As the summer congressional recess continues, eyes in Washington looked west this past week. The trial verdict announcement and news of the likely retrial of ex-governor of Illinois Blagojevich seemed to generate the most discussion around Washington. That was until the SEC announced August 25 (tomorrow) as the date for a final ruling on proxy access (expect a 3-2 vote). Will rumors of a required two year, 3% ownership threshold for shareholder nominated directors hold true? Institutional investors are pushing for lower thresholds, while corporations are pushing for higher thresholds (5% on individuals and 10% on groups). I will attend the meeting and will report to you next week. This Race to the Bottom blog post provides an excellent summary of why many companies are fearful about the unintended consequences of proxy access.

This week I return to the SEC’s proxy concept release and focus on facilitating retail investor participation and data-tagging.

Proxy Concept Release – Facilitating Retail Participation (pp. 78-96)

In this section, the SEC seeks to promote and facilitate shareholder voting in general, and in particular, voices its concern about the significant lack of participation by retail investors in proxy voting. A sampling of the questions include: Should issuers or brokers enhance their Web sites to provide the issuers’ shareholders or the brokers’ customers, respectively, with the ability to receive notices of upcoming corporate votes, to access proxy materials and to vote shares through their personal account pages? Should the SEC encourage the creation of inexpensive or free proxy voting platforms that would provide retail investors with access to proxy research, vote recommendations and vote execution? If so, how? Should the SEC consider requiring that companies using a “notice and access” model for distributing proxy materials be required to use that model on a stratified basis to encourage retail voting participation? Should the SEC regulate fees charged by notice and access providers?

Proxy Concept Release – Data-Tagging Proxy Materials (pp. 96-104)

In this section the SEC examines whether data-tagging the proxy in an XBRL style manner might enhance the level and quality of shareholder participation in the process. Questions include: Should the SEC require issuers to provide proxy statement and voting information in an interactive data format? Should executive compensation information be data tagged?

Last week NIRI issued an Executive Alert on the Proxy Concept paper. The NIRI National Board and I really want your insight and contributions as we prepare for a meeting with the SEC and related comment letter. Your help in the form of thoughts and examples would be greatly appreciated.

In NIRI news, I attended the revamped NIRI/University of Michigan Investor Relations certificate program last week. The changes made in the program this year were terrific. Included were new topics like “cross cultural aspects of dealing in global capital markets,” “persuasive communications” and “effective disclosure research.” While next summer seems a long way off, 2011 budget planning is just around the corner and I encourage you to consider adding this program to your budget.

For those new to IR - less than five years experience – it isn’t too late to attend NIRI’s Introduction to Investor Relations September 12-15 in Boston. Finance Essentials for IR is also open for registration and will be held September 16-17 in New York City. Seats are limited, so do not delay in registering. This recently launched program is recommended for anyone seeking the key financial tools to engage finance professionals ranging from the CFO to the buy- and sell-side and financial media.

Until next week,

Jeff Morgan, CAE
President & CEO
jmorgan@niri.org
www.twitter.com/jeffreydmorgan

The August recess is welcomed by our elected officials in Congress. They will likely take some vacation through Labor Day, spending time in their home districts and getting caught up in fall election campaigning. For the rest of us in Washington, this is also a time to try to catch up before the fall legislative session begins. There is no rest for the SEC, however, as the clock ticks on Dodd-Frank items to complete before various deadlines.

The NYSE recently sent a notice to its listed companies and member organizations (as required by Dodd-Frank) that it will file an amendment to NYSE Rule 452 relating to executive compensation. For proxy statements that include executive compensation proposals for which member organizations had previously been allowed to vote uninstructed shares, the NYSE will treat these matters as "May Not Vote" rulings effective immediately. NASDAQ will do the same.

Tomorrow night I will moderate a Dodd-Frank program for the NIRI NY chapter that will include panelists from NYSE, NASDAQ and others. I also continue to await the SEC final proxy access rules, and as I have stated, I expect this to occur before Labor Day and likely the last week of August – some say it may be August 25.

Now, let’s continue our examination of the SEC’s proxy mechanics concept release and how your company might participate in the process by offering comments to the SEC. Last week, I highlighted over-voting and under-voting, as well as issues related to proxy voting confirmation. This week we look at several additional proxy matters in this lengthy message.

Proxy Concept Release – Proxy Voting by Institutional Securities Lenders (pp. 43-47)

In stock lending situations, current rules transfer voting privileges from the lender to the borrower of shares. This creates proxy solicitation uncertainty for companies and IR professionals, especially related to large institutional holders with stock lending programs. The SEC seeks opinions on this and, in particular, whether providing increased information to institutional shareholders would help them determine if they should recall lent stock in order to vote. Questions asked by the SEC in this area include: Should the Commission propose a rule requiring issuers to disclose the meeting agenda sufficiently in advance of the record date to permit securities lenders to determine if the matters warrant a loan termination so they may vote? Would the issuer know, sufficiently in advance, all of the agenda items, particularly shareholder proposals which may become the subject of a request for no-action relief? Could the SEC address concerns by allowing issuers to publish an agenda that is subject to change? How often does uncertainty about a meeting agenda preclude issuers from disclosing the agenda in sufficient time for shareholders to recall loans before the record date? Should issuers be required to issue a press release or make a company Web site posting in addition to filing a notice with the Commission?

