<html><head> <meta http-equiv="content-type" content="text/html; charset=UTF-8"> <!-- #BeginTemplate "../../../../Templates/2003End.dwt" --> <!-- #BeginEditable "doctitle" --> <title>Webcast</title> <!-- #EndEditable --> <script language="Javascript" src="transcript_files/common.js"></script> <link rel="stylesheet" href="transcript_files/default.css"> <mm:editable></mm:editable> <script> </script> <mm:editable></mm:editable> <!-- Dreamweaver will delete this comment. --> </head><body leftmargin="0" topmargin="0" alink="#09248d" bgcolor="#e1e2e6" vlink="#09248d" link="#09248d" marginheight="0" marginwidth="0"> <!-- #BeginLibraryItem "/Library/2003EndHeader.lbi" --><table background="transcript_files/bg.gif" border="0" cellpadding="0" cellspacing="0" width="100%"> <tbody><tr background="transcript_files/bg.gif"> <td align="left" valign="top" width="312" height="39"><a href="http://www.thecorporatecounsel.net/"><img src="transcript_files/Title.gif" border="0" width="312" height="39"></a></td> <td align="left" valign="top" width="198" height="39"><img src="transcript_files/version4_02.gif" width="198" height="39"></td> <td align="center" valign="middle" height="39">&nbsp;</td> </tr> </tbody></table><!-- #EndLibraryItem --><!-- #BeginEditable "content" --> <table bgcolor="#ffffff" border="0" cellpadding="10" width="100%" height="75%"> <tbody><tr align="left" valign="top"> <td> <h1 align="center">"How to Implement E-Proxy in Year Two"</h1> <p align="center"><b>Thursday, February 5, 2009</b> <br> </p><p align="center"><a href="http://www.thecorporatecounsel.net/member/webcast/2009/02_05/">Audio Archive</a> </p><p align="center"><a href="http://www.thecorporatecounsel.net/member/webcast/2009/02_05/materials.pdf" target="_blank">Course Materials</a> <br><br> </p><p> With one proxy season's worth of experience under belt, many are wondering what new developments  and "lessons learned" from the first season - will impact their e-proxy strategy for this proxy season. This webcast will explain the voting patterns you should expect - and provide solicitation strategies to help you be better prepared. Whether your company will be trying voluntary e-proxy for the first time or this is your second time around, you will want the practical guidance from these experts: </p><ul> <li><b>Lyell Dampeer</b>, President, Broadridge Financial Solutions </li><li><b>Thomas Ball</b>, Senior Managing Director, Morrow &amp; Co. </li><li><b>Carl Hagberg</b>, Independent Inspector of Elections and Editor of <em>The Shareholder Service Optimizer </em> </li><li><b>Paul Schulman</b>, Executive Managing Director, The Altman Group </li><li><b>Keir Gumbs</b>, Covington &amp; Burling LLP </li></ul> <a name="top"></a> <img src="transcript_files/line-blue.gif" border="0" width="141" height="18"> <ul> <li><a href="#1">E-proxy Statistics: Experience to Date</a></li> <li><a href="#2">Cost-Benefit Analysis</a></li> <li><a href="#3">Timing Issues</a></li> <li><a href="#4">Practice Pointers</a></li> <li><a href="#5">Tough Proposals</a></li> <li><a href="#6">Questions from Listeners</a></li> </ul> <img src="transcript_files/line-blue.gif" border="0" width="141" height="18"> <p><b>Broc Romanek, </b> <i>Editor, TheCorporateCounsel.net</i><b>:</b> Welcome to today's webcast: "How to Implement E-Proxy in Year Two." </p> <p>This is our fourth or fifth webcast regarding e-proxy since the new rules were adopted early last year by the SEC. The topic remains as important now as it did then, particularly since a lot more companies are going to be dipping their toes into the e-proxy arena.</p> <p>Let me turn it over to our panel. We have Lyell Dampeer, President of Broadridge Financial Solutions. Lyell has posted some course materials  they're linked above.</p> <p>Tom Ball is a senior managing director of Morrow and Company, one of the two proxy solicitors on our panel. </p> <p>Carl Hagberg, who has been on all of these e-proxy webcasts, is among other things an independent inspector of elections and the publisher and editor of <i>The Shareholder Service Optimizer.</i> Carl continues to write great stuff in that quarterly newsletter and I really urge you to check that out, at <a href="http://www.optimizeronline.com/">www.optimizeronline.com</a></p> <p>Paul Schulman is an executive managing director of The Altman Group, our other proxy solicitor. </p> <p>And finally Keir Gumbs, a former SEC staffer now at Covington &amp; Burling, who knows more about e-proxy than any other lawyer I know.</p> <p>So let's turn this over to Lyell to start us off by going through the posted course materials.</p> <a name="1"></a> <a href="#top"> <img src="transcript_files/Top.GIF" border="0" width="26" height="12"></a> <b> E-proxy Statistics: Experience to Date</b> <p><b>Lyell Dampeer, </b> <i>President, Broadridge Financial Solutions</i>: I'm going to provide some statistical data and a few comments on both the first year of adoption and what we've seen so far in the second year under the rules.</p> <p>I'll start with the first year, which ran from July 2007 through June 2008. During that period of time  I'm referring to the beneficial side of shareholder communication  653 issuers adopted. It was skewed towards the larger issuers, but issuers of all sizes did adopt. Larger issuers adopted at rates ranging from 25% to 35%, when you got to issuers of 50,000 positions and above on the street.</p> <p>Agendas included agendas with all routine items, agendas that included non-routine management proposals, as well as agendas that included non-routine shareholder proposals.</p> <p>There was one contested solicitation that used notice and access but it was settled before the meeting. It was the only instance in which either side  management or opposition </p> <p>used notice and access for a contested meeting.</p> <p>Institutional and e-delivery shareowners have been unaffected by the issuer's choice to use notice and access. Their experience in the way they are actually notified and are given the opportunity to view and vote is unaffected. They do not actually receive the notice because of the delivery choices they've made.</p> <p>Retail voting participation among notice recipients showed that shares voted by retail notice recipients declined by about 50%, and accounts voted declined by almost 75%, since the first year.</p> <p>Approximately 1% of notice recipients requested fulfillment, as the rule allows. When the issuer chose to use the notice model, about 11.5% of shareholders in those distributions received full packages for one of three reasons, either because the shareowner had lodged prior consent to always receive full packages, or the shareowner requested fulfillment upon receiving a notice, or the issuer chose to do a stratification, meaning the issuer selected some holders to get full package and others to get a notice only.</p> <p>The most common way of doing the stratification is based on shares and the size of the position of the account holder. </p> <p>The estimated savings using our actual postage costs and the NIRI data related to material costs<b> </b>and annual report costs exceeded $140 million net of service fees.</p> <p>Information on the first six months of the second year  July '08 through December '08  is not yet posted out on our website. We will start updating that, but so far 179 issuers in the first six months have adopted the notice model compared to 59 for the same period last year.