Electronic Shareholder Forums, 4450-4459 [E8-1263]
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Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Rules and Regulations
SUPPLEMENTARY INFORMATION:
Confirmation of Effective Date
The FAA published this direct final
rule with a request for comments in the
Federal Register on October 30, 2007
(72 61294–61296). The FAA uses the
direct final rulemaking procedure for a
non controversial rule where the FAA
believes that there will be no adverse
public comment. This direct final rule
advised the public that no adverse
comments were anticipated, and that
unless a written adverse comment, or a
written notice of intent to submit such
an adverse comment, were received
within the comment period, the
regulation would become effective on
December 20, 2007. No adverse
comments were received, and thus this
notice confirms the effective date.
Issued in College Park, GA on December
17, 2007.
Mark D. Ward,
Manager, System Support Group, Eastern
Service Center.
[FR Doc. 08–207 Filed 1–24–08; 8:45 am]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Docket No. FAA 2007–0023, Airspace
Docket No. 07–AEA–08]
Establishment of Class E Airspace;
Muncy, PA
Federal Aviation
Administration (FAA), DOT.
ACTION: Direct final rule; correction,
confirmation of effective date.
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AGENCY:
SUMMARY: The Federal Aviation
Administration published in the
Federal Register of October 30, 2007,
(72 FR 61291–61293), a document
establishing Class E airspace, at Muncy,
PA. This action corrects the description
of the airspace and confirms the
effective date of the direct final rule that
establishes Class E airspace supporting
an Instrument Approach Procedure
serving the Muncy Valley Hospital.
DATES: Effective 0901 UTC, December
20, 2007. The Director of the Federal
Register approves this incorporation by
reference action under Title 1, Code of
Federal Regulations, part 51, subject to
the annual revision of FAA Order
7400.9 and publication of conforming
amendments.
Daryl Daniels, Airspace Specialist,
System Support, AJO2–E2B.12, FAA
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SUPPLEMENTARY INFORMATION:
Confirmation of Effective Date
The FAA published this direct final
rule with a request for comments in the
Federal Register on October 30 (72 FR
61291–61293). The FAA uses the direct
final rulemaking procedure for a non
controversial rule where the FAA
believes that there will be no adverse
public comment. This direct final rule
advised the public that no adverse
comments were anticipated, and that
unless a written adverse comment, or a
written notice of interest to submit such
an adverse comment, were received
within the comment period, the
regulation would become effective on
December 20, 2007. No adverse
comments were received, thus this
notice confirms that effective date.
Correction to Final Rule
BILLING CODE 4910–13–M
FOR FURTHER INFORMATION CONTACT:
Eastern Service Center, 1701 Columbia
Ave., College Park, GA 30337; telephone
(404) 305–5581; fax (404) 305–5572.
Additionally, a technical correction to
the wording of the original airspace
description is accomplished for
clarification of the 700 foot Class E
airspace. although the description and
amendment was incorporated under 14
CFR 71.1 of the Federal Aviation
Administration Order 7400.9R, the
reference to paragraph 6005, which
addresses Class E airspace ‘‘extending
upwards from 700 or more above the
surface of the Earth’’, was inadvertently
omitted. Therefore, the publication in
the Federal Register Docket No. FAA
2007–0023, Airspace Docket No. 07–
AEA–08, published October 10, 2007,
(72 FR 61291–61293) paragraph 6005 is
corrected to read as follows:
Paragraph 6005 Class E Airspace Areas
Extending Upward from 700 feet or More
Above the Surface of the Earth.
*
*
*
AEA PA E5
*
*
Muncy, PA [NEW]
Muncy Valley Hospital, PA
Point In Space Coordinates
(Lat. 41°13′05″ N., long. 76°45′46″ W.)
That airspace extending upward from 700
feet above the surface of the Earth within a
6-mile radius of the point in space (lat.
41°13′05″ N., long. 76°45′46″ W.) serving the
Muncy Valley Hospital.
*
*
*
*
*
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17 CFR Part 240
[Release No. 34–57172; IC–28124; File No.
S7–16–07]
RIN 3235–AJ92
Electronic Shareholder Forums
Securities and Exchange
Commission.
ACTION: Final rule.
AGENCY:
SUMMARY: We are adopting amendments
to the proxy rules under the Securities
Exchange Act of 1934 to facilitate
electronic shareholder forums. The
amendments clarify that participation in
an electronic shareholder forum that
could potentially constitute a
solicitation subject to the proxy rules is
exempt from most of the proxy rules if
all of the conditions to the exemption
are satisfied. In addition, the
amendments state that a shareholder,
company, or third party acting on behalf
of a shareholder or company that
establishes, maintains or operates an
electronic shareholder forum will not be
liable under the federal securities laws
for any statement or information
provided by another person
participating in the forum. Therefore,
the amendments remove legal ambiguity
that might deter shareholders and
companies from energetically pursuing
this mode of communication.
DATES: Effective Date: February 25,
2008.
FOR FURTHER INFORMATION CONTACT:
Lillian Brown, Tamara Brightwell, or
John Fieldsend at (202) 551–3700, in the
Division of Corporation Finance, U.S.
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–3010.
SUPPLEMENTARY INFORMATION: We are
amending Rule 14a–2,1 and adopting
new Rule 14a–17,2 under the Securities
Exchange Act of 1934.3
I. Background
On July 27, 2007, the Commission
published for comment a release
proposing, among other things,
amendments to the proxy rules relating
to electronic shareholder forums.4 We
1 17
CFR 240.14a–2.
CFR 240.14a–17.
3 15 U.S.C. 78a et al.
4 Release No. 34–56160 (July 27, 2007) [72 FR
43466] (‘‘Proposing Release’’). The instant release
addresses only the electronic shareholder forum
aspects of the Proposing Release. Comments
received that addressed the comprehensive package
of amendments to the proxy rules and related
disclosure requirements are outside the scope of
this adopting release.
2 17
Issued in College Park, GA on December
17, 2007.
Mark D. Ward,
Manager, System Support Group, Eastern
Service Center.
[FR Doc. 08–217 Filed 1–24–08; 8:45 am]
BILLING CODE 4910–13–M
SECURITIES AND EXCHANGE
COMMISSION
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Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Rules and Regulations
are adopting new Rule 14a–175 and
adding an exemption to Rule 14a–2
substantially as proposed in that release.
The purposes of new Rule 14a–17 and
the Rule 14a–2 exemption are to
facilitate experimentation, innovation,
and greater use of the Internet to further
shareholder communications. By
facilitating such communications on the
Internet among shareholders, and
between shareholders and their
companies, we hope to tap the potential
of technology to better vindicate
shareholders’ state law rights, including
their right to elect directors, in ways
that are potentially both more effective
and less expensive for shareholders and
companies.
In a series of proxy roundtables that
we sponsored in May 2007, several
participants observed that recent
technological developments hold
promise in this regard.6 Those
participants noted that these
technological developments could
provide a more effective and efficient
means of communication than any that
are currently available to shareholders.7
For example, the participants
suggested that an online forum that
would be for the exclusive use of
shareholders of the company could
protect the shareholders’ privacy
through encrypted unique identifiers,8
while still permitting participants to
know what voting percentage of the
company was represented in
discussions.9 Participants in such a
forum could, in addition, discuss a
variety of important subjects that today
are considered, if at all, only
periodically and indirectly through the
proxy process.10 With the use of
5 New
Rule 14a–17 was proposed as Rule 14a–18.
Rich Daly, Broadridge Financial Solutions,
Inc.; Amy Goodman, Gibson, Dunn & Crutcher LLP;
Stanley Keller, Edwards Angell Palmer & Dodge
LLP; Cary Klafter, Intel Corporation; and Paul
Neuhauser, The University of Iowa College of Law,
Transcript of Roundtable on the Federal Proxy
Rules and State Corporation Law, May 7, 2007, at
152 to 171. See also, Russell Read, CalPERS; Amy
Goodman, Gibson, Dunn & Crutcher LLP; Nell
Minow, The Corporate Library; Bill Mostyn, Bank
of America Corporation; and Gary Brouse, Interfaith
Center on Corporate Responsibility, Transcript of
Roundtable on Proxy Voting Mechanics, May 24,
2007, at 54 to 81.
7 Id.
8 See, e.g., Stanley Keller, Edwards Angell Palmer
& Dodge LLP, Transcript of Roundtable on the
Federal Proxy Rules and State Corporation Law,
May 7, 2007, at 152; Rich Daly, Broadridge
Financial Solutions, Inc., Transcript of Roundtable
on the Federal Proxy Rules and State Corporation
Law, May 7, 2007, at 157; and Nell Minow, The
Corporate Library, Transcript of Roundtable on
Proxy Voting Mechanics, May 24, 2007, at 67.
9 See, e.g., Rich Daly, Broadridge Financial
Solutions, Inc., Transcript of Roundtable on the
Federal Proxy Rules and State Corporation Law,
May 7, 2007, at 157.
10 See, e.g., Rich Daly, Broadridge Financial
Solutions, Inc., Transcript of Roundtable on the
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electronic shareholder forums,
shareholder participation and
communication could be extended
throughout the year, rather than only
during the period leading up to
companies’ annual shareholder
meetings. Shareholders might also use
such a forum as a polling mechanism to
elicit the sentiments of the company’s
managers or other shareholders on
various potential actions.11
Technology now makes it feasible to
establish such electronic shareholder
forums to perform these functions. As
one commenter indicated, technology is
available to establish ‘‘secure,
shareowner-to-shareowner
communications, with access restricted
to eligible shareowners, and using the
Internet as a medium for efficient,
ongoing interaction between
shareowners and issuers.’’12 These
forums can be created so that operators
and participants may exchange
information electronically.
