting participation.
  • Data-tagging (e.g., XBRL) of proxy-related materials.

Relationship Between Voting Power and Economic Interest

  • Role of proxy advisory firms, including conflicts of interest, the process for formulating recommendations, and the accuracy of data utilized.
  • Mechanical and practical issues relating to dual record dates.
  • Decoupling of voting and economic interests, including “empty voting.”

Comments must be received by October 20, 2010.