</p> <p>Of the 59 issuers who adopted in the first year, virtually all of them have reused it for the second year. There were some companies that either didn't have a meeting or merged, but otherwise I think it was 100% re-adoption in year two.</p> <p><b>Romanek:</b> Lyell, do you expect that to continue? Is that a trend that we can look to this<b> </b>proxy season and expect that we would see similar increase in usage?</p> <p><b>Dampeer: </b>Yes, we do expect that. We expect to see something north of 50%, probably in the range of 60%, of all street positions will be in jobs where the issuer has chosen the notice model.</p> <p>In terms of the number of issuers, it will probably still be 15-20% of the issuers, and this is going to be the larger issuers again. We're now seeing the very largest issuers adopting at a better than 60% rate. We expect that trend to continue.</p> <p>The use of the second notice option remains very low, as only two issuers have used it out of the 179 that have used e-proxy in the last six months. Fulfillment requests are slightly lower  just below 1%. On the other hand, full package recipients are up somewhat, again driven by either prior consent, which has grown (although more slowly than last year), stratification, or request for fulfillment.</p> <p>Of the 179 issuers, 12 stratified, and they all stratified on shares. There are other alternatives based on voting history and/or geography.</p> <p>We have about 2.8 million accounts on the street side that have requested to always receive a full package. This time last year we were probably around two million  maybe a little bit less than that.</p> <p>Most early adopters, as I said a few minutes ago, are using it again this year. Virtually all have had or are still in the process of having a meeting, meaning they are in the solicitation period. The estimated savings in this six-month period is about $45 million, bringing the total net of service fees to about $200 million. That was one of the goals of the SEC in making the rule.</p> <p>Comparative voting data shows that the vote counts are a little bit lower than they were last year at this same point in the first six months. There is an increasing decline in retail participation. </p> <p>On the other hand, those that are requesting fulfillment after receiving a notice are voting about 69% of the time, and that's 82% of shares represented in those accounts that requested fulfillment. So those people that do want to participate are very active. </p> <p>People that have requested to always receive full packages are voting 62% of the time, and about 67% of the shares held in those accounts.</p> <p>When a notice recipient was actually in a stratified portion of the mailing, they're voting about 10% of the accounts and 23% of the shares  so a little bit lower. Retail holders overall, for meetings where the issuer did not adopt notice and access, are voting 19-20% of the time and 31-33% of the shares. That's fairly consistent with last year at the same time for non-adopters.</p> <p>The last couple of points I had were on issues and concerns not only from a processor's perspective but also what we have heard in the marketplace dealing with issuers and their agents' first year reluctance to be early adopters.</p> <p>There were a lot of concerns around timing, the ability to meet the 40-day distribution requirements. There were concerns around the agenda, if the agenda had routine and non-routine items on it. And there were concerns around cost savings, not only the amount of the cost savings, but how predictable it was. That was driven by concerns about fulfillment requests and the ability to estimate print quantities properly.</p> <p>Many issuers last year printed somewhere between 30% and 50% of their traditional print quantities. I think this year we'll see those probably drop to more like 5% of the traditional print quantities. That's based on confidence in relatively low fulfillment requests, combined with a lot of prior consents on file, which allow you to know exactly what you need to print in advance.</p> <p>In the second year, there was a lot of concern around retail voting participation rates. There is a lot of focus on that; certainly by the regulators but also in the issuer community. And there is still concern around the agenda  majority voting and other things drive that, although the continuance of the broker vote through this season certainly mitigates that concern to a large extent. </p> <p>There is<b> </b>a lot of concern around shareholder education. I'm aware of a couple of issuers that have chosen not to use notice, even though there are significant savings, because they were concerned about the inability to educate their shareowners as to why they chose this model.</p> <p>The savings are real for most issuers, and the adoption is congruent with sustainability initiatives. Issuers that may not even be saving a lot of money through notice and access are doing this because it is consistent with sustainability initiatives. As I said, early adopters are continuing to use the model going forward.</p> <p>To our knowledge, the SEC is considering changes, including shortening the mail dates to reduce the 40-day requirement to the 30-35 day range. At this point, I'd say it's not going to happen for this season<b>.</b> The SEC also considered a request to be able to put an educational insert  generic in nature  within a notice mailing to be able to explain to shareowners why they chose the model and so on.</p> <a name="2"></a> <a href="#top"> <img src="transcript_files/Top.GIF" border="0" width="26" height="12"></a> <b> Cost-Benefit Analysis</b> <p><b>Romanek: </b>Why don't we spend a few minute talking about conducting a cost-benefit analysis? We can talk how it's changed since last year, or just go over the basics for those companies trying to decide whether to do a notice and access or bifurcate for the first time. What should they be thinking of?</p> <p><b>Dampeer:</b> I think all service providers, including Broadridge, have made models available to issuers considering notice and access, whether they are first time adopters or not, that consider agenda items, prior consents, print savings and postage savings.</p> <p>I think most service providers have pretty good models now that allow the issuer to make an informed decision to fairly accurately estimate the total cost and the potential savings, and also to understand the impact of stratification if they choose to go down that road. There's some information on our website and there's more models available, but again I think everybody is providing that. </p> <p>It's clear that the issuers that have adopted have tended to overprint significantly, erring on the side of caution. I think there's a much greater confidence this year that issuers can reduce their print quantities much more significantly and therefore realize more savings.</p> <p><b>Paul Schulman</b>, <i>Executive Managing Director, The Altman Group</i>: I think, as Tom Ball and I will talk a little bit about later, that if you have a tough agenda and you've got a really significant retail shareholder base, as Lyell has gone through, there is a sharp drop off in retail voting from the notice and access model.