Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

Exercise 2

Moving Company Information to the Internet
Anyone who has ever owned shares in a public company knows that such companies often are required to distribute voluminous documents relating to proxies to all shareholders. Traditionally, large packets of paper documents were sent to shareholders, but in 2007 the Securities and Exchange Commission (SEC) permitted publicly held companies to voluntarily distribute electronic proxy (e-proxy) materials. In 2009, the SEC's e-proxy rules became mandatory. Now, all public companies must post their proxy materials on the Internet, although they may still choose among several options-including paper documents sent by mail-for actually delivering the materials to shareholders.
Notice and Access: E-Proxy Rules
Companies that want to distribute proxy materials only via the Internet can choose the notice and access delivery option. Under this model, the corporation posts the proxy materials on a Web site and notifies the shareholders that the proxy materials are available online.
The notice and access model involves the following steps:
1. The company posts the proxy materials on its publicly accessible Web site.
2. Subsequently, the company sends a (paper) notice to each shareholder at least forty calendar days before the date of the shareholders' meeting for which the proxy is being solicited.
3. No other materials can be sent along with the initial notice (unless the proxy is being combined with the meeting notice required by state law).
4. The notice must be written in plain English, and it must include a prominent statement of the following: the date, time, and location of the shareholders' meeting; the specific Web site at which shareholders can access the proxy materials; an explanation of how they can obtain paper copies of the proxy materials at no cost; and a clear and impartial description of each matter to be considered at the share holders' meeting.
5. Next, the company must wait at least ten days before sending a "paper" proxy card to the shareholders. This ten-day waiting period provides shareholders with sufficient time to access the proxy materials online or to request paper copies.
6. If a shareholder requests paper proxy materials, the company must send them within three business days.
7. After receiving the initial paper notice, a shareholder can permanently elect to receive all future proxy materials on paper or by e-mail.
Other Delivery Options
Rather than using notice and access delivery, public companies can choose to deliver the full set of proxy materials to the shareholders in paper or electronic form, such as on a CD or DVD. They can also use a blend of these two options, as long as they also post the materials on a Web site. Many corporations choose one option for certain shareholders and another option for other shareholders, depending on the number of shares owned or whether the shareholders are domestic or foreign. The shareholder can always choose to receive paper documents rather than accessing materials online.
Some corporate executives want the SEC to go even further and allow corporations to disseminate important information to the public via CEO blogs. Thus far, however, the SEC has not allowed companies to distribute proxy materials (or disclose material information to the public as required before issuing shares-see Chapter 26) via blogs.
FOR CRITICAL ANALYSIS
Why might a company or other party choose to solicit proxies the old-fashioned way-by providing paper documents instead of Internet access-despite the added costs?