SEC Issues Concept Release on “Proxy Plumbing”

by Edward F. Greene, Cleary Gottlieb Steen & Hamilton LLP for The Harvard Law School Forum, August 13th, 2010.

At its open meeting on July 14, 2010, the SEC voted unanimously to publish a concept release seeking public comment on a variety of issues relating to the mechanics of communications and voting under the SEC’s proxy rules (so-called “proxy plumbing”). The release may be found here. Comments must be filed with the SEC on or before 90 days after publication of the release in the Federal Register.

“Proxy plumbing” has attracted significant attention among companies, investors and other market participants in recent years, particularly as contested shareholder votes have grown more common. In her opening remarks, Chairman Schapiro noted that changes in “shareholder demographics, the structure of share holdings, technology, and the potential economic significance of each proxy vote” have driven a need to consider whether changes to the proxy voting system are merited. Reflecting the complexity of the subject, the concept release begins with an extended discussion of the mechanics of share ownership and proxy voting.

The concept release is the first step in what is likely to be a long process before the SEC takes action in this area, particularly given the absence of meaningful data in the case of some of the questions and possible solutions raised. At the open meeting, both Commissioners Aguilar and Walter highlighted the importance of fact-finding as the SEC considers whether to recommend changes. Commissioner Aguilar emphasized in particular the importance of obtaining feedback from individual investors, stating that the concept release reflects mainly concerns and proposed changes raised with the SEC staff by companies and industry groups. Action on proxy infrastructure issues is also likely to be delayed in light of the significant regulatory workload that will result from the expected enactment of financial reform legislation.

The concept release is organized around three general topics: (1) the accuracy, transparency and efficiency of the proxy voting system; (2) communications with shareholders and shareholder participation in voting; and (3) the relationship between voting power and economic interest. (continue reading… )

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