Additionally, electronic shareholder
forums can be designed to identify a
participant’s share ownership, as of a
particular date, without disclosing that
participant’s name, address, or other
identifying information.13 Therefore, we
think that participants’ privacy can be
protected while simultaneously
providing for accountability for anyone
making false or misleading statements.
If companies choose to participate in,
or sponsor, electronic forums, they
might find them of use in better gauging
shareholder interest with respect to a
variety of topics. A company-sponsored
forum also could be used to provide a
means for management to communicate
with shareholders by posting press
releases, notifying shareholders of
record dates, and expressing the views
of the company’s management and
board of directors.14
Despite these potential benefits of
electronic shareholder forums,
shareholders and companies alike have
been reluctant to establish, maintain, or
operate them due, in part, to uncertainty
Federal Proxy Rules and State Corporation Law,
May 7, 2007, at 156 and Stanley Keller, Edwards
Angell Palmer & Dodge LLP, Transcript of
Roundtable on the Federal Proxy Rules and State
Corporation Law, May 7, 2007, at 160.
11 See, e.g., Stanley Keller, Edwards Angell
Palmer & Dodge LLP and Rich Daly, Transcript of
Roundtable on the Federal Proxy Rules and State
Corporation Law, May 7, 2007, at 170 to 171 and
Nell Minow, The Corporate Library, Transcript of
Roundtable on Proxy Voting Mechanics, May 24,
2007, at 54 to 56.
12 Comment letter from Broadridge Financial
Solutions, Inc.
13 Id.
14 Of course, anyone posting information on an
electronic shareholder forum should consider the
requirements of Regulation FD. See 17 CFR 243.100
to 243.103.
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over liability for statements and
information provided by those
participating in the forum. In addition,
potential forum participants have
expressed concern regarding whether
views and statements expressed through
the forum would be considered proxy
solicitations. Therefore, we proposed a
new exemption from the proxy rules
(other than from the shareholder list
provisions in Rule 14a–7 and the
antifraud provisions in Rule 14a–9) for
any solicitation in an electronic
shareholder forum that satisfies the
conditions of the exemption. We also
proposed new Rule 14a–17 to provide
liability protection for a shareholder,
company, or third party acting on behalf
of a shareholder or company that
establishes, maintains or operates an
electronic shareholder forum regarding
statements or information provided by
another party participating in the forum.
As we discuss further in Section III,
we are adopting new Rule 14a–17 and
the amendments to Rule 14a–2
substantially as proposed. We are taking
these steps to remove both real and
perceived impediments to continued
private sector experimentation with,
and use of the Internet for,
communication among shareholders,
and between shareholders and the
companies in which they invest. We
intend for the amendments to facilitate
communication and thereby encourage
the creation of, and participation in,
electronic shareholder forums.
II. Comments on the Proposed
Amendments To Facilitate Electronic
Shareholder Forums
The majority of the public comment
on the proposed amendments to
facilitate electronic shareholder forums
was favorable.15 A substantial
percentage of commenters remarking on
the amendments, however, opposed
substituting electronic shareholder
forums for the current means of
presenting non-binding shareholder
proposals in the company’s proxy
statement pursuant to Rule 14a–8.16
Although we solicited comment on this
question, we did not propose any
revisions to Rule 14a–8 that would
cause the electronic shareholder forum
to be a substitute for the Rule 14a–8
process. In the rule amendments that we
are adopting today, we are making the
electronic shareholder forum option an
additional, rather than substitute, means
15 See, e.g., comment letters from The Allstate
Corporation (‘‘Allstate’’); Business Roundtable
(‘‘BRT’’); Capital Research and Management
Company (‘‘Capital Research’’); GreenMachines.net
(‘‘GreenMachines’’); and Investment Company
Institute (‘‘ICI’’).
16 17 CFR 240.14a–8.
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Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Rules and Regulations
of communication that could enhance
and expand opportunities for
participation and interaction.
In our proposing release, we
requested comment on five basic issues
related to electronic shareholder forums.
The first issue was whether the
proposed amendments would have their
intended effect of providing sufficient
flexibility under the federal securities
laws to establish forums that permit
interaction among shareholders and
between shareholders and the company.
In this regard, we solicited comment on
whether shareholders and companies
desire such flexibility, and if they do,
whether the amended rules would
provide it. We also solicited comment
on whether any additional measures are
necessary to ensure that the federal
securities laws do not hinder
development of these forums. Finally,
we asked whether the rules should
provide more direction and guidance
relating to the structure and purpose of
the forums than we proposed.
The second issue on which we
solicited comment concerned the
potential liability under the federal
securities laws associated with
electronic shareholder forums. A
primary purpose of the proposed
amendments was to clarify that
establishing, maintaining, or operating
an electronic shareholder forum does
not make one liable for statements or
information provided by another
person. We also asked commenters to
identify any additional liability issues
under the federal securities laws that we
may not have addressed through the
proposed amendments.
The third issue concerned the period
of time during which electronic
shareholder forums should be allowed
to operate without being subject to most
of the federal proxy rules. Under the
proposed amendments, any solicitation
in an electronic shareholder forum by or
on behalf of a person that does not seek,
directly or indirectly, the power to act
as a proxy for a shareholder would be
exempt from most of the proxy rules.
We proposed that such a person could
avail himself or herself of the exemption
provided that the solicitation was made
more than 60 days before the date
announced by the company for its next
annual or special meeting, or not more
than two days following the
announcement of such a meeting if the
announcement occurred fewer than 60
days before the meeting date. We
solicited comment on whether an
electronic shareholder forum could
function effectively with this timing
limitation. We also asked whether better
alternatives exist to encourage free and
open communication. Additionally, we
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solicited comment on whether we
should require electronic shareholder
forums to be closed down within 60
days of a scheduled shareholder
meeting, whether shareholders whose
communications remain posted inside
the 60-day period should be required to
file them with us, and how to best
monitor these forums.
Fourth, we solicited comment
regarding the use of electronic
shareholder forums as a substitute for
advancing referenda that otherwise
would be presented in the form of nonbinding shareholder proposals for
inclusion in a company’s proxy
materials.
Finally, we solicited comment on the
ways that an electronic shareholder
forum might be used in connection with
bylaw proposals regarding procedures
for nominating candidates to the board
of directors. In particular, we solicited
comment on whether shareholders
should be able to use an electronic
shareholder forum to solicit other
shareholders to join with them in
submitting a bylaw proposal.
The vast majority of commenters
supported the new exemption for
electronic shareholder forums that we
proposed to add to Rule 14a–2 and
proposed new Rule 14a–17.17 The
commenters generally favored the
continued development of electronic
shareholder forums as a means of
facilitating communication among
shareholders and between shareholders
and companies.18
Despite the generally favorable
reaction, some commenters predicted
that electronic shareholder forums
might develop into the same types of
shareholder chat rooms that exist
today.19 Other commenters suggested
that the issues related to electronic
shareholder forums require more time to
be fully analyzed and should be
addressed only upon completion of a
comprehensive study reviewing the
shareholder communications process.20
Finally, some commenters asserted that
we did not adequately address whether
the proposed 60-day, non-solicitation
17 See, e.g., comment letters from Allstate; BRT;
Capital Research; GreenMachines; and ICI.
18 See, e.g., comment letters from Calvert Group,
Ltd. (‘‘Calvert’’); Senator Carl Levin (‘‘Senator
Levin’’); and Stephen R. Van Withrop (‘‘Van
Winthrop’’).
19 See, e.g., comment letters from Bricklayers and
Trowel Trades International Pension Fund
(‘‘Bricklayers’’); Green Century Capital Management
(‘‘Green Century’’); Social Investment Forum
(‘‘SIF’’), and Walden Asset Management
(‘‘Walden’’).
20 See comment letters from American Bar
Association (‘‘ABA’’) and Society of Corporate
Secretaries and Governance Professionals
(‘‘SCSGP’’).
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period prior to a proxy vote would
provide sufficient protection against a
coordinated proxy campaign waged on
an electronic shareholder forum.21
Most of the commenters expressing
concerns regarding non-binding
shareholder proposals stated that they
would oppose making the electronic
shareholder forum a substitute for the
current process under Rule 14a–8.
Several of these commenters made it
clear that they support electronic
shareholder forums, provided that they
are only a supplement to the current
Rule 14a–8 process.22
Additionally, some commenters
mentioned that keeping the identity of
participants who post messages on these
electronic forums private would
threaten meaningful communications
among shareholders and with the
company.23 These commenters asserted
that participants’ identities should be
disclosed and that the participants’
ownership interests in the company
should be made known as well.
III. Final Rules To Facilitate Electronic
Shareholder Forums
As stated above, the amendments that
we are adopting in this release provide
an additional means for shareholders to
communicate, and do not in any manner
restrict a shareholder’s ability under
Rule 14a–8 to submit a non-binding
proposal to a company for inclusion in
the company’s proxy materials.
