blog

Getting Shareholders to Vote Their Proxies

by Lee Kowarski

I know that many people (including myself) find proxy issues to be extremely boring. That said, I believe that mutual fund companies have a desire to get more investors to vote their proxies, and there is an opportunity to do so by making the proxy voting process smoother.

Last month, the SEC proposed important revisions to the proxy rules under the Securities and Exchange Act of 1934, requiring that proxy materials be made available on the Internet and permitting issuers to use a modified form of the "notice and access" model (in which issuers send shareholders notifications of the online availability of proxy materials, but not the full materials). The comments on this proposal have focused on problems with notice and access, but not on the real need or opportunity: to better educate investors about how to easily vote their proxies.

• The ICI's View: In a comment letter back to the SEC on November 20th, the ICI supported the use of the Internet to provide proxy materials to shareholders, but remained critical of the notice and access model because the modifications "[fail] to rectify one of the largest impediments to a successful notice and access model for proxy solicitation - the mandatory separation of the proxy card from the notice." The ICI feels that not allowing issuers to include proxy cards along with the notice in the initial proxy mailing will continue to have a negative impact on the number of proxies voted, and will also add costs for fund companies.
• My Take: Rather than simply sending out proxy cards along with the notices, investment companies, shareholders, and the environment would all be better served by improved notices, something that the SEC's proposal touches on. As the ICI's comment letter rightfully points out, the SEC's proposal "would permit issuers...to accompany the notice with an explanation of the notice and access model 'in order to mitigate confusion' and better allow issuers and other soliciting persons to engage shareholders." If adapted, this flexibility to explain the notice would clearly help avoid the confusion that has existed in the past and can serve to increase voting rates. If firms are permitted to focus this explanation on driving shareholders to the Web (not only to access proxy materials, but to vote their proxies), it is likely that a higher percentage of shareholders will take action and investment companies can save the cost of sending out additional hard-copy materials.

I encourage investment companies (and service providers) to monitor where the SEC settles on this issue and to get creative with how they clarify their notices to best drive investors to vote their proxies.