SEC Reviewing Proxy Process

The SEC takes the first step toward a possible overhaul of the corporate proxy system.

The SEC also raised questions about the role of proxy advisory firms and the possible conflicts of interest they may face in servicing both public companies and their shareholders. The agency said it is looking for feedback on whether or not the firms should be subject to greater SEC oversight, due to their role in providing investment advice, or if they should disclose situations in which they are advising both a corporate issuer and its investors.

Beyond those topics, the SEC got into what it calls the “plumbing” of the proxy, addressing matters such as how far in advance of the annual meeting the “date of record” should occur, given that many shares change hands after that point, and what an appropriate vote-tabulation process would look like.

Comments submitted so far have reiterated various frustrations the SEC has identified, and injected a dose of reality into the discussion. Commenting on her own behalf, Cheryl A. Carter, corporate secretary of publicly traded Synalloy, wrote that she believes “most investors are not interested and/or don’t have the time to read annual reports, 10-Ks, and proxies,” and reckons that most of her company’s shareholders threw their materials in the trash last year, based on voting levels. Further, she added, she personally would like to be able to direct her broker and the companies in which she invests “to not send me any SEC filings, since for me, they just waste the company’s money. I know the material is readily available on the SEC['s] and the company’s website should I want to read it.”

Still, others hope that helpful changes to the proxy process will come from the SEC’s review — changes that will “promote greater efficiency and transparency in the system and enhance the accuracy and integrity of the shareholder vote,” as the concept release puts it. That can’t happen fast enough as far as NIRI’s Morgan is concerned. “The new financial regulations [including say on pay] will go into place for the 2011 proxy season, but we’re not going to see any changes in the proxy system next year,” he says. “I think everyone’s fear is that you’re going to have some real close votes, and everyone will wonder if they’re right.”

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