Furthermore, the amendments neither
mandate nor preclude private
communications in electronic
shareholder forums; instead, they allow
for flexibility in different approaches
and to allow innovation and
experimentation.24
The amendments are designed to
facilitate greater online interaction
among shareholders by removing two
major obstacles to the use of electronic
shareholder forums.25 The first major
obstacle to the use of electronic
shareholder forums is the concern that
a statement made by a participant in an
21 See comment letters from ABA and SunTrust
Banks, Inc. (‘‘SunTrust’’).
22 See, e.g., comment letters from Christus Health
(‘‘Christus’’); Domini Social Investments
(‘‘Domini’’); and Trillium Asset Management
(‘‘Trillium’’).
23 See comment letters from ABA and Christian
Brothers Investment Services, Inc. (‘‘Christian
Brothers’’).
24 Because the antifraud provisions of Rule 14a–
9 would apply to any postings, it could conceivably
be necessary for a participant to identify itself in an
otherwise anonymous forum if failure to do so in
the circumstances would result in the omission of
a ‘‘material fact necessary in order to make the
statements therein not false or misleading.’’ 17 CFR
240.14a–9.
25 17 CFR 240.14a–2(b)(6) and 17 CFR 240.14a–
17.
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Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Rules and Regulations
electronic shareholder forum will be
construed as a solicitation under the
proxy rules. Section 14(a) of the
Exchange Act26 requires that the
solicitation of proxy voting authority be
conducted in a fair, honest, and
informed manner.27 Any solicitation of
proxies in connection with securities
registered pursuant to Section 12 of the
Exchange Act28 is subject to the filing
and disclosure requirements of the
Commission’s proxy rules.29 In this
regard, the Commission has broad
authority to control the conditions
under which proxies may be solicited so
that it promotes ‘‘fair corporate
suffrage.’’ 30 A necessary element of this
authority is to prevent solicitors from
obtaining authorization for corporate
action by means of ‘‘deceptive or
inadequate disclosure in proxy
solicitations.’’ 31
As defined by the Commission, the
term ‘‘solicitation’’ encompasses not
only a request that a shareholder
execute a proxy, but also the
‘‘furnishing of a form of proxy or other
communication to security holders
under circumstances reasonably
calculated to result in the procurement,
withholding or revocation of a
proxy.’’ 32 As such, the proxy rules
apply to any person seeking to influence
the voting of proxies, regardless of
whether the person is seeking
authorization to act as a proxy. Both the
courts and the Commission have
construed this necessarily fact-intensive
test broadly to bring within the ambit of
the proxy rules any communication
that, under the totality of relevant
circumstances, is considered ‘‘part of a
continuous plan ending in a solicitation
and which prepare(s) the way for its
success.’’ 33
Therefore, we are adding a new
exemption to Rule 14a–2 to state
26 15
U.S.C. 78n(a).
No. 34–31326 (October 16, 1992) [57
FR 48276 and 48277].
28 15 U.S.C. 78l.
29 See 15 U.S.C. 78n(a) and 17 CFR 240.14a–1 and
240.14a–2(b)(1).
30 17 H.R. Rep. No. 1383, 73d Cong., 2d Sess. 13
(1934) at 14. The House Report indicated that the
Commission was provided with this broad power
‘‘with a view to preventing the recurrence of abuses
which...[had] frustrated the free exercise of the
voting rights of stockholders.’’ Id.
31 J.I. Case v. Borak, 377 U.S. 426, 431 (1964).
32 17 CFR 240.14a–1(l). Pursuant to Rule 14a–
1(1)(2), the term ‘‘solicitation’’ does not include the
furnishing of a form of proxy to a shareholder upon
the latter’s unsolicited request, the issuer’s
performance of acts mandated by 17 CFR 240.14a–
7, the shareholder list requirement, or ministerial
acts performed by any person on behalf of the
soliciting party.
33 Release No. 34–29315 (June 17, 1991) [56 FR
28987 and 28989]. See, e.g., Long Island Lighting
Company v. Barbash, et al., 779 F. 2d 793 (2d Cir.
1985).
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explicitly that Rules 14a–3 through 14a–
6 (other than Rule 14a–6(g)), Rule 14a–
8, and Rules 14a–10 through 14a–15 do
not apply to any solicitation in an
electronic shareholder forum if all of the
conditions to the exemption are
satisfied.34 Rule 14a–2(b)(6) exempts
from most of the proxy rules any
solicitation by or on behalf of any
person who does not seek directly or
indirectly, either on its own or another’s
behalf, the power to act as proxy for a
shareholder and does not furnish or
otherwise request, or act on behalf of a
person who furnishes or requests, a
form of revocation, abstention, consent,
or authorization in an electronic
shareholder forum that is established,
maintained or operated by a company,
shareholder, or a third party acting on
a company’s or shareholder’s behalf.35
A solicitation on an electronic
shareholder forum will be exempt so
long as it occurs more than 60 days
prior to the date announced by the
company for its annual or special
meeting of shareholders. If the company
announces the meeting less than 60
days before the meeting date, the
solicitation may not occur more than
two days following the company’s
announcement.36 We are adopting the
limitations to the exemption because,
although an electronic shareholder
forum should provide a medium for,
among other things, open discussion,
debate, and the conduct of referenda,
the actual solicitation of proxy authority
for an upcoming meeting should be
conducted in full compliance with the
proxy rules. Any proxies obtained prior
to the application of our proxy rules
will not benefit from the full and fair
disclosure required under the
regulations.
A person who participates in an
electronic shareholder forum and makes
solicitations in reliance on the Rule
14a–2(b)(6) exemption will be eligible to
solicit proxies after the date that the
exemption is no longer available, or is
no longer being relied upon, provided
that any such solicitation complies with
Regulation 14A. In fact, it is for this
reason that Rule 14a–2(b)(6) is
necessary. Existing Rule 14a–2(b)(1)37
provides that most of the proxy rules do
not apply to ‘‘[a]ny solicitation by or on
behalf of any person who does not, at
any time during such solicitation, seek
directly or indirectly, either on its own
4453
or another’s behalf, the power to act as
proxy for a security holder and does not
furnish or otherwise request, or act on
behalf of a person who furnishes or
requests, a form of revocation,
abstention, consent or authorization.’’
Therefore, statements on an electronic
shareholder forum could be exempt
under Rule 14a–2(b)(1), even if these
amendments were not adopted. Once an
exempt solicitation is made under Rule
14a–2(b)(1), however, the individual
making the solicitation cannot later
request proxy authority. Consequently,
Rule 14a–2(b)(6) states that a person
who participates in an electronic
shareholder forum and makes a
solicitation in reliance on this rule can
later solicit proxies without threatening
the exemption’s validity.
We believe that exempting
participation in an electronic
shareholder forum only up until 60 days
before an annual or special meeting will
limit the potential for abuse, and
therefore we are adopting the 60-day
limitation.38 Communications within an
electronic shareholder forum that occur
less than 60 days prior to the annual or
special meeting, or more than two days
after the announcement of the meeting
if the announcement is made less than
60 days prior to the meeting date, will
continue to be treated as they were
under the proxy rules prior to these
amendments. We recognize the concern
that, as one commenter noted, 60 days
may not be ‘‘sufficient practical
protection against the ability of a
coordinated campaign to so color
shareholder perceptions as to make the
vote a likely, if not foregone,
conclusion.’’ 39
We believe that the 60 day cut-off
period will provide sufficient time for
shareholders to consider the
information disclosed to them about a
planned shareholder meeting. We also
believe that removing obstacles to
shareholder participation in electronic
forums outweighs the potential for such
communications to impact a
shareholder’s vote. Of course, persons
relying on Rule 14a–2(b)(6) who later
solicit proxy authority will need to
comply with other Commission rules as
applicable.
Additionally, although commenters
did not request specifically that we
provide guidance on the potential proxy
rule implications of stored
communications available on a forum
34 Id.
35 See
Exchange Act Rule 14a–2(b)(6).
proposal would not affect the application
of any other exemptions under Regulation 14A. For
example, a person could rely on the other
applicable exemptions in Exchange Act Rule 14a–
2 (17 CFR 240.14a–2).
37 17 CFR 240.14a–2(b)(1).
36 The
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38 Sixty days corresponds with the maximum
amount of time prior to a scheduled meeting that
the company may fix the record date for
determining the stockholders entitled to notice of,
or to vote at, a meeting under the Delaware Code.
See Del. Code title 8, § 213 (2007).
39 See comment letter from ABA.
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after the 60-day period, one commenter
referenced this subject.40 In this regard,
shareholders who post communications
on forums in reliance on Rule 14a–
2(b)(6) and later solicit the power to act
as a proxy for a shareholder will need
to determine whether the earlier
postings must be filed as soliciting
materials. For instance, it is possible
that earlier postings remaining available
to shareholders could be ‘‘reasonably
calculated to result in the procurement,
withholding or revocation of a
proxy.’’ 41 Therefore, any
communications made, or that remain
available, on the forum after the 60-day
period must comply with the proxy
rules if they constitute a solicitation,
unless they fall within an existing
exemption. One way that a forum might
deal with this question is to give
participants the opportunity to delete
their postings as of the 60-day cut-off, or
have the forum ‘‘go dark’’ during this
period.42
The second major obstacle to the use
of electronic shareholder forums is the
concern that one who establishes,
maintains, or operates the forum will be
liable under the federal securities laws
for statements made by forum
participants. With respect to the
establishment of such forums, which
can be conducted and maintained in
any number of ways, new Rule 14a–17
clarifies that a shareholder or company
(or third party acting on behalf of a
shareholder or company) that
establishes, maintains, or operates an
electronic shareholder forum is not
liable for statements made by another
person participating in the forum.43
The persons providing information to
or making statements on an electronic
shareholder forum, however, will
remain liable for the content of those
communications under traditional
liability theories in the federal securities
laws, such as those in Section 17(a) of
the Securities Act and Section 10(b),
Rule 10b–5, Rule 14a–9, and Section
20(e) of the Exchange Act. The
prohibitions in the antifraud provisions
against primary or secondary
participation in fraud, deception, or
manipulation will continue to apply to
those supplying information to the site,
and claims will not face any additional
obstacles because of the new rule. Also,
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40 See
comment letter from SunTrust.
