1999 may well be remembered as the year when internet proxy voting became a little more common, a little less avant-garde. But it also was the year when many IR professionals realized that internet proxy voting would not necessarily enjoy the magical, mind-boggling growth of so many other online innovations.
If internet proxy voting is going to prove more popular when next year’s proxy season rolls around, it will be because IROs start taking steps in the right direction today. That’s according to Carl Thompson, CEO of Carl Thompson Associates, who says internet proxy voting must be marketed and promoted just like any other bright new idea.
Thompson urges investor relations officers, especially those in small-cap companies, to take the concept of internet proxy voting to the very top of their organizations. ‘I think it’s a cool idea,’ he enthuses. ‘And I think that every IRO should be buying their CEO dinner to sell it. An involved and knowledgeable shareholder is a loyal shareholder.’
Consultant Carl Hagberg of Carl T Hagberg & Associates in Jackson, New Jersey agrees. He faults companies for ‘focusing on the nitty gritty and the bother.’ Hagberg maintains that any smart company would say, ‘I see this as part of a much bigger strategy: a marketing, an IR, and an e-commerce strategy.’ For him, internet proxy voting could be a crucial first step in helping investors get comfortable with accepting electronic goods and services from your company. ‘Internet voting is the tail that will wag the dog,’ he predicts.
Ready for the Street side?
Heavy hitters like IBM, Bell & Howell, and Intel are all squarely behind internet proxy voting already. But electronic voting is available far more widely than many suspect; the Street-name investors (investors registered in their brokers’ names) of some 5,000 publicly-traded US companies are enabled for internet proxy voting, thanks to Automatic Data Processing (ADP). Street-name investors fill out voting instructions, not legal proxies, and these forms can be transmitted to ADP online.
This year, ADP saw 60 percent of all shares returned by phone, the internet or a PC. That’s up from around 50 percent last year, according to Mary Ann Butera, senior VP of sales and marketing at ADP. She says the number of shares returned electronically is not the same as the number of positions voted electronically. For instance, in 1999, ADP saw just over 6 percent of positions voted over the internet. The numbers are up, according to Butera, but not by as much as she hoped: ‘We thought we’d get a higher return on the internet, quite frankly.’
One cause for concern is that companies are proving slow to put out the electronic versions of their annual reports and proxy materials. ‘Electronic presentation has to become an integral part of planning,’ she says. Butera urges IROs to time the arrival of online annual reports and proxy materials to coincide with printed versions.
Adding value
Another reason for lackluster participation in internet voting may be the proxy systems themselves. Michael Watras, president of Straightline International in Manhattan, recommends that companies make internet voting as easy and user-friendly as possible. To this end, he suggests creating and mailing out a printed piece on why your company is embracing internet proxy voting and why it’s in everyone’s best interests to give it a whirl.
Speed and ease are key to a successful internet voting system. ‘Not everybody wants to sit down and have a long voting session on the internet,’ says Hagberg. This means, he says, that companies should be encouraging shareholders to bookmark the online voting booth so they can get there quickly and easily. Tom Newton, vice president at EquiServe, points out that his company sends those investors in the paperless program an e-mail message when the annual report and proxy materials are available, hotlinking them directly to the transfer agent’s web site.
Another way to entice shareholders to cast their votes online is to make the electronic process more interesting and informative than voting with pen and paper. ‘More things need to be done to achieve critical mass,’ says Newton. ‘There need to be more bells and whistles added to the investor’s experience.’ Consequently, EquiServe is offering a slew of extras. One is interactive online proxies, where shareholders click on a board member’s name to see a photo and bio. Another is a direct link to the full text of specific proposals on the proxy ballot.
Here’s a small but nifty advantage for your indecisive shareholders: altering your online vote is a cinch. Most electronic systems time and date stamp all votes, counting only the last. In the paper world, a shareholder experiencing a change of heart would have to reorder the proxy materials and then cast and mail out a new vote before the deadline.
Internet proxies are now allowed in a total of 20 US states, up from just 14 in 1998. Only recently did New Jersey, for instance, say ‘yes’ to electronic proxies. Although less than half of all states permit internet proxy voting, those that do (New York, Delaware, California, for example) are home to a disproportionately high share of corporations.
Nevertheless, regulatory prohibitions are taking their toll on the spread of internet proxy voting. David Sharp, manager of proxy tabulation services for Georgeson, says that several of his firms’ clients who are eager to deliver internet voting could not do so because they’re headquartered in states where it’s not yet legal. Most believe this problem is only temporary: ‘In a year or two, every state will have changed their laws to take care of this,’ predicts Hagberg.
In the UK, the expansion of internet proxy voting is definitely being impeded by the laws; today a British proxy vote must be in writing. Sarah Wilson, managing director and founder of Manifest in Essex, says that her company – a voting agent for pension funds, institutional investors and unit trusts – is getting around the regulatory logjam by accepting voting instructions via e-mail, fax, or phone, and then issuing a written proxy for her clients.
Wilson anticipates that the regulatory regime in the UK will be modified in the next two or three years, making electronic voting possible. For this to happen, the E-Commerce Bill, which makes electronic signatures valid for some transactions, would have to pass; and the Companies Act would have to be amended to eliminate expressions such as ‘in writing,’ and ‘under the hand of.’ Wilson also points out that companies would have to rewrite their bylaws to allow poll votes at their meetings instead of the old-fashioned show of hands.
Luckily, there appear to be several influential backers of electronic proxy voting in the UK. For example, a recent National Association of Pension Funds independent inquiry came out in favor of pushing the agenda forward.
Image is everything
Practicalities aside, some of the best arguments for internet proxy voting are also the fuzziest. Everyone agrees that internet voting should increase participation rates and stimulate shareholder involvement, but no-one can prove it.
Robert Williams, investor relations manager at Dell Computer, maintains that companies also need to look at the host of benefits that come from internet proxy voting. For a company that sells PCs like Dell, the argument makes obvious good sense: ‘We want shareholders to come to the site,’ says Williams. ‘You own the stock, why not own the PC?’
Projecting an up-to-date image is the number-one reason to embrace internet voting, asserts Thompson. ‘We need to connect with the owners of the company and this is a way to make our companies more shareholder friendly,’ he concludes. ‘Internet proxy voting is the wave of the future. It’s the way that the world is going. Shareholders will be laughing at this article five years from now.’