Proxy Concept Release – Disclosure of Voting by Funds (pp. 47-49)

Management investment companies are currently required to disclose on Form N-PX how they vote proxies related to their portfolio securities. However, there is no requirement to disclose the number of shares for which proxies were voted or any stock lending information. Questions asked by the SEC in this area include: Should Form N-PX require disclosure of the actual number of shares voted? Should Form N-PX require disclosure of the number of portfolio securities for which a fund did not vote because the securities were on loan or for other reasons?

Proxy Concept Release – Proxy Distribution Fees (pp. 50-63)

Most IR professionals are aware of the costs associated with proxy distribution, including the “notice and access” method. While proxy fees are set by the NYSE, notice and access fees have no similar mandated fees. The SEC notes issuers have raised concerns over the reasonableness of these fees, as well as concerns about the OBO/NOBO system. The SEC also states that “market forces should ultimately determine competitive and reasonable rates,” and suggests “a process that fosters competition could give issuers, which are responsible for reimbursing only reasonable proxy distribution costs, more control over that process and remove the Commission and SROs from the business of setting rates.” However, the SEC understands that lack of a competitive market requires regulated fees.

NIRI, as a member of the Shareholder Communications Coalition, has suggested the alternative of creating a utility function to aggregate beneficial owner information data, and then permit service providers to compete for proxy materials distribution. As the concept paper states, “This would also place the choice of proxy service provider in the hands of the entity that must pay for the distribution—the issuer—rather than the securities intermediary, which has no incentive to reduce costs.” We understand that managing these costs is one of the highest priority proxy items for issuers and we believe the Coalition solution has a high likelihood of meeting issuer’s needs. 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 fees.

Questions asked by the SEC in this section include: Does the current fee structure discourage issuers from communicating with beneficial owners beyond delivery of the required proxy materials? Should there be an independent third-party audit of the current fee structure? Should the current fee structure that is set forth in SRO rules be revised to include fees for notice and access delivery? If so, what fees for the notice and access model might constitute “reasonable reimbursement?” Does the current proxy distribution system – in which the proxy service provider is selected by a broker-dealer but paid by the issuer – create a lack of incentives to reduce costs? Should the issuer have more control over the selection and payment of the proxy service provider, and if so, what alternatives to the current system would facilitate this? What are the potential benefits and drawbacks of such alternatives? What factors are currently affecting the level of competition in the market for proxy service providers and their fees? What principles should guide the Commission’s current consideration of competition among proxy service providers? If issuers were able to solicit proxies directly from beneficial owners, what effect would that likely have on proxy distribution costs? What are the potential merits and drawbacks of having a central data aggregator collect beneficial owner information from securities intermediaries? Would changes to the OBO/NOBO mechanism, or the creation of a central data aggregator, encourage competition in the proxy distribution sector?

I urge you and your company to review these items, and share your views and company-specific instances of problems with the SEC. Next week I will review the Communications and Shareholder Participation section.

NIRI’s highly-rated Introduction to Investor Relations takes place September 12-15 in Boston – an excellent place for IR career development. And if you have a full week to devote to IR education, the University of Michigan IR Certificate program, Theory and Practice of Investor Relations takes place August 15-20.

Until next week,

Jeff Morgan, CAE
President & CEO
jmorgan@niri.org
www.twitter.com/jeffreydmorgan

The heat wave on the East Coast has kept many of us looking for ways to stay cool. However, in Washington, the “hot air” became even hotter as news of the Shirley Sherrod mistake and Charlie Rangel’s ethics problems seemed to overshadow President Obama’s signing of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act on Wednesday. Many on Wall Street who are directly affected by the legislation were, in an uncustomary manner, not invited to the signing ceremony. Regardless, things now become really interesting.

The SEC must hire approximately 800 additional staff in order to handle new responsibilities, issue more than 200 new rules and complete almost 20 studies in a relatively short time period. Some of these new regulations will affect IR professionals as we outlined in NIRI’s most recent Executive Alert on the impact of financial reform. I don’t expect the SEC to wait long – I am already hearing that by as early as next month we may see a final proxy access rule for shareholder nominated directors. Because Congress is on recess most of the month until after Labor Day, August is generally quiet in Washington, but the SEC will be buzzing.