</p> <p>You really have to be careful about the additional costs that you would incur from having to bring somebody like Tom or I on to rescue your vote if you have gone through a notice and access model with a big retail holder solicitation and you don't get the response rate that you want.</p> <p>One of the things that people were vey concerned with when notice and access was first put forward was that it drops the barrier to entry for dissidents to come in and conduct contests. But we really haven't seen any of that. I think the same goes for the corporate side, where you've got serious proposals that you want to get out there. You've got to think long and hard about whether or not you want to adopt notice and access, with the vulnerability that you might have and things not getting passed if you do have a big retail shareholder base.</p> <p>Lyell, I think Broadridge has also done some analysis as to what the percentage of overall costs are associated with printing and mailing, either in a proxy contest or a normal solicitation. Most of the cost I think is in other areas and not the printing and mailing, right?</p> <p><b>Dampeer:</b> In terms of solicitation?</p> <p><b>Schulman: </b>Yes  the solicitation fees, the legal fees, litigation, those kinds of things. I think the number that you came up with was it was about 10-15%, right?</p> <p><b>Dampeer:</b> Right.</p> <p><b>Carl Hagberg</b><i>, Independent</i> <i>Inspector of Elections and Editor of The Shareholder Service Optimizer</i>: Here are a couple of things that I've been reminding people regarding the use of notice and access. First of all, don't think that just because there is a little bit of work up-front, or because you have had shareholder proposals in the past, that you shouldn't be actively investigating  and using  the notice and access model, because it is a major money saver.</p> <p>Of course you want to make sure that you have targeted this properly and stratified properly. But please don't think that you should not be doing this just because you have a shareholder proposal.</p> <p>I always say, all these statistics are extremely helpful but they are <i>averages</i>. I don't care so much about the average company  I only care about <i>my company</i>.</p> <p>So I say, look at your own situation. And here, your proxy solicitors can help you hugely. And Broadridge, of course, because they know how many people have already consented to notice and access, so they can help you hugely.</p> <p>You should also be asking your transfer agent about the registered side, because they have many people who have already given a consent to notice and access  "e-delivery."</p> <p>So you can easily get a good handle on what your own numbers actually look like. </p> <p>Then you also have to ask yourself about those almost 3 million people who have already said they want paper.</p> <p>If you're a company that's very, very popular with individual investors  who still love their paper  you can find out from Broadridge, and from your transfer agent, exactly how many of those people have already asked for paper. So you can cover yourself and make sure you don't run short of printed matter.</p> <p>There isn't a single recipe for doing this. You have to look at your own situation. And everybody out there  Broadridge, your proxy solicitor or advisor and your transfer agent  are willing to help you come up with the right solution &for you.</p> <p>I especially want to mention what I thought was the most elegant solution of all, which was Prudential's. Last year, it saved them a ton of money<b>.</b> They simply didn't mail any material to people who hadn't voted their proxy in the past two years. There was zero downside risk to them, and a huge financial reward.</p> <p>Those shareholders got a notice, of course, so if that year they wanted to vote they weren't disenfranchised. But Prudential eliminated a huge number of people. The number doesn't come to mind but it was enormous. They were mostly people who had one, two or three shares, who thought their vote wasn't important anyway. Broadridge knew who those people were, and their transfer agent knew on the registered side. So Prudential realized a whopping savings with no downside risk to them whatsoever.</p> <p><b>Keir Gumbs</b>, <i>Covington &amp; Burling LLP: </i> I think the other consideration  and this may be looking ahead a little bit  is what the agenda items are going to be for the meeting. Without going into too much detail, we have had a lot of clients who are going to be for the first time deciding about whether or not they want to follow the notice only model.</p> <p>In those conversations, the first thing that I as a lawyer think about is  what things are you going to be submitting to shareholder vote? If you're going to be submitting charter amendments, for example, you might want to consider not doing notice and access this year. You are going to want as many votes as you can because for a charter amendment you are going to need majority<b> </b>votes from the outstanding shares and not just votes cast.</p> <p>Similarly  and I think this has been alluded to  if you have got other proposal items such as incentive plans that are going to be submitted for shareholder approval, or contentious shareholder proposals where you are really concerned about making sure you get as many votes as you can, you might want to consider, if you are not going to do the notice only model, at least doing a stratification, so that as you get as many votes as you think you can. I think that that's a conversation that companies ought to be having very early in the process.</p> <p>We have had clients that have been surprised, even though they have, not necessarily controversial items on the agenda, but agenda items where they need as many votes as they can. These clients were surprised at the end of the process when they didn't get as many votes as they would have liked, or in some cases as many as were needed to pass matters, because the retail vote dropped so significantly.</p> <p>I think that is a really important thing that shouldn't be missed in this conversation. Yes, costs are important, but you really want to make sure you have the participation level that you need.</p> <p><b>Hagberg: </b>To follow up on what Keir is saying, the "push" model  pushing material  gets a lot more attention than the "pull" model, where you say, "It's out there on the Internet, go find it."</p> <p>This year, it strikes me that even if you don't have proposals, there will be many companies who would be very wise to push their material  at least to their larger holders  to answer questions. We've all got questions, let's note, about almost every investment we have.</p> <p>There is something to be said <i>strategically</i> for really working hard on your materials. I think companies are going to have to work harder on their materials this year  and do a better job of explaining, and calming the waters as best they can.</p> <p>There are strategic reasons for wanting to stratify at a level where you're sure that you are pushing material where it is strategically important to you to have investors get that material. It may not just be a proposal. It may just be because you have been in the newspaper too much.</p> <p>So Keir's points are excellent ones  and they go way beyond "just the money."