February 18, 2009

Cold Hard Fact: Investors Don’t Read Disclosures Today

As timely covered by Dominic Jones in his “IR Web Report,” SEC Commissioner Luis Aguilar recently delivered a speech in which he expressed concern over the huge drop in the number of retail investors who voted last year. This drop is mainly attributable to the SEC’s new e-proxy rules – and Commissioner Aguilar strongly suggested that “we move quickly to reconsider e-proxy, improving it if possible, repealing it if necessary, but with the goal of restoring investor participation.”

The drop in the retail vote should be a concern and it’s important that the SEC address it. But another concern is the level of shareholders even bothering to click on the proxy statements and annual reports posted online as part of the voting process. As Dominic wrote in the Winter issue of (sign up for a free copy):

In a recent survey among 1,000 retail investors commissioned by the SEC , fully 57% of investors said they rarely (28%), very rarely (13%) or never (16%) read annual reports when they receive them. For proxy statements, the results were somewhat better, with 44% saying they rarely (21%), very rarely (10%) or never (13%) read proxy statements.

When it comes to web-based proxy materials, statistics collected by Broadridge during the first year of notice-and-access meetings also present a dismal picture. First, only 1.1% of notice recipients bothered to ask companies to mail them paper documents. Meanwhile, just 0.5% of all recipients viewed the materials when they visited the URL provided in the notices. According to Broadridge, notice-and-access has resulted in a 96% reduction in information access by investors, which arguably has led to greater levels of voting without viewing proxy information.

Read Dominic’s article – “Online Annual Reports and Proxy Statements: What’s Wrong And How to Fix It” – to better understand why these statistics are so poor and what your company might be able to do to fix that. And Jim McRitchie added some thoughts after this was posted this morning…

How to Implement E-Proxy in Year Two

We have posted the transcript from our recent webcast: “How to Implement E-Proxy in Year Two.”

Put It on the “Wish List”: Communicating IDEA/Edgar Problems

A member recently told me about a few anxious minutes between the filing of a company’s earnings release on a Form 8-K and the start of its conference call. Actually, it was more than a few minutes – it was a half-hour gap between the time that the SEC’s IDEA/Edgar indicated that it had accepted the filing and public availability of the filing on the SEC’s site.

In theory, under Regulation FD, if you have an Edgar acceptance message that says 10:30 and the call starts at 11, I would argue that the company can go ahead and start – even if investors can’t yet see the filing. However, there is some risk with this approach given the rule’s purpose of investors having this information before the earnings call starts.

As I understand it, this is not a new problem. In fact, EDGAR/IDEA was down yesterday starting ~12:17 eastern for over an hour. This occurs regularly enough that it should be on the list of issues that the SEC’s new brain trust should tackle right away.

The SEC doesn’t seem to monitor its outages – and when these outages occur, the Staff that should be aware of them typically aren’t until they get calls en masse from filers. There’s an easy fix (besides fixing the database) – the contractor used by the SEC should alert the appropriate SEC Staffers, particularly those who take calls from filers (ie. Filer Support and Technical Filer Support). And, the SEC should promptly post a message on their web site that an outage is taking place. That’s an easy first step towards fixing this problem.

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– Broc Romanek