41 17 CFR 240.14a–1(l)(1)(iii).
42 Of course, if a person begins soliciting proxies
earlier than the 60-day cut-off period, that person
would no longer have the benefits of the exemption
and would therefore need to comply with the proxy
rules, including perhaps by filing any available
postings as soliciting materials or removing prior
postings from the forum.
43 17 CFR 240.14a–17(b).
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17:51 Jan 24, 2008
Jkt 214001
any other applicable federal or state law
will continue to apply to persons
providing information or statements to
an electronic shareholder forum.
As adopted, new Rule 14a–17
provides liability protection for all
shareholders, companies, and third
parties acting on behalf of a shareholder
or company that establish, maintain, or
operate an electronic shareholder forum
under the federal securities laws,
provided that the forum is conducted in
compliance with the federal securities
laws, applicable state law and the
company’s charter and bylaws. The
proposed rule would have applied only
to companies and shareholders, but we
believe it is appropriate to expand
liability protections to other types of
forum sponsors or operators, such as
Internet service providers and
shareholder or corporate associations,
acting at the request, and on the behalf,
of a shareholder or company.
As noted above, liability under the
federal securities laws for statements
made on an electronic shareholder
forum is one area of concern for
shareholders, companies, or third
parties acting on behalf of a shareholder
or company when making the decision
about whether to establish such a forum.
The main purpose of Rule 14a–17 is to
protect the person establishing,
maintaining, or operating an electronic
shareholder forum from liability under
the federal securities laws in much the
same way that the federal
telecommunications laws protect an
interactive computer service.44
Commenters suggested certain other
changes to the proposed rules. For
instance, one commenter questioned
whether statements made in reliance on
Rule 14a–2(b)(6) are in fact solicitations
as defined in Rule 14a–1(l),45 and why
the antifraud provisions of Rule 14a–9
and the filing requirements of Rule 14a–
6 did not apply to such statements.46
We believe that statements posted on an
electronic shareholder forum may
constitute a solicitation as defined in
Rule 14a–1(l) and that is why we are
adopting Rule 14a–2(b)(6) as an
exemption from most of the proxy rules
for such postings and specifically
designating which proxy rules would
apply to the postings.
44 See Section 230(c)(1) of the
Telecommunications Act of 1996 (47 U.S.C.
230(c)(1)) (‘‘No provider or user of an interactive
computer service shall be treated as the publisher
or speaker of any information provided by another
information content provider.’’). The protection
against liability in Section 230(c)(1) would
presumably also apply to providers and users of
electronic shareholder forums.
45 17 CFR 240.14a–1(l).
46 See comment letter from SunTrust.
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We also considered whether certain
persons who rely on the new Rule 14a–
2(b)(6) exemption should be required to
file a notification with the Commission.
We concluded that filing such a
notification would be unnecessary
because the postings made in reliance
on new Rule 14a–2(b)(6) will be limited
to postings made in a shareholder forum
by persons who are not seeking, directly
or indirectly, the power to act as a proxy
for a shareholder and to those made
more than 60 days before any meeting
of shareholders.
Further, one commenter highlighted
the need for persons who may rely on
the exemption in Rule 14a–2(b)(6) to
give consideration to the impact of the
postings under other Commission rules
and regulations. In particular, the
commenter cited the potential
implications of electronic shareholder
forum postings on Regulation 13D
beneficial ownership reporting.47 Again,
we agree that any person relying on
Rule 14a–2(b)(6) would need to assess
whether compliance with other
Commission rules and regulations is
required. For instance, communications
among shareholders in an electronic
shareholder forum for the purpose of
acquiring, holding, voting, or disposing
of the equity securities of a company
might result in the formation of a group
for purposes of Regulation 13D.48 Also,
soliciting activities may impact the
eligibility to file a Schedule 13G.49
In conclusion, we intend to remove
legal ambiguity that might inhibit
shareholders, companies, or third
parties acting on behalf of a shareholder
or company from the energetic pursuit
of this mode of communication. We also
intend that the amendments will
encourage shareholders, companies, or
third parties acting on behalf of a
shareholder or company to take
advantage of electronic shareholder
forums to facilitate better
communication among shareholders
and between shareholders and
companies.
IV. Paperwork Reduction Act
The proxy rules constitute a
‘‘collection of information’’ requirement
within the meaning of the Paperwork
Reduction Act of 1995, the PRA.50 The
amendments described in this release
relate to a previously approved
collection of information, ‘‘Proxy
Statements—Regulation 14A
47 See
comment letter from ABA.
CFR 240.13d–5.
49 See Release No. 34–39538 (January 12, 1998)
[63 FR 2854], Section G (Shareholder
Communications and Beneficial Ownership
Reporting).
50 44 U.S.C. 3501 et seq.
48 17
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(Commission Rules 14a–1 through 14a–
16 and Schedule 14A (OMB Control No.
3235–0059).’’ Regulation 14A was
adopted pursuant to the Exchange Act
and sets forth the disclosure
requirements for proxy statements filed
by companies to help shareholders
make informed voting decisions. We do
not believe that the amendments to Rule
14a–2, or the creation of new Rule 14a–
17, require any revision to our current
burden estimates for Regulations 14A or
impose any new recordkeeping or
information collection requirements
under the PRA that require approval of
the Office of Management and Budget,
the OMB.
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V. Cost-Benefit Analysis
We are adopting amendments to the
proxy rules under the Exchange Act to
facilitate electronic shareholder forums
by removing legal ambiguity under the
federal securities laws that might deter
shareholders, companies, or third
parties acting on a shareholder’s or
company’s behalf from establishing or
contributing to such forums. These
amendments clarify that participation in
an electronic shareholder forum which
potentially could constitute a proxy
solicitation subject to the proxy rules, is
exempt from most of the proxy rules if
the conditions to the exemption are
satisfied. In addition, these amendments
state that a shareholder, company, or
third party acting on a shareholder’s or
company’s behalf that establishes,
maintains, or operates an electronic
shareholder forum generally will not be
liable under the federal securities laws
for any statement or information
provided by another person
participating in the forum.
A. Benefits
The most important benefit of the
amendments that we are adopting is that
they will eliminate a regulatory obstacle
to electronic shareholder forums which
hold the potential to significantly
improve communications among
shareholders and between shareholders
and the companies they own. As a result
of the amendments, shareholders and
companies may be more willing to
create or sponsor these forums, because
the regulatory and liability regime will
be more clearly defined.
Among the potential benefits to
shareholders and companies are
cheaper, more timely, and more relevant
exchanges of information among
shareholders and between shareholders
and companies. Electronic shareholder
forums could generate attention for
sound proposals that could increase the
value of share ownership, and they
could filter out proposals not supported
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17:51 Jan 24, 2008
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by other shareholders. They could also
help disparate shareholders form
stronger coalitions and coordinate their
voices.51 These forums can also better
educate or otherwise inform
shareholders with respect to the issues
that will likely come up through proxy
solicitations during the 60 days prior to
an annual meeting.
In this regard, the majority of the
amendments’ benefits flow from the
potential reduction in costs of collective
action among shareholders and the
potential reduction of costs in
communications between shareholders
and companies if there is more
extensive use of electronic forums. For
example, a shareholder who does not
agree with a corporate policy and
therefore is considering taking steps to
have the company change that policy
may not be able to easily and
inexpensively survey other shareholders
and determine their sentiments
regarding the policy. Therefore, that
shareholder presently has to decide
whether to take the costly steps of
opposing the company’s action by
submitting a non-binding proposal or
running a proxy contest without having
the benefit of knowing whether the
initiative is favored or will be supported
by other shareholders.
Electronic shareholder forums may
reduce communication and
coordination costs among shareholders
and also reduce companies’ costs in
replying if they choose to do so. A
shareholder seeking to submit a nonbinding proposal or conduct a proxy
contest may be encouraged or
discouraged from doing so in
accordance with the better information
that he or she will have acquired, at
little or no cost, about the preference of
other shareholders. And if a proposal is
enthusiastically supported by a
significant number of shares, the
company might take notice and
voluntarily adopt it; again, saving the
shareholder considerable expense and
benefiting the company and its
shareholders overall.
Even if the company does not
voluntarily adopt an initiative that
reflects strong shareholder sentiment,
knowledge of this fact by other
shareholders will make it more likely
that the initiative will be submitted and
51 Of course, communications among
shareholders in an electronic shareholder forum for
the purpose of acquiring, holding, voting, or
disposing of the equity securities of a company
might result in the formation of a group for
purposes of Regulation 13D. 17 CFR 240.13d–5.
Also, soliciting activities may impact the eligibility
to a file a Schedule 13G. See Release No. 34–39538
(January 12, 1998) [63 FR 2854], Section G
(Shareholder Communications and Beneficial
Ownership Reporting).
