How to submit comments on
Eight rule creation myths showing how IROs
can – and should – be heard, starting with the proxy system
Given the huge number of new rules
sprouting from the rubble of the financial crisis, an overtaxed SEC badly
needs external input. And given the vociferousness of investors and their
intermediaries, the corporate world needs to be heard.
Myth 1: The SEC works in a vacuum
Transparency, participation and collaboration are wafting through
Washington, propelled by President Barack Obama’s Open Government
Initiative. Indeed, out of the hundreds of stipulations in the Dodd-Frank
financial reform act, there are some that widen the SEC’s already open
The first item on IROs’ action plan –
revamping shareholder communications – didn’t come from Dodd-Frank. But
aspects of Dodd-Frank, including say on pay and proxy access (if they
survive legal challenges), make proxy plumbing all the more important. Paul
Conn, Computershare’s president of global capital markets, says it could be
the first major overhaul since the Shareholder Communications Act of 1985,
and if issuers don’t make themselves heard now, they may have to wait
another 25 years before their needs are addressed.
In July the SEC addressed shareholder
communications with a proxy system ‘concept release’, a rarely used first
step meant to elicit comment before a rule proposal is drafted. A 90-day
public comment period will end on October 20. As of October 1, 45 comments
had been posted on the SEC’s website, including a handful from the issuer
Conn expects the bulk of comments to come
in the last few weeks as campaigns step up on both sides. ‘People like us
who service the issuer community are looking to get issuers to put their
support behind the proposals that are out there,’ he says. ‘Others who are
keen to see the status quo maintained will be putting up their side of the
story as well.’
What’s remarkable is that Computershare and
Georgeson, its proxy solicitation unit, are rallying their clients like
never before. In a series of webinars, research papers, a Twitter feed (@proxyreform),
and most recently a website with an animated video (www.reformtheproxysystem.com),
launched in conjunction with four other transfer agents, Computershare and
Georgeson have not only tried to inform clients about the issues, they have
pressed them to submit comments.
‘There is an opportunity in the concept
release to voice your concern... I urge you to take the time to review it
and review the notes we’ve sent. This is a once-in-a-lifetime opportunity
for folks to effect change,’ said Charlie Rossi, executive vice president of
client services at Computershare and president of the Securities Transfer
Association, during a September 22 webcast.
Myth 2: IROs don’t get involved
Most IROs have never submitted comments to the SEC; this territory is
usually left to corporate secretaries and legal counsel or, for headline
issues, CEOs and CFOs. According to Jeff Morgan, president and CEO of NIRI,
‘It doesn’t matter who from a company is commenting, the value is there.’
Now is the moment for IROs to get involved.
Here’s what’s different today. ‘Usually the SEC has only a couple of issues
a year that hit IR. But now there’s a heck of a lot going on that hits
squarely in the IR space, and a lot is changing under our feet,’ explains
Morgan. ‘The SEC is seeking knowledge from lots of different people to make
sure its perception is not one-sided.’
Morgan devoted five of his president’s
notes to the issue in NIRI’s IR Weekly newsletter during August and
September. He not only boiled down the long concept release, but also
exhorted IROs to get involved. ‘I’ll also urge you to add your voice to this
process by submitting a comment letter to the SEC regarding those issues
your company views as most important,’ he wrote.
On fees for the distribution of proxy
materials – a contentious issue for corporates – Morgan wrote, ‘Therefore,
we urge issuers to write to the SEC with their specific thoughts and
opinions on this subject, as well as any details of perceived inequities in
In an interview with IR magazine,
Morgan repeats his earnest plea: ‘This goes to the core of how in America we
all have a voice. You can sit and grumble about things, but here is a chance
to say what you think.’
Niels Holch, the Shareholder Communications
Coalition’s (SCC) executive director, is trying as much to get issuers to
submit comments to the SEC as he is pushing directly on policy changes. He
predicts there will be a substantial number of issuer comments by the
deadline, helped by the grassroots efforts of NIRI, Computershare and others
related to the SCC.
‘This is your opportunity,’ Holch announces
to IROs. ‘This is a chance to show the SEC that you’d like to see changes to
the system. The more people who get involved in a positive way, the more the
SEC will see this as significant for the issuer community.’
Myth 3: Comment letters have to be long and footnoted
The SEC concept release is 151 pages long with more technical detail
than most IROs want to grapple with. A lot of the work of the SCC, NIRI,
Computershare and others has been to sum up all the issues in the release
and provide clear background information. Some issuers have already
submitted comments simply endorsing the recommendations of the SCC and NIRI.
Holch encourages IROs to send in any kind
of letter, and assures that it doesn’t have to be a lengthy white paper
replete with footnotes. ‘Whether it’s for a concept release or a proposed
rule, a government agency is looking for a wide range of comments and
reactions,’ he says. ‘It is looking for data, for anecdotes – anything that
will help it make a good set of decisions. It can’t do it in isolation.’
Morgan emphasizes the importance of
providing the SEC with real-life cases. ‘The SEC is very keen on examples of
how the system has failed,’ he says. But he encourages any kind of input,
from a brief personal opinion to a more formal response like the one NIRI is
Myth 4: Commenting directly to the SEC is the only way
One hitch with public comments is that issuers might hesitate to provide
specific examples. With the proxy concept release, for example, they may not
want to criticize Broadridge or ISS. Conn says one Computershare client that
had a particularly bad proxy voting experience would be a prime example for
the SEC, but the company probably wouldn’t submit a letter because it would
bring its problems back to the public’s attention. Other companies might
support the changes but have a corporate policy not to write comment letters
to the SEC.