</p> <a name="3"></a> <a href="#top"> <img src="transcript_files/Top.GIF" border="0" width="26" height="12"></a> <b>Timing Issues</b> <p><b>Romanek:</b> Lyell, do you want to talk about time and responsibility schedules? What should companies that are doing e-proxy expect?</p> <p><b>Dampeer:</b> I'll let Keir give an overview of that. I'll just talk about it from a processing point a little later.</p> <p><b>Gumbs:</b> I think from a time and responsibility perspective there are three important points to be made. The first thing is  who is subject to the e-proxy rules this year? </p> <p>Last year, only large accelerated filers were subject to the e-proxy rules. This year, as of January 1, 2009, all issuers are subject to the e-proxy rules.</p> <p>There are three things that accelerated filers, or a large accelerated filer who didn't file e-proxy last year, have to be thinking about. The first is that everyone  and I do mean everyone  has to post their proxy materials, including the annual report and the proxy itself, on an internet website.</p> <p>Second, all companies have to decide whether they are going to follow the "notice only" model or the "full set" model, or some combination of the two. Because of the current requirements that the notice be sent at least 40 days in advance of the meeting, that is a really critical decision that is going to have to be made, since the proxy is going to have to be prepared earlier. It requires nailing down the items to be considered at the annual meeting earlier in the process.</p> <p>Third  and this maybe could have been first  companies are going to have to decide whether to host their proxy materials on their website. The rules require that the materials be posted by the time the the notice is sent, and that the website not use cookies that track the personal identify of the visitor. They can track what they do on the site, how long they stay on the site, how they got to the site. But they can't be used to identify the visitor in any way.</p> <p>For some companies, their current website satisfies this requirement, but in most cases it doesn't. It's something companies have to decide very early in the process.</p> <p>That's relevant to this timetable question, because you have to decide all of those things in thinking about and preparing for your annual meeting. </p> <p>With respect to the website, for example  and this is a question for Lyell  in my experience, a lot of companies in thinking about the new requirements that would apply to the internet website where their proxy materials are posted decided to look to service providers to do the hosting of the product materials, partially because they don't want to go through the process of trying to evaluate what kind of tracking technology they have and whether they comply with the rules, they don't want to have to think about the format of the proxy that's posted on the internet website, etc.</p> <p>So a lot of my clients are looking to Broadridge and other service providers to do that. </p> <p>Lyell, is that pretty consistent with your experience?</p> <p><b>Dampeer:</b> Absolutely right. The other concern issuers have, even if they think their site conforms, is they are concerned about the potential spike in traffic volume to the site once they distribute the notice, in particular if they're using the notice model.</p> <p>I want to piggyback for one second on your earlier comment. The fact that hosting of material is now required of all issuers is a concern, certainly from a processing point of view. There are many issuers that don't seem to be aware that they need to put the material on the internet even if they are not using the notice model for distribution. And that if it's not posted it potentially limits their ability to provide e-mail delivery  because you need web links to do that  and therefore potentially increases the cost to the issuer in terms of postage and printing.</p> <p><b>Gumbs: </b>Just to further piggyback on that, we have had clients where we're in the process of drafting the proxy and looking at their timeline, and we ask, "What are you doing about your website?" And they looked at us and said, "What do you mean, what are we doing about our website?" </p> <p>And we said, "Well, now that you are subject to these rules, you are going to have to post your proxy materials on your website and there are certain rules about what your website can and can't do. We are happy to help you walk through that process, but we've only got 50 days before your meeting now and you haven't been talking about that."</p> <p>I think a lot of those clients have been surprised to note that they have got to, as Lyell said, post the proxy materials on an internet website to comply with the rules even if they're not doing the notice only model.</p> <p>I think that's a really important point for people to keep in mind.</p> <p><b>Hagberg:</b> I had this on my list of things, too, with a slightly different spin. What we found last year was that a lot of issuers didn't realize how long it actually takes to get this done  to get the companies they have chosen as their web-translators and their web-hosts to post it.</p> <p>I have another concern this year. For purposes of notice and access, you don't want this on your own corporate site as the primary site, (a) because the prohibited cookies are almost certainly there and (b) you don't have the proper links that you need to have to the voting sites. You really need to have your website link to your voting site, and that's very important to know up front. And, as Keir and I both mentioned, this doesn't happen in two or three day's time. You need to give yourselves sufficient leeway.</p> <p>Another thing that concerns me is that some issuers may be relying on smaller transfer agents who have handled their tabulation of their registered vote all along. They may not be ready to host your site. You may have been using them as a host for other matters, and then you discover they are not ready to do this. So I think the points that Keir and Tom made are really critical to think about, because I'd say you need 20 to 30 days lead time to post materials in a good manner.</p> <p><b>Gumbs:</b> Right. I think a lot of companies take pride in not just how the annual meetings are conducted, but also all the materials related to the annual meeting, and think of it as an experience.</p> <p>To the extent that you try to comply with this rule on your own, and that element of the experience isn't consistent with the other aspects of the experience, I don't think that's a message that companies want to send, from an investor relations perspective.</p> <p>Companies spend lots of money on marketing and branding and thinking about the website for lots of other purposes. But when it comes to complying with this rule, which frankly is the one time a year when you can expect a lot of your shareholders to go to wherever you direct them to look at your proxy material, you want to take some time to think about what it is that you're presenting.</p> <p>Some clients have gone the extra step of not just to complying with the rules, but really creating a whole online experience around their proxy materials and annual report. A lot of this has been spurred by the fact that they have to comply with these new proxy rules.</p> <p>For that reason, you don't want to wait until the last minute to put something up and hope that it complies with the rules. You're losing the opportunity to create a great online experience for your investors when they come to look at your proxy materials.