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adopted. Shareholders may be
encouraged to run successful proxy
contests to pursue such changes, or
management may be more responsive to
the concerns in other ways. Thus,
shareholders may benefit from a closer
alignment between management and the
interests of shareholders.
Another way that shareholders and
companies may benefit from the
amendments is that they could have
more information to use in evaluating
initiatives submitted for their
consideration by other shareholders or
by management. This information could
be available at little or no incremental
cost and could be readily accessible and
searchable because it is in electronic
form. Therefore, the amendments may
reduce the cost of monitoring issues
among shareholders.
Finally, more extensive use of
electronic shareholder forums may be a
step towards improving the
informational efficiency of the market
generally.
B. Costs
There are several potential costs to
shareholders of implementing the
amendments to the proxy rules,
although all such costs would be
voluntarily undertaken. One immediate
cost of an electronic shareholder forum
is that of maintaining and operating it.
Although empirical data are not
available for the exact costs of operating
electronic shareholder forums, based on
comparable costs of maintaining
interactive Web sites, the costs of
starting and maintaining a basic
shareholder forum are not expected to
be high. As more complicated features
are included in a forum by its operators,
such as eligibility verification
procedures, anonymous accountability
programs, and share ownership
displays, costs could be expected to
increase accordingly. Again, however,
the decision to establish, operate, or
maintain an electronic shareholder
forum, and to add more expensive
features, is voluntary.
Additionally, to the extent that the
amendments to the proxy rules we are
adopting result in an increase in the
number of electronic forums, there
could be increased costs related to the
additional time that a shareholder or
company chooses to spend monitoring,
processing, and considering information
that is posted on the forums. These costs
will generally correspond to the number
of shareholders using the forums, the
frequency with which those
shareholders post information on the
forums, and the level of attention that
shareholders or companies choose to
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pay to the ideas and opinions of the
shareholders.
Should a company choose to sponsor
or use an electronic shareholder forum,
the company, and derivatively its
shareholders, would bear the associated
costs. If the company or its shareholders
used the forum to conduct shareholder
polls or surveys, the costs of the forums
would be commensurately higher due to
the time and effort necessary to
accurately determine the results.
Moreover, because electronic
shareholder forums may generally
reduce the cost of communication
among shareholders and between
shareholders and companies, they may
increase the frequency of that
communication and thus, incidentally,
the subset of that communication that
constitutes misstatements, whether
made intentionally or unintentionally.
This could increase the costs of the
forums to companies or shareholders.
Although shareholders are held liable
under the federal securities laws for
fraudulent statements made on the
forums, at least one commenter still
expressed a concern that fraudulent
information may lead to problems for a
company, such as changes in stock
prices,52 which could increase costs to
shareholders.
It should be noted, however, that the
opportunity for online fraudulent
misstatements is not new, as a number
of shareholder forums exist online
already, and there is nothing in the
nature of electronic shareholder forums
that should attract misstatements in
greater numbers than other more public
areas of the Internet. Regardless, it is
possible that misstatements on an
electronic shareholder forum could be
taken more seriously in cases where the
forum is restricted, for example, to only
shareholders and the company. Even so,
given the inevitability of occasional
miscommunication, an electronic forum
in which both the shareholders and the
company participate may provide a
means to quickly dispel any misleading
information.
Another potential cost is that
shareholders may have less complete
information with which to evaluate
proposals than they would have
otherwise because the amendment
facilitates solicitation, outside the 60day period prior to an annual or special
meeting, without mandating extensive
disclosure about the identity and the
ownership of the participants that
would occur otherwise. Because
disclosures of this type may in some
instances provide other shareholders
with valuable information regarding
52 See,
e.g., comment letter from Domini.
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17:51 Jan 24, 2008
Jkt 214001
possible motivations behind proposals
that they would not otherwise receive,
shareholders currently benefit from the
proxy rules mandating such disclosure.
Under the current rulemaking, some
solicitations that would ordinarily be
accompanied by these additional
disclosures would proceed without
them. The magnitude of this cost of lost
information, however, depends on the
extent to which shareholders have easy
access to substitute sources of
information and to the extent the
information is material to the actions of
shareholders and companies in the
proxy voting process.
Finally, a shareholder that cannot, or
chooses not to, use the Internet may be
disadvantaged by not being able to fully
participate in this form of dialogue
among shareholders and between
shareholders and the company. As a
result, these shareholders may incur
costs associated with adjusting to the
use of electronic forums or in searching
for the information being conveyed on
the electronic forums in another
medium. Alternatively, a shareholder
who has never used the Internet but
feels compelled to do so because of an
electronic shareholder forum would
incur the costs of obtaining Internet
access. These costs, however, are similar
to those that shareholders already must
incur in to participate in existing
electronic forums. Nonetheless, it is
possible that if electronic shareholder
forums are restricted to shareholders
and companies, they will be considered
more relevant and meaningful than
existing forums that are available to any
person. The costs to shareholders not
willing or able to use electronic
shareholder forums could be offset to
some degree by the fact that other
shareholders with whom they share a
common financial interest may take
advantage of the forums to propose
initiatives and make their sentiments
known to the company.53
VI. Consideration of Burden on
Competition and Promotion of
Efficiency, Competition, and Capital
Formation
Section 23(a)(2) of the Exchange
Act 54 requires us, when adopting rules
under the Exchange Act, to consider the
impact that any new rule would have on
competition. In addition, Section
23(a)(2) prohibits us from adopting any
rule that would impose a burden on
competition not necessary or
53 Also, a forum operator, or a forum participant,
could choose to mail notice of important
developments on the electronic shareholder forum
to shareholders who are not willing or able to use
the technology.
54 15 U.S.C. 78w(a)(2).
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appropriate in furtherance of the
purposes of the Exchange Act. Section
3(f) of the Exchange Act 55 and Section
2(c) of the Investment Company Act of
1940 56 requires us, whenever we engage
in rulemaking and are required to
consider or determine if an action is
necessary or appropriate in the public
interest, also to consider whether the
action will promote efficiency,
competition, and capital formation.
By removing legal ambiguity, we
anticipate the rules will promote
efficiency in shareholder
communications. Electronic shareholder
forums may reduce communication
costs and coordination costs among
shareholders and also reduce
companies’ costs in replying if they
choose to do so. Finally, more extensive
use of electronic shareholder forums
may be a step towards improving the
informational efficiency of the market
generally.
To the extent shareholders express
interest in starting or participating in
forums, competition among service
providers to host or operate the forums
may increase. We do not anticipate any
effect on capital formation.
VII. Final Regulatory Flexibility Act
Analysis
This Final Regulatory Flexibility Act
Analysis, the FRFA, has been prepared
in accordance with the Regulatory
Flexibility Act.57 This FRFA relates to
new Rule 14a–17 and the new Rule 14a–
2 exemption, which will facilitate
greater online interaction among
shareholders and their companies by
removing some obstacles to the use of
electronic shareholder forums. These
amendments to the proxy rules clarify
that a shareholder, company, or third
party acting on a shareholder’s or
company’s behalf that establishes,
maintains, or operates an electronic
shareholder forum is not liable for
statements made by another person or
entity participating in the forum. Also,
the amended rules exempt any
solicitation in an electronic shareholder
forum from the proxy rules, other than
from the shareholder list provisions in
Rule 14a–7 and the antifraud provisions
in Rule 14a–9, if all of the conditions to
the exemption are satisfied. An Initial
Regulatory Flexibility Act Analysis was
prepared in accordance with the
Regulatory Flexibility Act and included
in the Proposing Release.
55 15
U.S.C. 78c(f).
U.S.C. 80a–2(c).
57 5 U.S.C. 601.
56 15
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A. Need for the Amendments
These amendments to the proxy rules
are necessary to remove legal ambiguity
that might deter shareholders,
companies, and others from establishing
or participating in electronic
shareholder forums. New Rule 14a–17
and the new Rule 14a–2(b)(6) exemption
will clarify the responsibilities of those
who establish, maintain, operate, and
contribute to electronic shareholder
forums, with the purpose of stimulating
experimentation, innovation, and
greater use of the Internet to further
shareholder communications. By
facilitating such communications on the
Internet among shareholders, and
between shareholders and their
companies, we hope to tap the potential
of technology to better vindicate
shareholders’ state law rights, including
their rights to elect directors, in ways
that are potentially both more effective
and less expensive.
Despite the potential benefits of
electronic shareholder forums,
shareholders and companies alike have
been reluctant to establish, maintain, or
operate them due, in part, to uncertainty
over liability for statements and
information provided by those
participating in the forum. In addition,
shareholders and companies have
expressed concern regarding whether
views and statements expressed through
a forum would be considered proxy
solicitations.
Therefore, we are adopting Rule 14a–
17 to provide liability protection for a
shareholder, company, or third party
acting on behalf of a shareholder or
company that establishes or maintains
an electronic shareholder forum
regarding statements or information
provided by others participating in the
forum. Also, we are adopting the new
Rule 14a–2(b)(6) exemption from the
proxy rules to explicitly state that Rules
14a–3 through 14a–6 (other than Rule
14a–6(g)), Rule 14a–8, and Rules 14a–10
through 14a–15 do not apply to any
solicitation in an electronic shareholder
forum. By taking these steps, we hope
to remove both real and perceived
impediments to continued private sector
experimentation with, and use of, the
Internet for communication among
shareholders, and between shareholders
and the companies in which they invest.
