Proxy season: the time when shareholders either speak their minds or don’t. For some IR practitioners, proxy season is a time to test the waters and see if that communications plan worked. Others might just say, ‘Let the proxy solicitor handle it.’ Whatever, proxy voting can cost a company a lot of time and money and that is why it is the IRO’s concern. The big news coming out of this year’s proxy season is that experts from all over the globe are singing the praises of electronic voting by e-mail. In fact, the idea of e-voting is spreading like wildfire as corporations from around the world begin to understand the advantage of using the internet in this way. Notice the careful phrasing here – while the idea of e-mail proxy voting is gaining popularity, instituting the process is another story.
Proponents of e-mail voting say it’s easier, faster and cheaper. But critics, especially recalcitrant senior management, are afraid the convenience of web voting will increase shareholder participation in proxy votes, and thus opposition to management. And the fear-mongering critics may be right. In the past year, the US has seen a dramatic increase in the number of registered and beneficial shareholders participating in proxy votes. Evidence shows the rise in number is directly related to the increase in shareholders using the internet to cast their ballots (see Electronic voting in the US, page 38). Like all new practices, the speed at which e-voting catches on will differ from place to place according to each country’s cultural landscape. In the US, e-voting has been in place for the last three years, while the UK has been a little slower to adopt. In Latin America, e-mail voting is not yet a consideration while in Asia the idea is slowly coming to fruition. And beyond these individual cultural timelines, a deeper battle is being waged. It’s the battle between old world legislation and corporate innovation. It’s the great divide between arcane corporate laws and the desire to facilitate the proxy process.
Yankee prudence
The story in the US is fairly simple: proxy voting by e-mail is on the rise because it’s faster, easier and it costs less. ‘The number of beneficial shares voted through the internet this year increased by 36 percent,’ says Mary Anne Butera, senior vice president of ADP Investor Communications Services. ‘This year, we also noticed that people who receive electronic notification regarding proxy voting are voting more than people who are receiving paper notification.’ The same story goes for the registered shareholder community in the US market. John Wilcox, vice chairman of Georgeson Shareholder Communications, points to a significant increase in the number of registered shareholders voting via e-mail. ‘In 1998 the response rate for internet voting in terms of the number of accounts was basically 2 percent and in the year 2000, it was 14 percent,’ he says The reason for the dramatic increase in e-mail voting, according to ADP’s Butera, is its ‘instantaneous form’. ‘Once the e-mail goes out, the internet votes start coming in within a day or two,’ she says. ‘It’s very reactionary: people go home, retrieve their e-mail, click to the site, look at the information, look at the ballot, execute their vote and are off to the next e-mail.’ ‘The people who are tech savvy are now switching to voting through the internet because it’s much quicker and simpler,’ comments Wilcox, who points to ‘speed, certainty, and delivery’ as the main advantages of electronic voting. ‘People can vote right up to the day of the meeting, as often as they like and there is no delay in terms of the mail delivery.’ In other words, web voting makes what was once a laborious process a whole lot simpler.
Real dollars
For ADP, this was the first season where ‘real hard dollar benefits for the issuer community’ were a direct result of internet use. As Butera explains, electronic voting is a two-part process involving the delivery of information such as annual reports and proxy statements via the internet, as well as the actual voting by e-mail. The real cost savings to companies are in the delivery of information through the web. ‘Each time a document is delivered electronically instead of as hard copy, the issuer saves approximately $5,’ Butera estimates. ‘This past season, Lucent Technologies eliminated 72,000 beneficial mailings and on average we are eliminating 2.3 percent a year.’ Butera stresses the need for US companies to be aware of timing when they decide to distribute proxy information via the web. ‘SEC rules state that the delivery of information, whether it be hard copy or electronic, must be done at approximately the same time.’ Therefore, in order for ADP to suppress the mailing of hard copy information, a company must have a web page they can use to post their information. ‘This year, 300 companies got their information posted on the internet in time for us to suppress their mailings,’ says Butera.