This is where an organization like NIRI can
play an important role, passing on examples even where the IROs don’t write
letters to the SEC themselves.
Morgan is a savvy Washington player who
brought to NIRI lessons from the Futures Industry Association and other
industry organizations where he previously worked. He has ramped up NIRI’s
advocacy initiatives, for example by taking the NIRI board to meet SEC staff
starting in fall 2009. Last month he again took his directors to meet
corporation finance staff in a meeting devoted to proxy plumbing.
In preparation for the recent meeting and
for NIRI’s own comment letter, Morgan issued a mid-August executive alert
boiling down the long concept release into a series of key questions
relevant to IROs, and asking NIRI members to submit thoughts and examples
NIRI could use, whether anonymously or attributed. He got dozens of
Myth 5: No one reads the comments
It will likely take the SEC at least six to eight months to decide
whether to move ahead with proxy system changes stemming from the concept
release and, if so, to come up with a rule proposal for further comment.
Some observers predict it will take years.
Morgan is confident the agency will digest
all the comments and give them careful consideration. ‘And the more people
comment, the more they understand,’ he says. Holch adds that the SEC spends
a lot of time going through comments as part of a ‘very fact-driven
Remember that many others besides the SEC
will read the comments. The trade press and mainstream media look at the
letters, along with other issuers, intermediaries and lawyers – and anyone
who may submit a comment him or herself.
Myth 6: Majority rules
The comment process is not a numbers game. For example, during last
year’s comment period for changes to NYSE Rule 452 on broker discretionary
voting, more than 90 out of around 130 comment letters were from issuers
saying the rule shouldn’t be changed unless it was part of a comprehensive
review of the whole system – in line with the SCC’s stance. The change went
Form letter campaigns seem to be occurring
more and more for some types of rule proposals but Morgan doesn’t think they
carry much weight.
Myth 7: It’s too late – or too early
A comment period, most often 30-60 days, formally begins on the date a
rule proposal or concept release is published in the Federal Register, the
government’s official daily publication, although releases are sometimes
available sooner on the SEC website. Comments received are posted as soon as
possible to the website. ‘Comment periods are designed to get as much input
from the public as possible in a transparent process,’ says John Heine, SEC
All material submitted is carefully
considered including comments received outside the formal comment period,
when possible, Heine adds. Late comments can be found on the SEC’s website
along with those that met the deadline.
Sometimes earlier comments are also posted,
even if they’re from months earlier, like the SCC’s discussion draft from
August 2009, which appears among the proxy concept release comments.
Under Dodd-Frank, the SEC is now taking
comments even before it proposes rules or issues a concept release, holding
more public hearings and disclosing more about staff meetings. Prospective
rules arising from the Dodd-Frank Act are already up for comment
Myth 8: It all started with the internet
Under the Administrative Procedure Act of 1946, public notices and
comments have long been integral to how US government agencies work. Of
course the internet has reshaped the process: it used to be that if you
wanted to see the comments, you had to go to the SEC in Washington, DC and
ask to see the letters. Now it takes a few clicks on the web. ‘The internet
has made it even more transparent than the act required,’ Holch points out.
SCC recommendations overview
Issuers are collectively well represented by the Shareholder
Communications Coalition (SCC), a lobby coalition formed in 2005 by the
Business Roundtable, the Securities Transfer Association, the National
Association of Corporate Directors, NIRI and the Society of Corporate
Secretaries and Governance Professionals.
The SCC’s August 2009 discussion draft on
public company proxy voting, which included concrete proposals, seems to
have been inserted virtually intact into the SEC’s concept release:
- Enable ownership transparency by
eliminating the objecting beneficial owner (OBO) system, allowing issuers
to communicate directly with all shareholders.
- Improve voting integrity with processes
for increasing vote accuracy and auditability.
- Allow a choice of service provider and
create cost savings by establishing a non-profit, regulated ‘data
aggregator’ (such as the Depository Trust & Clearing Corporation) and
opening distribution and vote tabulation to competition (Broadridge
currently holds a virtual monopoly).
- Launch a national campaign to reengage
investors in proxy voting.
Where to start
Shareholder Communications Coalition
NIRI executive alert on the release
Computershare’s ThoughtCentric library of information on proxy reform
Public comments on the SEC’s proxy concept release
How to submit comments on SEC rulemaking
How to submit comments on any of the SEC’s future Dodd-Frank initiatives
Instructions for submitting comments on the proxy concept release
Dates: Comments should be received on or before October 20, 2010.
Addresses: Comments may be submitted by any
of the following methods:
Electronic comments: Use the SEC’s internet
comment form (www.sec.gov/rules/concept.shtml). Send an email to
firstname.lastname@example.org or use the Federal eRulemaking Portal (www.regulations.gov).
Follow the instructions for submitting comments.
Paper comments: Send paper comments in
triplicate to Elizabeth Murphy, secretary, SEC, 100 F Street, NE,
Washington, DC 20549–1090.
All submissions should refer to file number
S7–14–10. This file number should be included on the subject line if email
is used. To help us process and review your comments more efficiently,
please use only one method. The SEC will post all comments on its website (www.sec.gov/rules/concept.shtml).
Comments are also available for website viewing and copying in the
commission’s public reference room, 100 F Street, NE, Washington, DC 20549,
on official business days between the hours of 10.00 am and 3.00 pm. All
comments received will be posted without change; we do not edit personal
identifying information from submissions. You should submit only information
that you wish to make available publicly.
Copyright Cross Border Ltd. 1995–2010.