We intend for the amendments to
encourage the creation of, and
participation in, electronic shareholder
forums.
B. Significant Issues Raised by Public
Comments
In the Proposing Release, we
published for comment a number of
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amendments to the proxy rules under
the Exchange Act concerning
shareholder proposals generally. The
description of the proposed
amendments regarding electronic
shareholder forums constituted only one
section of the release.58 In this release,
we are adopting only the proposed
amendments to the proxy rules that
relate to electronic shareholder forums
and not the proposed amendments
dealing with other aspects of
shareholder proposals.
The majority of the public comment
regarding electronic shareholder forums
was favorable.59 Generally, the
commenters favored the exemption and
new rule because they support the
continued development of electronic
shareholder forums as a means of
facilitating communication among
shareholders and between shareholders
and companies.60 A substantial
percentage of the commenters opposed
substituting electronic shareholder
forums for the current means of
presenting non-binding shareholder
proposals in the company’s proxy
statement pursuant to Rule 14a–8.
Although we solicited comment on the
idea of using electronic shareholder
forums as the sole means to present
non-binding shareholder proposals to
shareholders, several of the commenters
made it clear that they supported
electronic shareholder forums provided
that the forums were a supplement to,
and not a replacement for, the current
Rule 14a–8 process.61 Under the final
rules, electronic shareholder forums
will be an additional, rather than
substitute, means of communication.
Additionally, some commenters
believed that keeping the identity of
shareholders who post messages on
these electronic forums anonymous
would threaten meaningful
communications among shareholders
and the company.62 These commenters
asserted that shareholders’ identities
should be disclosed and that the
shareholders’ ownership interests in the
company should be made known as
well. The rule amendments that we are
adopting today neither mandate nor
preclude anonymous communications
because we want to allow forum
sponsors to have flexibility in creating
electronic shareholder forums and to
58 Proposing Release, Section II.B (Electronic
Shareholder Forums).
59 See, e.g., comment letters from Allstate, BRT,
Capital Research, GreenMachines, and ICI.
60 See, e.g., comment letter from Calvert, Senator
Levin, and Van Winthrop.
61 See, e.g., comment letters from Christus,
Domini, and Trillium.
62 See comment letters from ABA and Christian
Brothers.
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4457
encourage innovation and
experimentation.
Despite the generally favorable
reaction, some commenters were
concerned about possible negative
consequences of the amendments. First,
some commenters worried that the
electronic shareholder forums could
develop into shareholder chat rooms,
which may not provide for meaningful
communication.63 Other commenters
asserted that we did not adequately
address whether shareholders and
others could wage a successful,
coordinated proxy campaign beyond the
60-day period during which the regular
proxy rules would not apply.64 Finally,
some commenters suggested that we
analyze the issue further and address
electronic shareholder forums as part of
a more comprehensive study reviewing
the shareholder communications
process.65
In the Proposing Release, we
requested comment on many aspects of
the proposed amendments to the proxy
rules concerning shareholder proposals
generally, including the number of
small entities that would be affected by
the proposed amendments, and the
quantitative and qualitative nature of
the impact. Commenters, including the
Office of Advocacy of the Small
Business Administration, addressed
several aspects of the proposed rule
amendments that potentially could have
affected small entities. However, none
of the commenters specifically
discussed the effect of the proposed
amendments regarding electronic
shareholder forums on small businesses
or entities. In particular, because the
electronic shareholder forums
authorized by the amendments that we
are adopting are entirely voluntary, we
believe that they will beneficially affect
small businesses and entities in the
same manner that they will beneficially
affect larger businesses and entities.
This is because presumably, only those
businesses and entities that find them
beneficial will choose to use them.
C. Small Entities Subject to the Final
Amendments
The amendments that we are adopting
in this release will affect only
shareholders and companies that
voluntarily establish, maintain, or
operate electronic shareholder forums or
that post information on, or provide
information to, such forums. Some of
the companies or shareholders may be
small entities. Exchange Act Rule 0–
63 See, e.g., comment letters from Bricklayers,
Green Century, SIF, and Walden.
64 See comment letters ABA and SunTrust.
65 See comment letters from ABA and SCSGP.
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10(a) defines an issuer, other than an
investment company, to be a ‘‘small
business’’ or ‘‘small organization’’ if it
had total assets of $5 million or less on
the last day of its most recent fiscal year.
We estimate that there are
approximately 1,110 issuers, other than
investment companies, that may be
considered small entities.
We are adopting the amendments to
the proxy rules to facilitate electronic
shareholder forums by clarifying that
participation in a forum, which could
potentially constitute a proxy
solicitation subject to the proxy rules, is
exempt from most of the proxy rules if
the shareholder or company satisfies all
of the conditions to the exemption.
Also, we are facilitating electronic
shareholder forums by clarifying that
any shareholder, company, or third
party acting on behalf of a shareholder
or company that establishes, maintains,
or operates an electronic shareholder
forum will not solely because of
establishing, maintaining, or operating
the forum be liable under the federal
securities laws for any statement or
information provided by another person
participating in the forum. The
amendments remove legal ambiguity
that might deter shareholders and
companies from relying on this mode of
communication.
The amendments that we are adopting
only apply to shareholders, companies,
or third parties acting on their behalf if
they choose to establish, maintain,
operate, or participate in electronic
shareholder forums. We are not
requiring a small entity to have any
involvement with electronic
shareholder forums. We are only
clarifying the liability provisions for
establishing, maintaining, or operating
such a forum and providing an
exemption for forum communications
that fall within the broad definition of
a solicitation.
D. Reporting, Recordkeeping, and Other
Compliance Requirements
The amended rules do not impose any
new reporting, recordkeeping, or
compliance requirements on small
entities. In fact, a small entity is not
required to take any reporting or
recordkeeping action or to comply with
any other new requirements, unless it
chooses to rely on the new Rule 14a–
2(b)(6) exemption. If a small entity or
shareholder posts information on a
forum in reliance on Rule 14a–2(b)(6),
and later solicits the power to act as a
proxy for a shareholder, it will need to
determine whether any earlier postings
remaining on the forum after the Rule
14a–2(b)(6) exemption no longer is
available must be filed as soliciting
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17:51 Jan 24, 2008
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materials.66 Regardless, if small entities
choose to do nothing regarding
electronic shareholder forums, the
amended proxy rules have no additional
reporting, recordkeeping, or other
compliance requirements that they must
follow.
E. Agency Action To Minimize Effect on
Small Entities
The Regulatory Flexibility Act directs
us to consider alternatives that would
accomplish our stated objectives, while
minimizing any significant adverse
impact on small entities. Our objective
in adopting the amendments is to
facilitate electronic shareholder forums
by clarifying that participation in a
forum is exempt from most of the proxy
solicitation rules if the participant
satisfies all of the exemption’s
conditions, and that forum operators are
not liable for third-party statements on
their forums. The amendments impact
small entities only if the entities choose
to involve themselves in the forums by
establishing, maintaining, or operating
them or by posting information on or
providing information to the forums. We
considered alternatives to accomplish
our stated objective, but we could not
think of one that would make electronic
shareholder forums more useful to small
entities because these amendments are
voluntary and affect small entities only
if they chose to participate in them.
VIII. Statutory Basis and Text of the
Rules and Amendments
We are adopting amendments
pursuant to Sections 14, 23(a), and 36 of
the Exchange Act, as amended, and
Sections 20(a) and 38 of the Investment
Company Act of 1940, as amended.
List of Subjects 17 CFR Part 240
Reporting and recordkeeping
requirements, Securities.
I In accordance with the foregoing, the
Securities and Exchange Commission
amends Title 17, chapter II of the Code
of Federal Regulations as follows:
PART 240—GENERAL RULES AND
REGULATION, SECURITIES
EXCHANGE ACT OF 1934
1. The authority citation for part 240
continues to read, in part, as follows:
I
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–
20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4,
80b–11, and 7201, et seq.; and 18 U.S.C.
1350, unless otherwise noted.
*
*
66 See
PO 00000
*
*
*
17 CFR 240.14a–1(l)(1)(iii).
Frm 00010
Fmt 4700
Sfmt 4700
2. Section 240.14a–2 is amended by
adding paragraph (b)(6) to read as
follows:
I
§ 240.14a–2 Solicitations to which
§ 240.14a–3 to § 240.14a–15 apply.
*
*
*
*
*
(b) * * *
(6) Any solicitation by or on behalf of
any person who does not seek directly
or indirectly, either on its own or
another’s behalf, the power to act as
proxy for a shareholder and does not
furnish or otherwise request, or act on
behalf of a person who furnishes or
requests, a form of revocation,
abstention, consent, or authorization in
an electronic shareholder forum that is
established, maintained or operated
pursuant to the provisions of § 240.14a–
17, provided that the solicitation is
made more than 60 days prior to the
date announced by a registrant for its
next annual or special meeting of
shareholders. If the registrant announces
the date of its next annual or special
meeting of shareholders less than 60
days before the meeting date, then the
solicitation may not be made more than
two days following the date of the
registrant’s announcement of the
meeting date. Participation in an
electronic shareholder forum does not
eliminate a person’s eligibility to solicit
proxies after the date that this
exemption is no longer available, or is
no longer being relied upon, provided
that any such solicitation is conducted
in accordance with this regulation.
3. Add § 240.14a–17 to read as
follows:
§ 240.14a–17
forums.