</p> <p><b>Dampeer: </b>I would definitely agree with that. I think that if there's a focus on the experience, you're likely to see over time an increase in participation, particularly among retail holders. I think it's a way to begin to win back that group of participants in the process that may have dropped out in the first year.</p> <p>From a timing perspective, I certainly second everything that Keir and Carl said. You need to think about this much sooner in the process. The decision to whether or not to use notice and access is a critical one. The decision on what you host and how you host it and where you host it is critical now that it is required. </p> <p>I think everything needs to be locked down in terms of final agenda, decisions to use notice and access, etc., 50 to 60 days before the meeting.</p> <p>Final documents should be sent off to the processors no later than 45 or 46 days before the meeting, which is on average 10 to 15 days earlier than it would have historically been finalized.</p> <p><b>Gumbs: </b>One last point in keeping with what Lyell just said. When you are thinking about preparing your proxy materials in your annual meeting, think about what your agenda items are, not just for whether you want to do notice and access, but also for whether or not you are going to have to file a preliminary form, because that is going to add an additional ten days to the planning process.</p> <p>To the extent that you are going to have items in your proxy materials that are going to require that you file a preliminary form, that's just going to further extend your planning and preparation process, which is why you want to get started early.</p> <p>For companies with your traditional, late April, May and June meetings, you should start this process now. You should be talking with your legal counsel and your proxy soliciting firm and Broadridge and your transfer agent and thinking about not just the cost but also what it is that you plan to do at the meeting and how you plan to satisfy the new requirements.</p> <a name="4"></a> <a href="#top"> <img src="transcript_files/Top.GIF" border="0" width="26" height="12"></a> <b>Practice Pointers</b> <p><b>Romanek: </b>Carl, are there any other practice points you want to make?</p> <p><b>Hagberg:</b> I have a list of practice points, as I usually do. I'll try to go through them quickly. But before I do, let me just make two observations that were discussed on another webcast I was on the other day. I started off by telling people about my quote of the quarter, which really turned into my quote of the year.</p> <p>This is something that in 2009 really resonated with me, and resonated with a lot of people when they heard it. Ben Heineman, Jr., who used to be the chief legal officer and general counsel and corporate secretary of GE, and who is now a distinguished professor at Harvard, was the luncheon speaker at a recent event. Here's a direct quote: "Capitalism has forfeited the right to say trust me.'"</p> <p>Now when you hear that from somebody like Ben Heineman, I think we all better be paying attention. I think we all know this is true. So we're going into an annual meeting season that really is unlike any that we've had before.</p> <p>I think people do not trust what companies are saying and doing. And the other thing, which is related, is that directors' actions, their disclosures in the CD&amp;A and other sections of the proxy statement, their personal qualities, and their bids for re-election too, are going to be under the microscope like never before.</p> <p>So I think what we've been saying about planning, and drafting, and the need to do this right and to focus not just on the money or on the technology is really critical.</p> <p>Let me get to my practice points. </p> <p>The number one thing I would really urge on you is that you are going to save a tremendous amount of money using notice and access. Even if you just use that simple thing of not sending to the non-voters, you will save a lot of money.</p> <p>Second, it only costs a few thousand dollars to put up a reader-friendly version of your materials on the web. Do not use the EDGAR version. It's no good, and it doesn't comply with the SEC rules. A plain text version really isn't good. It's supposed to look like your printed material, and it needs to be <i>searchable</i> under SEC rules, which EDGAR versions are not.</p> <p>I think PDFs are actually the best, in terms of the visuals, but only if they have a navigation bar that will help you skip back and forth. A savvy shareholder might say, "I read the chairman's letter. Now I want to go to the CD&amp;A," or, "I want to see the pictures and bios of the nominees and then I want to go to vote." So make sure that you have the ability for your readers and voters to navigate between the proxy materials site and the voting site. </p> <p>Some of the sites that I saw last year were really terrible. They were putting two or three pages to a screen, and if you tried to enlarge one, so you could actually read it, the whole link would disappear.</p> <p>It only costs a few thousand dollars extra to do it right. I know Broadridge has been really helpful to people. Many of the transfer agents can help you there. Look at the vendors carefully  and make sure you're not putting up a version that makes people angry. It's actually insulting if you get logged off or you can't navigate. If that makes you angry, you're not too happy with the company. It makes you a lot more prone to say, "Take me off this list. Send me paper forever because I can't put up with these shenanigans." So that's important. </p> <p>Make sure you know who your web host or hosts are going to be, and that they're ready for you, and that you have enough time.</p> <p>The other thing that I think is quite important is not to ignore the importance of the printed word. As Keir was saying, the way your material looks  the tone, the appearance  are going to be very, very important to you from a strategic point of view. Of course, if you're also looking to get votes, you do want it to be a good document.</p> <p>I think you want the experience to be at least as good as you would get if you were looking at a well designed printed page  not a hodgepodge of stuff. </p> <p>Those first impressions are now huge. Virtually all your analysts and institutional investors are going to be looking at your website. They will use only your internet version. They are not waiting for the printed page to come along. So you want that to look good this year  I hope you want it to look good every year.</p> <p>Another practical tip is to Google up and benchmark not just against some of your peer companies but some of the real leaders here. Intel is probably the first company that comes to my mind as the pioneer one would expect them to be. They have a really, really good site, as does American Express.</p> <p>General Electric last year had a wonderful little video clip that introduced the annual report. It was only a little over two minutes, and their Chairman, Jeff Immelt, gave the chairman's letter and the "big picture" in a very personal and engaging way. It was a very smart thing to do.