One aspect of financial reform that I mentioned during the House and Senate negotiations was the potential for increased short sale disclosure. Indeed, Section 929 of the new legislation is an amendment to Section 13(f) disclosures requiring “public disclosure of the name of the issuer and the title, class, CUSIP number and aggregate amount of the number of short sales of each security, and any additional information determined by the Commission following the end of the reporting period. At a minimum, such public disclosure shall occur every month.” The legislation also further outlines manipulative short selling as illegal and adds some clarity for brokers to notify customers “that they may elect not to allow their fully paid securities to be used in connection with short sales. If a broker or dealer uses a customer’s securities in connection with short sales, the broker or dealer shall provide notice to its customer that the broker or dealer may receive compensation in connection with lending the customer’s securities.” So does this mean issuers may gain further insight into shareholder ownership with improved 13(f) filings that include short sale activities? I would like to think so, and NIRI will certainly be working towards this end as the SEC implements this rule. I suggest reading a recent article in Securities Technology Monitor for further discussion of this provision if you are interested in more information.

Last week, I told you about the very important solicitation for comment by the SEC on proxy mechanics. Starting next week and extending for several weeks, I will be taking the SEC’s concept release apart section by section and urging you and your companies to comment on what I believe to be those areas most critical to our profession. The participation of public companies in the SEC comment process is absolutely essential to improving the U.S. proxy system.

In NIRI news this week, I invite both attendees and non-attendees to access session materials, video and audio from the 2010 NIRI Annual Conference available on the NIRI website. An excellent example of the kind of high-impact, immediately actionable content presented at conference are the top career management tips provided by the panel of NIRI member experts assembled for our popular “Advancing from Mid-Career to the Next Level” session.

I also invite you to attend our free member webinar “Issues and Trends in IR Communication” with participation from NIRI Senior Roundtable members and NIRI’s research department. Next week we begin the three part webinar “Creating Compelling Investor Presentations” for the member price of $150 for all three parts. Finally, NIRI will participate in an industry effort coordinated by the CFA Institute to suggest a model Compensation Discussion and Analysis or CD&A for issuers to adopt. I am looking for reviewers to read the proposal and provide comments. If you are interested, please email me. Thank you in advance for your consideration.

Until next week,

Jeff Morgan, CAE
President & CEO
jmorgan@niri.org
www.twitter.com/jeffreydmorgan

It appears to have been a week of nearly unprecedented significance for the SEC: a landmark $550 million settlement with Goldman Sachs - the largest SEC penalty ever assessed against any Wall Street firm; congressional passage of the mammoth “Dodd-Frank Wall Street Reform and Consumer Protection Act” replete with its major rulemaking implications; and the long-awaited issuance of its 151 page “Concept Release on the U.S. Proxy System.” And while the first item is simply interesting, regular readers know that it is the second and third items that have important implications for NIRI members and their companies.

In what is being described as the greatest legislative change to financial supervision since the 1930’s, the Dodd-Frank Act will affect all U.S. public companies. Passed by the Senate last week, it is currently on President Obama’s desk awaiting his signature. The White House has announced that the president will sign it into law tomorrow, and NIRI will release an Executive Alert later today outlining investor relations considerations. The regulatory implications are significant – I have seen reports that the bill requires nearly 250 rulemakings and nearly 70 studies. To give you a perspective on its size, the Dodd-Frank Act is 2,319 pages, while Sarbanes-Oxley legislation was only 61 pages. The SEC gets its fair share of studies and new rulemaking from the new legislation, particularly as it relates to public company corporate governance. So now the hard work of regulatory implementation begins and we must wait and watch. The legislation sets up a defined timeline for some items, but in many cases it is left up to the rulemaker such as the SEC.

Despite this significant new workload, the SEC to its credit pushed forward last week with its “proxy plumbing” concept release. NIRI responded by issuing a press release supporting this effort. As you know, on its own and through the Shareholder Communications Coalition, NIRI has long advocated for improvements to the proxy system and related issues including greater proxy advisory service regulatory oversight and transparency and a stronger institutional share ownership disclosure regime. I think any improvements can only serve to increase public confidence in the integrity of our markets. The key will be for public companies to take advantage of the SEC’s 90 day comment period to submit specific problems they have had with proxy mechanics and suggest improvements.

While this action was unfolding in Washington, I was in São Paulo, Brazil for the week as a guest of IBRI (the Brazilian equivalent to NIRI) speaking at their annual conference. Other than our neighbor Canada, Brazil has the largest number of non-U.S. NIRI members. They also have the second largest non-U.S. NIRI conference attendance. I was delighted to have the opportunity to spend time there and want to share several observations with you.

I believe Brazil has about 400 public companies, yet there were 800 people attending the conference! Brazilian public companies are required by law to have someone in an investor relations capacity and so they take IR very seriously. So seriously, in fact, that many send the entire IR team including the CFO to the conference. Plus, Brazil’s SEC equivalent, the CVM, is an active participant in the conference and sat through sessions to hear about problems and challenges of IR professionals. Lastly, they invite the analyst association – ABRASCA – to be active partners in the conference making for a very positive experience.

One thing Brazilian IR professionals don’t have to worry about is shareholder ID and a detailed understanding of who owns their shares. Trade data (as I understand it) is reported daily to the CVM so companies have a continuous shareholder base update. Those with U.S. ADR’s are understandably as frustrated as American companies with the lack of U.S. ownership transparency. Needless to say, I was impressed and it reaffirmed for me how much we can all learn from each other.

Finally this week, let me remind yo