SEC Proposes to Allow Internet Delivery of Proxy Materials

November 29, 2005. The Securities and Exchange Commission (SEC) adopted a staff recommendation to publish a notice in the Federal Register that proposes to amend the SEC's rules to allow companies to use the internet to satisfy proxy material delivery requirements.

The SEC issued a release that describes this item. However, this item has not yet been listed in the SEC's web page that lists and hyperlinks proposed rule changes, and the SEC has yet to publish a notice in the Federal Register.

The SEC release states that "When a person solicits a proxy from the shareholders of a company that is subject to the Commissionís proxy rules, Rule 14a-3 currently requires that a proxy statement, which must include specified disclosure, be delivered with or prior to that solicitation. Further, when a company solicits proxies, it also must deliver an annual report to shareholders, which must include additional specified disclosure. Under current rules and Commission interpretations, the proxy statement and annual report must be delivered in paper form or, if the shareholder consents, they may be delivered electronically (for example, by e-mail). The electronic delivery option requires affirmative shareholder consent and currently is used only on a limited basis." (Parentheses in original.)

It adds that "The proposed rules potentially would have two significant benefits: (1) they could result in a substantial decrease in the expense incurred by issuers to comply with the proxy rules; and (2) they would provide persons other than the company with a more cost-effective means to undertake their own proxy solicitations."

SEC Chairman, Chris Cox, also described this item at the SEC's November 29 meeting. He said that "The proxy rules are one of the last remaining areas where paper delivery is still the norm, rather than the exception. This morning we're considering whether to make Internet delivery an acceptable way for investors to get their proxy materials. Companies, and others sending proxy statements, would have to provide postcard notice to each investor that proxy materials are available on a specified website. The investor could, if he or she chose, simply call a toll free number (or use email) to choose to have a paper copy delivered the old fashioned way, at no cost." (Parentheses in original.) See, Cox statement.

Much of the federal securities regulatory framework dates from the New Deal era, when there were fewer individual investors, and business and regulatory communications were largely conducted on paper.

Chris CoxCox (at right), who became SEC Chairman in August, is a West Coast technophile who is working to incorporate new information technologies into securities regulation, and more generally, into the creation, dissemination and use of financial data.

Cox said that "it's difficult not to notice the proliferation of electronic gadgets being advertised as the perfect holiday gift. We can only guess how many Americans will get a USB key as a stocking stuffer, or a cell phone that takes pictures and surfs the Web, or even an iPod that plays not only MP3s, but video. While we may still romanticize about traveling over the river and through the woods to grandmotherís house in a horse-drawn carriage, most of us reach our destination by planes, trains, and automobiles. And some of those jet planes have live TV, some of the trains have wireless Internet, and some of those automobiles have GPS guidance -- and a friendly robotic voice to tell us where to turn."

He continued that "Just as technology has revolutionized the way we travel, itís also dramatically changed the way we communicate and share information. Today, investors seeking to protect their hard-earned money have opportunities to gather information about prospective investments in real time, via the Internet. There is more information than ever before at an investorís fingertips. And with the timeliness of information as important as its quantity, the Internetís instant transmission of data is an investorís best friend. In the months and years ahead, as investors increasingly migrate to the Internet, the SEC will continue to work to make the very best information available to them online."

"Today, and every day, thousands of investors are viewing corporate filings online, at the SECís website. From registration statements, to annual reports, to quarterly reports, to proxy and information statements, an investor no longer has to travel to one of the Commissionís Public Reference Rooms, or pay a service bureau to find and copy information", said Cox. "And that's not all. Investors today can have access not only to the raw data from the SECís website, but also to analyses of it that can also be readily obtained on the web. This is only the beginning. The ultimate goal is to put investors in the driver's seat when it comes to information about, and control over, their money."

Cox has also recently been promoting the use of interactive data and XBRL. See, speech of November 7, 2005, in Tokyo, Japan, and speech of November 11, 2005, in Boca Raton, Florida. See also, story titled "SEC Chairman Cox Discusses Use of Interactive Data in Corporate Reporting" in TLJ Daily E-Mail Alert No. 1,250, November 9, 2005. And see, the SEC's February 2005 rule changes that initiated the SEC's XBRL Voluntary Program.