Goodbye Edgar Brick Road SEC’s Mandate For Posting Proxy Documents Online Brings Benefits… But Heed These Cautions
By Rhoda Anderson, President, Rhoda Anderson Associates, and Co-Founder, EZOnlineDocuments
The upcoming proxy season is the first in which the SEC is requiring all corporate issuers to post their annual reports and other proxy documents online. But the SEC took away an easy path many corporations previously used when it set up new and detailed online document requirements as part of the “notice-and-access” rules.
In fact, it’s “goodbye EDGAR brick road” -- Issuers can no longer send their shareholders on the path to the Securities and Exchange Commission’s Electronic Data Gathering and Retrieval database for any proxy documents in order to comply with the rules.
For Issuers that are publishing their proxy materials online for the first time, and as a review for experienced Issuers, let me address the three key issues: cost, privacy, and compliance. And I’ll give a few cautions from 10 years experience with publishing online proxy materials.
Cost: The good news is that notice - and- access can save public companies substantial amounts of money. Since corporate issuers are now required to have the proxy documents online anyway, they can reduce printing costs using the “notice” part of this rule. By providing “notice of Internet availability of proxy materials” (proxy statement, annual report, and filings such as 10K statements) Issuers can reduce hard copy print runs by as much as 95% (based on the experiences of the accelerated filers already using “notice and access”). In other words, Issuers can save the cost of printing and mailing materials to up to 95% of their shareholder base. Presumably, online access will also push more shareholders to vote online rather than via mail, which also can save return postage costs.
Caution: Unless the SEC makes changes for the coming proxy season, you are required to have materials live on the web 40 days prior to your meeting. Knowing that you also need more days to convert these documents, review the online version and activate URLs, your annual meeting planning calendar will undoubtedly need to be changed, to give yourselves time to comply.
I have been talking about the cost-benefits of online proxy documents and the need to make them user friendly for over 10 years. Now that the SEC is requiring proxy materials to be available on the Web, the need to focus on the quality of your online documents is even more critical. This upcoming season, millions of shareholders will get a small envelope with information on where to find their online annual report and proxy statement - and how to get printed copies if they really want them - rather than the bulky shareholder package of years past.
Caution: The new rules have very specific requirements for online documents, so read on.
Privacy: The SEC has mandated a new layer of shareholder privacy. Issuers (and, importantly, their vendors) are prohibited from logging, tracking and analyzing data about viewers and users of the online documents. This “no cookies” rule means that no electronic tracks from user visits can be collected.
Sounds easy – until you recall that cookies have been an integral part of corporate Web publishing for more than a decade. All the data that corporations routinely capture on their Web logs (page views, entry pages, browser type, etc.) is banned for online shareholder materials.
These new privacy rules raise a lot of logistical questions – especially when you’re using a variety of posting and voting sites, as many companies do.
Caution: Don’t assume internal Web programmers, third-party hosting providers, and Web design consultants know the new notice-and-access privacy requirements. You need to review the final online version of your documents and know they are being hosted cookie-free.
Compliance: Major corporations have for many years published annual reports online, but in regulatory terms that’s been on a voluntary basis. Those published reports, however, did not have to meet notice-and-access standards.
For issuers to comply with the new standards, the online documents themselves must be:
- substantially the same as a printed copy.
(I reviewed these requirements in depth in last year’s Shareholder Service Optimizer. E-mail my office at randerson@RhodaAnderson.com for a copy of that article.)
So for the first time, ALL of this year’s annual reports will be subject to the searchable/printable/same-as-printed standard found in the Notice and Access rule.
In the past, many corporations published the annual report on their own Web site with a link to the 10k and proxy documents on the SEC’s EDGAR database. The notice-and-access requirements expressly prohibit this use of EDGAR going forward.
Caution: Beware of using only PDF files. My company did a study (prior to the notice-and-access requirements) that illustrated that Web users prefer HTML, which is immediately available to all web users. Not surprising, 94% of people pick HTML versions of annual reports when given the choice between PDF and HTML.
The use of PDF-files-only can dramatically affect shareholder voting. When shareholders can’t readily access PDF documents - because of ‘software issues’ or long download times, for example - it’s highly unlikely that they’ll go on to vote. The fact that most PDF documents are not readily “navigable” – so that browsers have to page backwards and forward to find the sections they want - is another, major source of frustration that will turn off your voters.
Here’s further proof: Last year, there were 232 million Internet users in North America, according to InternetWorldStats.com. By contrast, the most recent version of a popular PDF reader (Adobe Acrobat) had been downloaded only 35 million times. Unlike PDF, all Web users can view HTML.
For the 10 years that EZOnlineDocuments has been receiving PDF files of proxy materials for conversion to HTML we’ve seen an increase (not a decrease) in common but easily preventable mistakes. For example, PDF files that…
- are not the final approved draft
- have printer designated markings on pages which are not picked up in printing but are on the PDF file and are therefore visible online
- are missing late changes that one party thought another party was going to fix
- have incorrect page placements
- have changes made by the printer or design firm that were not checked by the client
How do these mistakes happen? Mostly for one reason: corporate secretaries and legal counsel are placing blind faith in financial printers -- and not checking. It happens easily: the issuer sends drafts to the printer; the printer formats the corporate documents and sends them to the issuer for checking; changes are made and new files are created. In the haste and pressure of getting the printed version ready (mostly for internal corporate executives, by the way), someone loses track of which file is the most recent. Voila: an older, out-of-date PDF file is e-mailed to another third party (the Web hosting provider).
Online documents and processes need a lot more human attention than many professionals are allowing time for. This is a huge trap for issuers that -- in an economic crisis that is bringing greater scrutiny to corporate financial statements – corporate secretaries and lawyers need to address proactively and diligently.
Once it’s time to publish on the Web - given the SEC’s very tight rules as to timing - it’s the 11th hour or beyond. Issuers need experienced vendors for converting the documents into HTML - vendors who will give them sufficient opportunity to carefully review and sign off on the final online version before it goes live.
My firm EZOnlineDocuments, which is a wholesale supplier of internet document conversion, has seen a rush over the past six months from Transfer Agents, printers and other third-party vendors to be able to provide our services to their clients. We can work with any of your agents, so be sure to request EZOnlineDocuments by name from your agent or third party service provider.
Rhoda Anderson is president of Rhoda Anderson Associates (www.RhodaAnderson.com), a corporate governance consulting practice; and CEO of EZOnlineDocuments. She can be reached at randerson@RhodaAnderson.com / Rhoda@ezonlinedocuments.com or (609) 371-5631