Electronic shareholder
(a) A shareholder, registrant, or third
party acting on behalf of a shareholder
or registrant may establish, maintain, or
operate an electronic shareholder forum
to facilitate interaction among the
registrant’s shareholders and between
the registrant and its shareholders as the
shareholder or registrant deems
appropriate. Subject to paragraphs (b)
and (c) of this section, the forum must
comply with the federal securities laws,
including Section 14(a) of the Act and
its associated regulations, other
applicable federal laws, applicable state
laws, and the registrant’s governing
documents.
(b) No shareholder, registrant, or third
party acting on behalf of a shareholder
or registrant, by reason of establishing,
maintaining, or operating an electronic
shareholder forum, will be liable under
the federal securities laws for any
statement or information provided by
another person to the electronic
shareholder forum. Nothing in this
E:\FR\FM\25JAR1.SGM
25JAR1
Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Rules and Regulations
section prevents or alters the
application of the federal securities
laws, including the provisions for
liability for fraud, deception, or
manipulation, or other applicable
federal and state laws to the person or
persons that provide a statement or
information to an electronic shareholder
forum.
(c) Reliance on the exemption in
§ 240.14a–2(b)(6) to participate in an
electronic shareholder forum does not
eliminate a person’s eligibility to solicit
proxies after the date that the exemption
in § 240.14a–2(b)(6) is no longer
available, or is no longer being relied
upon, provided that any such
solicitation is conducted in accordance
with this regulation.
p.m., Monday through Friday, except
Federal holidays.
FOR FURTHER INFORMATION CONTACT:
LTJG John Lisko, U.S. Coast Guard
District Seven Waterways Management
Division, (305) 415–6730.
SUPPLEMENTARY INFORMATION:
Dated: January 18, 2008.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E8–1263 Filed 1–24–08; 8:45 am]
Background and Purpose
BILLING CODE 8011–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 100
[Docket No. USCG–2007–0179]
RIN 1625–AA08
Special Local Regulations; Recurring
Marine Events in the Seventh Coast
Guard District
Coast Guard, DHS.
Final rule.
AGENCY:
ACTION:
SUMMARY: The Coast Guard is creating
special local regulations to regulate
recurring marine events in the Seventh
Coast Guard District. These regulations
will apply to all permitted events listed
on the table attached to the regulation,
and include events such as regattas,
parades, and fireworks displays. These
regulations are being created to reduce
the Coast Guard’s administrative
workload and expedite public
notification of events.
DATES: This rule is effective 30 days
after publication in the Federal
Register.
Comments and material
received from the public, as well as
documents indicated in this preamble as
being available in the docket, are part of
docket [USCG–2007–0179] and are
available for inspection or copying at
the Brickell Plaza Federal Building,
Miami, FL, between 8 a.m. and 3:30
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ADDRESSES:
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17:51 Jan 24, 2008
Jkt 214001
Regulatory Information
On November 13, 2007, we published
a notice of proposed rulemaking
(NPRM) entitled Special Local
Regulations; Recurring Marine Events in
the Seventh Coast Guard District
Federal Register (72 FR 63839) under
Docket No. CGD07–07–102. We received
no letters in the mail commenting on
the proposed rule. No public meeting
was requested, and none was held.
Marine events are frequently held on
the navigable waters within the
boundary of the Seventh Coast Guard
District. These include events such as
sailing regattas, holiday parades, and
fireworks displays. Currently, there are
over 250 annually recurring marine
events and many other non-recurring
events within the district. In the past,
the Coast Guard regulated these events
by creating individual special local
regulations on a case by case basis. Most
of these events required only the
establishment of a regulated area and
assignment of a patrol commander to
ensure safety. Issuing individual, annual
special local regulations has created a
significant administrative burden on the
Coast Guard. In 2005, the Coast Guard
created over 60 temporary regulations
for recurring marine events in the
Seventh District. That number rose to
over 110 in 2006 and over 160 in 2007.
Additionally, for the majority of these
events, the Coast Guard does not receive
notification of the event or important
details of the event are not finalized by
event organizers with sufficient time to
publish a notice of proposed rulemaking
and final rule before the event date. The
Coast Guard must therefore create
temporary final rules that sometimes are
not completed until a few days before
the event. This results in delayed
notification to the public, potentially
placing the public and event
participants at risk.
This rule will significantly relieve the
administrative burden on the Coast
Guard, and at the same time allow the
sponsor of the event and the Coast
Guard to notify the public of these
events in a timely manner. The public
will be provided with notice of events
through the table attached to this
regulation. This table lists each
recurring event that may be regulated by
PO 00000
Frm 00011
Fmt 4700
Sfmt 4700
4459
the Coast Guard, and indicates the
sponsor, as well as the date and location
of the event. Because the dates and
location of these events may change
slightly from year to year, the specific
information on each event, including
the exact dates, specific areas, and
description of the regulated area, will be
provided to the public through a Local
Notice to Mariners published before the
event, as well as through Broadcast
Notice to Mariners. This table will be
updated by the Coast Guard periodically
to add new recurring events, remove
events that no longer occur, and update
listed events to ensure accurate
information is provided.
Discussion Comments and Change
No comments were received.
However, slight changes were made to
proposed events to clarify dates and
sponsors. In the Captain of the Port
Zone Key West the date for Marathon
Super Boat Grand Prix was updated to
the 3rd Weekend of May (FRI–SUN).
The date for the FKCC Swim around
Key West was updated to the 3rd
Saturday in June. These changes were
made to add information to the events
for increased public knowledge.
Regulatory Evaluation
This rule is not a ‘‘significant
regulatory action’’ under section 3(f) of
Executive Order 12866, Regulatory
Planning and Review, and does not
require an assessment of potential costs
and benefits under section 6(a)(3) of that
Order. The Office of Management and
Budget has not reviewed it under that
Order.
We expect the economic impact of
this rule to be so minimal that a full
Regulatory Evaluation is unnecessary.
Small Entities
Under the Regulatory Flexibility Act
(5 U.S.C. 601–612), we have considered
whether this rule would have a
significant economic impact on a
substantial number of small entities.
The term ‘‘small entities’’ comprises
small businesses, not-for-profit
organizations that are independently
owned and operated and are not
dominant in their fields, and
governmental jurisdictions with
populations of less than 50,000.
The Coast Guard certifies under 5
U.S.C. 605(b) that this rule would not
have a significant economic impact on
a substantial number of small entities.
This rule would affect the following
entities, some of which might be small
entities: the owners or operators of
vessels intending to transit or anchor in
the areas where marine events are being
held. This proposed regulation will not
E:\FR\FM\25JAR1.SGM
25JAR1
]]>Agencies
[Federal Register Volume 73, Number 17 (Friday, January 25, 2008)]
[Rules and Regulations]
[Pages 4450-4459]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-1263]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-57172; IC-28124; File No. S7-16-07]
RIN 3235-AJ92
Electronic Shareholder Forums
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: We are adopting amendments to the proxy rules under the
Securities Exchange Act of 1934 to facilitate electronic shareholder
forums. The amendments clarify that participation in an electronic
shareholder forum that could potentially constitute a solicitation
subject to the proxy rules is exempt from most of the proxy rules if
all of the conditions to the exemption are satisfied. In addition, the
amendments state that a shareholder, company, or third party acting on
behalf of a shareholder or company that establishes, maintains or
operates an electronic shareholder forum will not be liable under the
federal securities laws for any statement or information provided by
another person participating in the forum. Therefore, the amendments
remove legal ambiguity that might deter shareholders and companies from
energetically pursuing this mode of communication.
DATES: Effective Date: February 25, 2008.
FOR FURTHER INFORMATION CONTACT: Lillian Brown, Tamara Brightwell, or
John Fieldsend at (202) 551-3700, in the Division of Corporation
Finance, U.S. Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-3010.
SUPPLEMENTARY INFORMATION: We are amending Rule 14a-2,\1\ and adopting
new Rule 14a-17,\2\ under the Securities Exchange Act of 1934.\3\
---------------------------------------------------------------------------
\1\ 17 CFR 240.14a-2.
\2\ 17 CFR 240.14a-17.
\3\ 15 U.S.C. 78a et al.
---------------------------------------------------------------------------
I. Background
On July 27, 2007, the Commission published for comment a release
proposing, among other things, amendments to the proxy rules relating
to electronic shareholder forums.\4\ We
[[Page 4451]]
are adopting new Rule 14a-17\5\ and adding an exemption to Rule 14a-2
substantially as proposed in that release.
---------------------------------------------------------------------------
\4\ Release No. 34-56160 (July 27, 2007) [72 FR 43466]
(``Proposing Release''). The instant release addresses only the
electronic shareholder forum aspects of the Proposing Release.
Comments received that addressed the comprehensive package of
amendments to the proxy rules and related disclosure requirements
are outside the scope of this adopting release.
\5\ New Rule 14a-17 was proposed as Rule 14a-18.
---------------------------------------------------------------------------
The purposes of new Rule 14a-17 and the Rule 14a-2 exemption are to
facilitate experimentation, innovation, and greater use of the Internet
to further shareholder communications. By facilitating such
communications on the Internet among shareholders, and between
shareholders and their companies, we hope to tap the potential of
technology to better vindicate shareholders' state law rights,
including their right to elect directors, in ways that are potentially
both more effective and less expensive for shareholders and companies.
