The Number-One Question We’ve Been Hearing From Readers - By Far - Is “What’s Really Happening With Notice And Access This Season?”
So far, the biggest development seems to be how unprepared most companies are to deal with the tighter deadlines that N&A requires: Most companies, as we’ve noted here before, were barely able to get their proxy materials out the door even 30 days before their Annual Meeting. So the 45 day “deadline” to have everything all set, and ready to hand-off to Broadridge for posting on the Internet – in accordance with the rule that materials must be posted 40 days before the Meeting if you’re using N&A - has been a show-stopper for a LOT of companies that would otherwise go the N&A route, we hear. Kinda’ dumb, since all that was really needed was to have told everyone involved that they had to set their A-M calendars 15 days earlier this year, then nag ‘em to be sure they did start early and to keep them “on task”. (We know, of course, that riding herd on writers, editors, “concept people”, graphic artists, photographers, outside accountants and lawyers – plus your own internal herd of accounting, audit, tax, H-R and other people – not to mention the herd of wannabe editors and ‘approvers’ – is like herding cats. So the message here, we guess, is to try to start herding them earlier next year if you want to be ready for N&A).
Another rather shocking surprise to us is how many companies just don’t seem to get it at all: One of our first “official sightings” of N&A-oriented materials was a set of proxy materials we got from Agilent Technologies in January: “We have elected to take advantage of new Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. We believe that the new rules will allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our annual meeting” their Notice of Meeting and Proxy Statement told us. Their NOTICE of MEETING AND PROXY STATEMENT! Which we received on paper, along with a plain vanilla A-R, VIF and return envelope! What were they thinking??? Or NOT!
Another sign of “not getting it” we’d say, is the large number of companies that have reportedly elected to use N&A for their street-name holders – but not for their registered holders: Sure you’re more likely to get complaints from registered holders who miss getting their paper versions. But really, they have nothing much to complain about, since they can still get them – and with relative ease, though very few people, as we’d predicted (less than 1% at last report) are bothering to request them. But PEOPLE! Most companies have less than 5% of their shares held by “registered holders” these days. So why would a company who might have, say 200,000 individual holders in street name, send them no paper, but send printed matter to 100,000 other individuals, just because they’re “registered”? Really smart companies, however, are sending Notices to the really small holders, and pushing “full sets” to the larger retail holders (both registered and street-name), whose votes can really matter… and booking pretty big savings this way.
Yet another thing we’ve heard on the street is that for a surprising number of companies, the game is simply not worth the candle: Yes, there have been complaints that the startup, setup and other fees associated with N&A are “too high”. And there have also been complaints that the estimates some issuers have been getting as to the potential savings are way too high too – like using first-class postage rates in the projections, when almost everything really mails at the much lower “standard rates” – and using “industry average costs” for ARs and other printed materials that are way too high too, relative to the issuer’s own historical costs. But we’ve been hearing from many companies that once the get their numbers straight, the savings are simply not big enough to justify the added hassle – especially since they have to be ready anyway with printed matter. The smaller the company is, please note, the more likely this is to be true.
Also, as we’ve learned, the potential savings at many companies have already been achieved to a very high degree, if, that is, they have a large number of holders who have already consented to E-delivery or where they can E-deliver without a prior OK, as in the case with many Employee Plans.
There’s another key statistic to watch in this regard, we think, as this year ’s season progresses: So far, through Feb. 29th, Broadridge has recorded 1.7 million investor preferences for the continued receipt of paper documents. And these ‘standing instructions’ have arisen from N&A mailings that were made, through Feb. 29th - by only 103 companies so far - so this number is sure to grow as the season progresses. (This shouldn’t deter you from using N&A, please note, but ultimately, it will help you get a much more accurate handle on the potential savings to your particular company).
Meanwhile, we’re hear ing that a lot of big companies – and some smaller high-tech companies too – continue to be highly dissatisfied with the cur rent fee structures surrounding N&A – and that they’re ready to up the ante (after having been basically been blown off by the SEC, and by the NYSE too) by demanding a formal review and re-bidding - and maybe taking legal action too – to make it happen.
We have also been struck by what a basically useless hassle N&A is considered to be by many of the 7,000 or so “smaller issuers” who will be forced to place their materials on the web in “readily accessible…readable…and searchable form” NEXT year: One reader called to ask if we wouldn't spearhead a campaign to delay the deadline for ‘non-accelerated filers’ indefinitely, in light of the paltry savings – and in some cases, no savings that can be achieved: Small companies spend relatively small sums on paper, but will have to spend relatively high sums to spend to get up to speed web-wise. (Not OUR dogfight, said we…In fact, we think that the requirement to post AM materials on the web is something that probably should be mandatory in this day and age. But our caller does have a point, both in terms of the economics and in terms of who if anyone really benefits at companies where there are, let’s say, fewer than 5,000 ‘public holders’ – excluding institutional holders and employees. Maybe NASDAQ, or one of the small company transfer agents will step up to bat here for really small companies).
The rather complex economic issues also have us musing as to whether our good friends at Broadridge might find themselves in a rather difficult economic bind, down the road apiece: So far, we’ve seen only 16 mega-companies, with mega-populations of investors (i.e. 150,000 or more beneficial holders) use the N&A model, but, please note, many of them have been able to mail next to nothing. If you’re in the mailing business, however, where the economies of scale are HUGE, not mailing stuff for the biggest former mailers can take a very big bite out of your gross income – and out of your overall margins too – since a few monster-mailings will basically pay the rent. Meanwhile, as we’ve been pointing out for a lot of years now, all those 7,000 or so ‘small companies’ actually create diseconomies of scale if you’re a big mailing-house – not just because you have to set up and ride herd on so many small jobs, but because small companies tend to have more than the average number of problems – like late, or lost, or last minute corrections or additions to their materials. Thus, in the worst of all worlds for Broadridge, we’d say, they run the risk of seeing all their easy, big-volume, big-grossing jobs forced down in price – or worse, maybe seeing them disappear altogether – while they’re still stuck with all the low-gross, high-difficultly, low margin jobs.
At the end of the day however, we still stick with our predictions that mailings of “traditional style” Annual Reports and other proxy materials WON’T go away.
If anything, we predict that companies will spend more “quality time” on them then ever before. And if the current rate of shareholder activism continues, as we believe it will, public companies, and their mailing houses, will end up mailing more “stuff” than ever!