Happy campers
Cary Klafter, director of corporate affairs at Intel Corporation, says his company will continue to use the electronic voting process indefinitely. ‘There was an increase [in the number of votes cast electronically] this year, but it wasn’t out anything of the ordinary. Things are simply evolving over time,’ notes Klafter, who is already thinking of ways to increase usage of the internet for the 2001 season. ‘The voting is useful and interesting but it’s the documents that go along with it that are really the corporate driver.’ Robert Williams, senior manager of investor relations at Dell Computer Corp, is another proponent of e-voting. He says, ‘The difference in cost is dramatic. The trick is to get people to be more comfortable with technology.’ Another investor relations officer at a US-based internet company calls electronic voting the wave of the future. ‘It’s much cheaper and efficient and the voting results are much higher,’ she says. On the other side of the Atlantic, UK shareholders are now just beginning to use e-mail to cast their proxy ballots. In late May, an electronic communications bill received royal assent. Written as a broad bill to regulate e-commerce, the legislation opens the doors to registered shareholders using web voting in the UK. However, before the bill can be fully instituted, there is a waiting period. ‘The bill identifies electronic communication as a best practice guideline and now each individual company will have to make that practice legal for themselves,’ says Barton Hill, ADP’s vice president of global business development. According to Hill, this is a process that could take up to year. Currently, ADP is able to offer electronic voting to beneficial shareholders in the UK. ‘It all has to do with the legal status of the shareholder and in the UK you are only considered a shareholder if you appear on the register,’ Hill explains. ‘We can gather electronic votes from beneficial shareholders because we are not actually gathering proxies but rather voting instructions.’ Once all the votes for a given nominee account are pooled, ADP issues the final vote to the company on a proxy card with a signature. As for registered holders, E-Vote, a subsidiary of Thomson Financial Europe, is one of two UK companies offering electronic voting to investors. And although web voting is not yet legal in the UK, E-Vote is currently processing live votes from registered shareholders via the internet. The trick is to provide a signature. ‘What we have to do is generate a paper facsimile with a wet signature on it,’ says Bob Hayim, managing director of E-vote. This way shareholders can execute their votes on the internet and E-Vote simply issues a signature at the end. As Hayim predicts, ‘Once digital signatures are legalized, the whole process will flow straight through.’
Worlds colliding
UK proxies offer prime examples of how old laws clash with new practices. A recent report sponsored by E-vote points out the discrepancy between old company law in the UK and the modern proxy process. ‘It’s one thing to do electronic proxy voting and it’s another thing to make sure the votes count,’ says Hayim. ‘In the UK, companies don’t have to do what is known as an automated poll.’ In other words, proxies are not necessarily counted at annual meetings. ‘Some companies do count them, but some do a show at the meeting which is one member, one vote.’ In the latter case, the counting of proxy votes is left to the discretion of the chairman. As Hayim explains: ‘The chairman then decides how to interpret the votes in his pocket versus what the floor says.’ He says amendments to British company law will take longer than the legalization of electronic proxy voting under the electronic communication bill. And even though there will be a few details to iron out, once the electronic communications bill is fully implemented, electronic votes will be passed. In other words, the discrepancies between old company rules and new technology won’t stop UK companies from offering web voting to registered owners. Although it was not in effect for this past season, Japan is thinking of legalizing electronic voting. The Japanese Ministry of Justice is planning to draft commercial code provisions which will allow public companies to offer shareholder notification and voting via the web. Given Japan’s long history of corporate governance cronyism, the news demonstrates a long-overdue move to change the country’s image and facilitate shareholder rights. ‘The writing is definitely on the wall,’ says John Taylor, manager of project development in the global shareholder service at Washington DC’s Investor Responsibility Research Center (IRRC). According to Taylor, the main drive for the legislation is coming from issuers. ‘An increase of foreign ownership combined with the fact that issuers have very strict quorum requirements is causing change,’ he says. Stock issuers in Japan often notify shareholders two weeks before the annual meeting, which makes it very difficult for foreign shareholders to participate. As a result the turnout of foreign owners has been very low in Japan. ‘The standard wisdom up until ten years ago was that proxy voting for foreign investors in Japan just wasn’t possible,’ Taylor admits. Japanese observers say the ministry is committed to submitting the legislation for approval in time for the 2002 proxy season. And while the legislation will allow for electronic proxy voting, it will not legalize electronic signatures.
Techno-chasm
While the US market is ahead of the game in electronic voting, there are still some changes to be made before the gap between regulation and internet innovation is filled. SEC guidelines still prevent proxy battles from being resolved electronically. And while it’s fairly easy to find loopholes in the legalese, most US companies still shy away from any contested proxy voting via e-mail. Also, electronic communications are still regulated state by state, so while many companies are reaping the benefits of e-voting, others are restricted to old methods like mail delivery and telephone. In this sense, what unifies all markets, regardless of where they are with electronic voting, is a great divide between old world rules and recent technological innovations. Because the very structure of the web is global, it challenges the specific rules and regulations set up by individual countries. In this sense, the tools for communication are transforming laws around the world.
Dutch delivery
For the first time in Dutch history, shareholders were able to receive postal ballots this proxy season. In the past when shareholders wanted to vote, they would have to look in the newspaper, block the shares and get a meeting attendance ticket. In the spirit of democracy, eleven Dutch companies pooled their resources to implement a fairer share voting system. The result: shareholders were able to mark their papers and send back their votes for the first time. In order to allow for postal ballots, Dutch laws were amended. Electronic voting has yet to be authorized.
Electronic voting in the US
o In the US, the percentage of beneficial shares voted over the internet is increasing year-to-year by 36 percent. o The total percentage of beneficial shares voted over the internet is 3 percent. o On average, approximately 40 percent of shareholders return their votes. o Through the internet, more than 50 percent of shareholders return their votes. o Currently, electronic voting is not used in contested situations because of SEC regulations.
Source: ADP Investor Communications Services
