E-Proxy Gets Off to Slow Start

Now that the first proxy season under the new "e-proxy rule" is over, an analysis shows that voting by individual shareholders dropped at companies using the new rule.

The limited company participation in the new program identified by a study by the law firm White & Case indicates the anticipated savings may not materialize anytime soon.

“Voter participation dropped like a stone, suggesting fewer people may be paying attention and our markets aren't working as well as they should,” Georgetown University finance professor James Angel said in an interview with Financial Week. “The law of unintended consequences may be at work here.”

Under the rules that went into effect last July, companies have the option of notifying investors by mail that proxy materials are available online. Investors are told that they can request a mailing.

The so-called “notice and access” program is part of a broader effort by SEC chairman Christopher Cox to get companies to expand their use of the Internet to provide information to investors.

Of the 78 Fortune 100 companies whose proxies were examined by New York-based White & Case, only 19 chose to send investors a postcard with notice of Web availability of proxy materials rather than mailing the materials.

“A significant majority of the companies decided to wait and see how the rule was implemented,'' Colin Diamond, the White & Case partner who conducted the firm's study, told FW.

The May 15 study included proxy solicitations between Jan. 1 and May 8. At companies that gave investors notice of Web-based materials, a far smaller percentage of individual investors voted this year than last, according to Broadridge Financial Solutions.

Only 16% of individual investors voted this year after receiving a postcard that referred them to the Internet for materials and instructions on how to vote by e-mail or phone. That compares with 34% who voted last year after receiving a bulk mailing that included a paper ballot, Broadridge's April 30 data show.