</p> <p>In the context of people wanting to send "messages" to directors, and to communicate with directors, there is a great need to <i>humanize</i> this process so that it's not all legal gobbledygook and high-tech stuff that the average person can't navigate through or understand.</p> <p>While this isn't directly related to notice and access, I did want to point you to two really excellent examples of the CD&amp;A from last year, because I think this is where people are going to zero in. Whether they're on the web or they're on your printed page, I think they're going to zero in especially on executive compensation<b> </b> this year.</p> <p>If you look at last year, Chevron and Exelon's CD&amp;A sections were the best "humanized" of the 100+ CD&amp;A's I looked at. They were well written and very well presented. They used two very different styles and totally different presentation methods, but it was almost as if you could hear someone talking to you and explaining to you. And when you were done you said, "I actually understood what they were telling me." I think that's going to be very important this year.</p> <p>In a related area, I think you're smart to pay a lot more attention to the section on how you go about nominating directors and picking directors. Stockholders do have the right to nominate and they're looking. This is another very good opportunity to explain your process and show that you're serious about this and you're careful and that you have a process and yes, it's important. It's not just the "old boy" network at work.</p> <p>Related to this  put the shareholder matters as close to the front of your notice of meeting and proxy statement as possible. I'm going to ask Keir in minute for some of his advice on how far we can go with free writing.</p> <p>I'm a great believer in putting the performance chart right up in the front  or using bar charts to show your performance right up-front. If it's not good, that's what you should be talking about anyway. If it is good, so much the better, and I'm in a much better mood when I look at your materials.</p> <p>I have a few quick things on adding readability with colored subheads, colored screens, and judicious use of headlines and bold face. But I'd say be careful. Think of this from how it's going to look not just on the printed page but on the web. But it can be a great aid in skimming and scanning and pointing people to what they need to know.</p> <p>Two last things. First, don't forget your employees. Many companies have 7, 8, or 10% of their vote with employees in various kinds of employee plans. The trend in past years was to lump them all together, send a single proxy card with all of the shares combined. </p> <p>You can push e-mail versions to most of your employees, which is a good thing. You'd be smart to kind of think of your plans as separate segments  because your employees should be among your friendliest voters. So look at how you deliver materials to them. You can actually send them reminders, as long as they don't think you're snooping and breaching confidentiality  you can say, "If you haven't voted, your vote is important this year."</p> <p>The last thing I have, while it may be too late, is to truly handicap your directors. A few years ago I suggested this and everybody laughed at me. Then I think they realized that there was something to this after all.</p> <p>A lot of directors  especially this year  are in the vulnerable category: if they are on too may boards, or if they have been in a company that has been in the headlines a lot, or if they are on your compensation or audit committees. While it's too late if they're already in your proxy statement, you definitely want to pay attention, and you want to get out as much of your friendly vote as you can for those directors. You don't want to see them going down in defeat or having an embarrassingly low vote if you can avoid it.</p> <p>Those are my practice tips. But I would like to ask Keir how much flexibility we have in designing the proxy statement to do some of the things I suggested, such as putting the voting items way, way up to the front.</p> <p><b>Gumbs:</b> As long as it's not misleading and you've got all the information that's required by Schedule 14A and the items in Regulation S-K, I think you have a lot of flexibility. </p> <p>You see some companies take advantage of that. They look at their proxies as an opportunity to communicate with their stockholders and not just to comply with the rules.</p> <p>In those cases, you see people moving things to places where they are more appealing, so that the investor looking at the disclosure can really focus in on what it is that the company is trying to convey and not just how Schedule 14A is organized.</p> <p>That's something that's worth keeping in mind for those who are going to be following the notice and access model this year. Be creative. I think you see that with CD&amp;A. CD&amp;A disclosures have improved for the last couple of years, as companies are not only getting more comfortable the disclosure requirements, but also seeing what other companies have done effectively.</p> <p>So I agree with your point, Carl. I think you have a lot of flexibility and people ought to take advantage of it</p> <p><b>Hagberg:</b> Last year I looked at one which had a particularly thick package; they had a lot of proposals. But they put all of the CD&amp;A and their committee charters and all that "governance stuff" way up front  and the actual agenda items began on page 98. </p> <p>I actually got mad, because if I was looking at this on the web I would have been scrolling for 40 minutes before I found what I was supposed to be voting on.</p> <p>So it's really no wonder that the voting has been lagging in many cases with this model, when you can't find the material you're supposed to vote on.</p> <p>So I'm really glad to hear what you're saying, Keir. I'd put this as close to the very front of the package as you possibly can. It sounds to me that as long as you don't leave anything out that's required exactly where you place it doesn't matter all that much. Would that be fair enough?</p> <p><b>Gumbs:</b> I think that's fair. Although I have to admit it's been three years since I've been on the staff so maybe that's changed &.</p> <p><b>Hagberg:</b> What's the penalty, though, for making things plainer and simpler? I don't think it's jail, even with the SEC these days.</p> <p><b>Gumbs</b>: That's right. It's all about clear presentation and getting the information that's required out there.</p> <p><b>Romanek:</b> I should make the point that the SEC staff periodically has been saying they're going to put out some written guidance in the e-proxy area because there continues to be a number of interpretive questions. The Staff was also looking at some potential rule changes  including shortening the timeframe. It doesn't look like that either of these things will happen this proxy season. </p> <p>Let's turn it over to the solicitors to talk about what to consider before using e-proxy if there is a tough proposal or some sort of proxy fight.</p> <a name="5"></a> <a href="#top"> <img src="transcript_files/Top.GIF" border="0" width="26" height="12"></a> <b>Tough Proposals</b> <p><b>Thomas Ball</b>, <i>Senior Managing Director, Morrow &amp; Co</i>: If you've got such a proposal or even if you don't, there are two things that you need to consider: the impact on voting and your timing.