Public Comments to the SEC on Proxy Reform

Summary of Study

Bottom Line: The proxy process could be improved by addressing the distinction between objecting and non-objecting owners, simplifying shareholder record maintenance, balancing the need for shareholder engagement vs. the costs, simplifying proxy disclosure requirements, reducing regulations on proxy solicitation of retail investors, and reforming the shareholder proposal process.

The Securities and Exchange Commission should consider the following reforms to improve the proxy process.

I. Current Inefficiencies in Communicating with Shareholders

A. The OBO/NOBO Distinction

Given the enormous cost inefficiencies of the current framework, the Commission should consider eliminating the distinction between objecting beneficial owners (OBOs) and non-objecting beneficial owners (NOBOs) for purpose of proxy solicitation and require intermediaries to provide sufficient identifying information for beneficial owners, along with any communication preference that the intermediary has recorded for the beneficial owners. This change would also allow issuers to negotiate fees in a more competitive proxy vendor marketplace, resulting in lower costs for shareholders.

B. Shareholder Records Maintained by Intermediaries

The SEC should reform the records management rules because regulatory requirements for updating intermediary books and records are not designed to meet the needs of issuers who issue proxies to a substantial number of shareholders at the same time, regardless of the type of account holder. Maintaining accurate shareholder records would reduce the costs of mailings to shareholders and would ensure that proxy information is being received by the intended recipients.

II. Contents of Proxy Statements

A. Matters Required to be Submitted for Investment Company Shareholder Approval

The Commission should reconsider what other matters must be submitted to investment company shareholders for a vote and what information is required to be disclosed in an investment company’s proxy statement. In lieu of requiring shareholder approval for technical regulatory matters, the Commission should consider whether requiring approval by a majority independent board advised by independent counsel, along with notice to shareholders, would be sufficient to protect shareholders’ interests.

The Commission should consider whether it is necessary to proxy shareholders on certain issues if there are other, less costly steps that can be taken to protect shareholder interests. The SEC can protect the interests of shareholders while providing cost efficiencies in the regulation of the mutual fund industry.

B. Simplification of Proxy Disclosure for Investment Companies

The Commission should further evaluate where disclosure requirements for proxy statements can be simplified. Alternatively, allowing investment companies to incorporate certain disclosures by reference and post such disclosure on a fund website would significantly reduce the costs of printing and mailing proxy statements.

III. Avenues to Increase Retail Participation

When considering proxy reform, the SEC should not only consider the relevant SEC rules, but also the interconnectedness of rules promulgated by other regulators such as the Federal Communications Commission, which collectively can frustrate achievement of the goals of the proxy solicitation process.

IV. Shareholder Proposals

The SEC should consider a measure that institutes a “time out” period for resubmission of proposals that failed to garner an adequate number of votes to pass over successive years. The Commission should re-evaluate the criteria to submit and resubmit shareholder proposals to better balance the costs and benefits to both shareholders and issuers.

Access the comment letter here