SEC Votes to Allow Electronic Proxies

Some experts believe the policy would lead to more contested elections for directors. That's because activist shareholders could sponsor dissident director candidates much more cheaply.

In a move expected to save U.S. corporations about $500 million or more a year in printing and postage costs, the Securities and Exchange Commission voted to allow companies to provide proxies to shareholders via the Internet, according to the Associated Press.

Supported by all five commissioners, the proposal, which is now subject to a 60-day public comment period, would not take effect until 2007, the AP noted.

Reuters reported that SEC chairman Christopher Cox cited studies showing that 75 percent of Americans have Internet access, a figure that is on the rise. “The percentage of investors with Internet access is even higher,” he noted at the meeting where the vote took place.

Under the proposal, companies that want to send out proxies over the Internet would be required to notify their shareholders by mail that they are available on their Website at least 30 days before the companies’ annual meeting. Investors who still want a paper copy can receive one if they notify the company via a toll-free telephone number or by E-mail.

Some experts believe the new policy would lead to more contested elections for directors, according to the AP. The experts reason that activist shareholders could sponsor dissident director candidates much more cheaply, since the shareholders wouldn’t have to print and mail their own proxy material promoting their candidates. Such mailings can get very costly.

The proposal “would lower the costs of a proxy contest. It would lower the barriers to entry,” Alan Beller, who heads the SEC’s corporation finance division, reportedly told the commissioners.

Beller disagreed with those who fear that the proposed rule would lead to a surge in frivolous contests. “It’s still not something that’s going to be done on a lark or at the drop of a hat,” he insisted, according to the AP.

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