</p> <p>We've covered the timing issue. If a company can make sure that they're going to meet the timing deadlines and they decide they want to go ahead with notice and access, the other thing they need to consider is  how is it going to impact your vote?</p> <p>What you really need to do is look at the proposals. Are the discretionary? If you've got discretionary proposals and you know you're going to get the broker discretionary vote, you probably would be comfortable going with notice and access because you'll get that broker vote.</p> <p>The caveat there is that if you have a large record holder component  a lot of shares in record holder name  that vote is going to go down, too. I know some of our clients are very sensitive to the quorum issue, and if it goes down one point that can be a big deal for some of our clients. So notice and access might be a problem for a client like that even if they have discretionary proposals.</p> <p>However, if you've got proposals that are not discretionary, then we are advising clients to look at things a lot more closely. You've got to do voting projections so you can figure out what the impact will be if you use notice and access.</p> <p>Can you pass a proposal? Is it going to impact that proposal's ability to be passed? You need to look at the shareholder profile  that's the most important thing. How much is in retail? How much is in records? How much in institutional?</p> <p>And, obviously  what is the vote requirement? Also, what kind of recommendations will you be getting from ISS and Glass Lewis, and how is that going to impact your vote?</p> <p>So if you have got anything but a discretionary proposal and you're thinking of using notice and access, you've got to know what the impact is going to be on the vote. You don't want to risk a proposal just to save some money. Because it might cost you more money to get that proposal passed in the end.</p> <p>Know what the vote is, and be comfortable that you can pass your proposals.</p> <p>Paul, do you have anything to add on that?</p> <p><b>Schulman:</b> No. Tom, you talked about companies that are very sensitive to the quorum.</p> <p>As some people might know, there's a proposal in front of the SEC to do away with discretionary voting for directors, which hasn't yet been adopted or approved. There are a number of brokers that have taken it upon themselves to already stop issuing across-the-board discretionary voting on directors, either by not issuing any of the discretionary votes or by taking a proportionate vote.</p> <p>So if you've got a tough proposal, you've got some concerns about director votes. And if you've got a majority vote requirement you may need to take a look at it as well.</p> <p><b>Ball: </b>That's good.</p> <p><b>Schulman:</b> I had some notes on things you can do. I'm just going to skim through the highlights.</p> <p>Retail holders are by far the most loyal shareholder base that a company has, by a margin of three to one, four to one, and even five to one. They are generally supportive of whatever management puts in front of them. They generally don't go through the proxy statement and do the dilution calculations and look at the director independence issues.</p> <p>So if you have a tough proposal and you need to overcome institutional opposition or you just need to get the votes up, and you've gone with notice and access and you haven't gotten the response that you're looking for, what do you do?</p> <p>Here are a couple of things that we work with clients on. There really is no magic bullet. It's either getting more paper out in front of the shareholders or doing phone calls.</p> <p>The first type of mailing is a "reminder mailing," which is a letter that goes out at some point after the proxy statement has gone out. There are a couple of different versions. One can be a very generic letter that says "you've gotten important proxy material and you haven't responded - it's very important - please vote." Or you can get a general description.</p> <p>I think the exception might be if you have a vote on a merger where the shareholders are going to be getting cash. There are probably not a lot of those going on now. But you can talk about the benefit of the proposal passing and the result being a direct cash payment to the person. Or if you have some sort of financing or restructuring, where there are some onerous consequences of the proposal not passing, you might want to put that in there. Although I think you've got to be pretty careful about how you say it, and your proxy disclosure and those kinds of things.</p> <p><b>Ball:</b> Also, that second mailing is going to really cut into your cost savings. </p> <p><b>Schulman:</b> It is. Although the mailings are fairly expensive. As you do with the notice and access mailing, you can stratify so it goes to the top holders. Because, as you said, you try to save money by doing the notice and access. You don't want to wipe all of it out with another mailing.</p> <p>The reminder mailings are not all that expensive, but they're not all that effective either. You do get some response, but you're not going to double the vote just by putting a proxy card and a letter in front of somebody.</p> <p>The second thing that we do is getting on the phones and calling them</p> <p>Firms like Morrow (Tom's firm) and ours, we actually have the ability not just to phone people and ask them to vote, we can actually take the votes over the phone. Those calls are recorded and the vote gets transmitted to Broadridge and put into the system and the vote gets recorded the same as if the person had actually voted through the Broadridge system.</p> <p>That's the most powerful solicitation tool we have. About 70% of the people we talk to will actually vote, and over 90% of them will give us the agreement to vote as management recommends.</p> <p>It can get very expensive, particularly if you've got a large retail shareholder base. Going back to Tom's point earlier, you really need to look at what your agenda is and whether or not the money that you save by doing notice and access may be wiped out by the fees that you'd have to pay if a firm like Tom's or ours has to go in and rescue your vote where it's needed.</p> <p>One of the other things that we do is what's called an "endeavor to contact" letter. It's a letter that goes out to shareholders, for the people that you're not able to get over the phone. It is aimed at generating an inbound phone call and it says, "We've been trying to contact you about a very important matter regarding your holdings in this company. Please call us."</p> <p>We're finding with the current economic environment, people tend to pay more attention to those.</p> <p>We just did a mailing of about 150,000 of those this past weekend, and based on the calls that we've taken in so far this week, we're projecting we're going to get a response rate of about 35% of those shareholders to call us.</p> <p>Just wrapping it up, make any communications either verbal or written - make them simple and easy to understand. And give people clear instructions on how to vote.</p> <p><b>Hagberg:</b> That big 150,000 piece mailing  was that in response to a proposal that wasn't going the right way from the company's perspective?</p> <p><b>Schulman:</b> No, it was actually in a proposal where we just needed to get the votes up. It was in a mutual fund complex. Talk about voter apathy in corporate America  wait until you get to mutual funds where people just aren't as engaged in the investment as they are in a company. </p> <p><b>Hagberg:</b> I'd like to make a related point. I alluded to this before. I think that unfortunately there are going to be many companies that wake up one day and discover that there are a lot of "no" votes against specific directors, like compensation committee directors and audit committee directors, that they hadn't anticipated, even if they did their handicapping.</p> <p>I think that there's a strong likelihood that there will be companies that are impacted by this They'll want to take some extraordinary measures to make sure that they can get as many votes for their directors as possible, especially those compensation and audit committee folks.</p> <p>I think people need to be especially alert to that this year. They need to say, "Has my voting pattern changed, or do we have a lot of votes that haven't come in yet?" And I believe, too, that there will be a lot of last minute "surprise voting" by institutions that you were hoping <i>wouldn't</i> be voting, or that would be voting with you, not against.</p> <p>So I think getting the biggest favorable vote that you can "in the bag," so to speak, will be very, very important to a lot of people this year.</p> <p><b>Schulman:</b> I think that's right. Particularly if you have majority vote threshold, or a majority vote standard for election of directors, or a withhold campaign by an activist, or even just with the market the way it is. RiskMetrics is looking at companies' performance, and if you're close to the bottom of your peer group, they will look more closely at your compensation practices and your governance practices, and potentially target some of your directors with a withhold vote. So that's all true.</p> <p><b>Ball:</b> To follow up on Paul's point and Carl's in terms of expected withhold votes on directors this year  in early returns we're seeing some significant withhold votes as a result of the new ISS policy on poor pay practices, even more than when we were seeing withhold recommendations due to performance.</p> <p>The poor pay practices are really eliciting high withhold votes. So companies could be surprised this year.</p> <a name="6"></a> <a href="#top"> <img src="transcript_files/Top.GIF" border="0" width="26" height="12"></a> <b>Questions from Listeners</b> <p><b>Gumbs: </b>Broc, I wanted to hit a couple of questions that people had given in advance.</p> <p><b>Romanek:</b> That would be great.</p> <p><b>Gumbs:</b> I have four practical points which came from the questions. </p> <p>The first was about how you file the notice of internet availability  whether you file it as part of the proxy or whether you file it as a separate filing as additional soliciting material.</p> <p>In the adopting release, it says that you have a choice. You can either file it as part of the proxy or you can file it separately. In my experience, most clients file it as additional soliciting material, meaning it's a separate filing made with the SEC.</p> <p>Second point  and I don't know if this has been mentioned  but there was a lot of confusion last year about how to use the notice. There were a number of companies that experienced shareholders taking the notice of internet availability, filling it out as though it were a proxy, and mailing it back to the company.</p> <p>What I suggested to clients this year is adding disclosure in your proxy statement when you're describing the voting procedures clarifying that the notice of internet availability is not a proxy. I know that's a simple point, but it happened enough times last year that I think it's worth mentioning.</p> <p>The third question that's come up a few times is whether other materials can be included with the notice. The answer is no. It's explicit in the rule. If you're doing the notice only model you can only include the notice information required by the rules in that package.</p> <p>That doesn't mean that you can't send out additional materials later or if you're in the rare instance where you're sending out the proxy card ten days after having sent out the notice. There's no rule that says you can't include information with that proxy card.</p> <p>It's just something to think about. A lot of companies have a practice of sending out coupons or other information that's not necessarily related to the annual meeting together with the proxy package. If they're relying on notice and access, they can't do that with the notice.</p> <p>I think some companies can find a way around that by sending out a subsequent notice of your internet availability.</p> <p>Fourth  just a big heads up  there were a couple of law firm memos that talked about this, but I'm not sure that there's been much discussion of it. As a company, you should talk to your ERISA counsel about using e-proxy to deliver proxy materials to your 401(k) plan participants.</p> <p>Without going into too much detail, it's not entirely clear that companies can rely on the notice and access or the notice-only model for delivering proxy materials to plan participants.</p> <p>There's a safe harbor, and unfortunately notice and access as currently constructed doesn't fit within that safe harbor. It doesn't mean you can't deliver it that way. It just means it's something that you ought to think about.</p> <p>There were a number of companies that followed notice and access last year that weren't aware of that issue before they sent out the materials. And they got a surprise from either the transfer agent or someone else saying, "Are you sure that you can actually do this?"</p> <p>That's something that companies ought to think about well in advance of sending out the proxy materials this year.</p> <p><b>Hagberg:</b> On that subject, last year there were quite a few companies that came to my attention where the 401(k) plan trustee said, "No! Notice and access  that's no good."</p> <p>One of the things to do would be to check with your plan trustee to make sure they're comfortable with the way this is going down. Several of them changed their mind after they thought about it a little bit, but for many of them their initial reaction was," This isn't appropriate from my perspective as the fiduciary."</p> <p>So doing your homework is right on the money.</p> <p><b>Gumbs:</b> That's right. And just a follow up on that. We've talked about stratification. In that scenario, some companies did the notice only model for everyone but their plan participants and they sent out paper copies to plan participants.</p> <p>It's not always that satisfactory if you've got a lot of plan participants that you have to send paper materials to. But it's at least one solution to the problem.</p> <p><b>Romanek:</b> I want to thank everyone for doing the program  Keir, Carl, Paul, Lyell, Tom  I really appreciate it. My guess is we'll probably do at least one more of these after the proxy season and see how things look.</p> <p>As more and more companies get to know with e-proxy there will be some developments from the SEC at some point too.</p> <p>This has been a great program as usual and I really want to thank you.</p> <a href="#top"> <img src="transcript_files/Top.GIF" border="0" width="26" height="12"></a> <b> </b></td> </tr> </tbody></table> <!-- #EndEditable --> <!-- #EndTemplate --> </body></html>