In a series of proxy roundtables that we sponsored in May 2007,
several participants observed that recent technological developments
hold promise in this regard.\6\ Those participants noted that these
technological developments could provide a more effective and efficient
means of communication than any that are currently available to
shareholders.\7\
---------------------------------------------------------------------------
\6\ See Rich Daly, Broadridge Financial Solutions, Inc.; Amy
Goodman, Gibson, Dunn & Crutcher LLP; Stanley Keller, Edwards Angell
Palmer & Dodge LLP; Cary Klafter, Intel Corporation; and Paul
Neuhauser, The University of Iowa College of Law, Transcript of
Roundtable on the Federal Proxy Rules and State Corporation Law, May
7, 2007, at 152 to 171. See also, Russell Read, CalPERS; Amy
Goodman, Gibson, Dunn & Crutcher LLP; Nell Minow, The Corporate
Library; Bill Mostyn, Bank of America Corporation; and Gary Brouse,
Interfaith Center on Corporate Responsibility, Transcript of
Roundtable on Proxy Voting Mechanics, May 24, 2007, at 54 to 81.
\7\ Id.
---------------------------------------------------------------------------
For example, the participants suggested that an online forum that
would be for the exclusive use of shareholders of the company could
protect the shareholders' privacy through encrypted unique
identifiers,\8\ while still permitting participants to know what voting
percentage of the company was represented in discussions.\9\
Participants in such a forum could, in addition, discuss a variety of
important subjects that today are considered, if at all, only
periodically and indirectly through the proxy process.\10\ With the use
of electronic shareholder forums, shareholder participation and
communication could be extended throughout the year, rather than only
during the period leading up to companies' annual shareholder meetings.
Shareholders might also use such a forum as a polling mechanism to
elicit the sentiments of the company's managers or other shareholders
on various potential actions.\11\
---------------------------------------------------------------------------
\8\ See, e.g., Stanley Keller, Edwards Angell Palmer & Dodge
LLP, Transcript of Roundtable on the Federal Proxy Rules and State
Corporation Law, May 7, 2007, at 152; Rich Daly, Broadridge
Financial Solutions, Inc., Transcript of Roundtable on the Federal
Proxy Rules and State Corporation Law, May 7, 2007, at 157; and Nell
Minow, The Corporate Library, Transcript of Roundtable on Proxy
Voting Mechanics, May 24, 2007, at 67.
\9\ See, e.g., Rich Daly, Broadridge Financial Solutions, Inc.,
Transcript of Roundtable on the Federal Proxy Rules and State
Corporation Law, May 7, 2007, at 157.
\10\ See, e.g., Rich Daly, Broadridge Financial Solutions, Inc.,
Transcript of Roundtable on the Federal Proxy Rules and State
Corporation Law, May 7, 2007, at 156 and Stanley Keller, Edwards
Angell Palmer & Dodge LLP, Transcript of Roundtable on the Federal
Proxy Rules and State Corporation Law, May 7, 2007, at 160.
\11\ See, e.g., Stanley Keller, Edwards Angell Palmer & Dodge
LLP and Rich Daly, Transcript of Roundtable on the Federal Proxy
Rules and State Corporation Law, May 7, 2007, at 170 to 171 and Nell
Minow, The Corporate Library, Transcript of Roundtable on Proxy
Voting Mechanics, May 24, 2007, at 54 to 56.
---------------------------------------------------------------------------
Technology now makes it feasible to establish such electronic
shareholder forums to perform these functions. As one commenter
indicated, technology is available to establish ``secure, shareowner-
to-shareowner communications, with access restricted to eligible
shareowners, and using the Internet as a medium for efficient, ongoing
interaction between shareowners and issuers.''\12\ These forums can be
created so that operators and participants may exchange information
electronically. Additionally, electronic shareholder forums can be
designed to identify a participant's share ownership, as of a
particular date, without disclosing that participant's name, address,
or other identifying information.\13\ Therefore, we think that
participants' privacy can be protected while simultaneously providing
for accountability for anyone making false or misleading statements.
---------------------------------------------------------------------------
\12\ Comment letter from Broadridge Financial Solutions, Inc.
\13\ Id.
---------------------------------------------------------------------------
If companies choose to participate in, or sponsor, electronic
forums, they might find them of use in better gauging shareholder
interest with respect to a variety of topics. A company-sponsored forum
also could be used to provide a means for management to communicate
with shareholders by posting press releases, notifying shareholders of
record dates, and expressing the views of the company's management and
board of directors.\14\
---------------------------------------------------------------------------
\14\ Of course, anyone posting information on an electronic
shareholder forum should consider the requirements of Regulation FD.
See 17 CFR 243.100 to 243.103.
---------------------------------------------------------------------------
Despite these potential benefits of electronic shareholder forums,
shareholders and companies alike have been reluctant to establish,
maintain, or operate them due, in part, to uncertainty over liability
for statements and information provided by those participating in the
forum. In addition, potential forum participants have expressed concern
regarding whether views and statements expressed through the forum
would be considered proxy solicitations. Therefore, we proposed a new
exemption from the proxy rules (other than from the shareholder list
provisions in Rule 14a-7 and the antifraud provisions in Rule 14a-9)
for any solicitation in an electronic shareholder forum that satisfies
the conditions of the exemption. We also proposed new Rule 14a-17 to
provide liability protection for a shareholder, company, or third party
acting on behalf of a shareholder or company that establishes,
maintains or operates an electronic shareholder forum regarding
statements or information provided by another party participating in
the forum.
As we discuss further in Section III, we are adopting new Rule 14a-
17 and the amendments to Rule 14a-2 substantially as proposed. We are
taking these steps to remove both real and perceived impediments to
continued private sector experimentation with, and use of the Internet
for, communication among shareholders, and between shareholders and the
companies in which they invest. We intend for the amendments to
facilitate communication and thereby encourage the creation of, and
participation in, electronic shareholder forums.
II. Comments on the Proposed Amendments To Facilitate Electronic
Shareholder Forums
The majority of the public comment on the proposed amendments to
facilitate electronic shareholder forums was favorable.\15\ A
substantial percentage of commenters remarking on the amendments,
however, opposed substituting electronic shareholder forums for the
current means of presenting non-binding shareholder proposals in the
company's proxy statement pursuant to Rule 14a-8.\16\ Although we
solicited comment on this question, we did not propose any revisions to
Rule 14a-8 that would cause the electronic shareholder forum to be a
substitute for the Rule 14a-8 process. In the rule amendments that we
are adopting today, we are making the electronic shareholder forum
option an additional, rather than substitute, means
[[Page 4452]]
of communication that could enhance and expand opportunities for
participation and interaction.
---------------------------------------------------------------------------
\15\ See, e.g., comment letters from The Allstate Corporation
(``Allstate''); Business Roundtable (``BRT''); Capital Research and
Management Company (``Capital Research''); GreenMachines.net
(``GreenMachines''); and Investment Company Institute (``ICI'').
\16\ 17 CFR 240.14a-8.
---------------------------------------------------------------------------
In our proposing release, we requested comment on five basic issues
related to electronic shareholder forums. The first issue was whether
the proposed amendments would have their intended effect of providing
sufficient flexibility under the federal securities laws to establish
forums that permit interaction among shareholders and between
shareholders and the company. In this regard, we solicited comment on
whether shareholders and companies desire such flexibility, and if they
do, whether the amended rules would provide it. We also solicited
comment on whether any additional measures are necessary to ensure that
the federal securities laws do not hinder development of these forums.
Finally, we asked whether the rules should provide more direction and
guidance relating to the structure and purpose of the forums than we
proposed.
The second issue on which we solicited comment concerned the
potential liability under the federal securities laws associated with
electronic shareholder forums. A primary purpose of the proposed
amendments was to clarify that establishing, maintaining, or operating
an electronic shareholder forum does not make one liable for statements
or information provided by another person. We also asked commenters to
identify any additional liability issues under the federal securities
laws that we may not have addressed through the proposed amendments.
The third issue concerned the period of time during which
electronic shareholder forums should be allowed to operate without
being subject to most of the federal proxy rules. Under the proposed
amendments, any solicitation in an electronic shareholder forum by or
on behalf of a person that does not seek, directly or indirectly, the
power to act as a proxy for a shareholder would be exempt from most of
the proxy rules.
We proposed that such a person could avail himself or herself of
the exemption provided that the solicitation was made more than 60 days
before the date announced by the company for its next annual or special
meeting, or not more than two days following the announcement of such a
meeting if the announcement occurred fewer than 60 days before the
meeting date. We solicited comment on whether an electronic shareholder
forum could function effectively with this timing limitation. We also
asked whether better alternatives exist to encourage free and open
communication. Additionally, we solicited comment on whether we should
require electronic shareholder forums to be closed down within 60 days
of a scheduled shareholder meeting, whether shareholders whose
communications remain posted inside the 60-day period should be
required to file them with us, and how to best monitor these forums.
Fourth, we solicited comment regarding the use of electronic
shareholder forums as a substitute for advancing referenda that
otherwise would be presented in the form of non-binding shareholder
proposals for inclusion in a company's proxy materials.
Finally, we solicited comment on the ways that an electronic
shareholder forum might be used in connection with bylaw proposals
regarding procedures for nominating candidates to the board of
directors. In particular, we solicited comment on whether shareholders
should be able to use an electronic shareholder forum to solicit other
shareholders to join with them in submitting a bylaw proposal.
The vast majority of commenters supported the new exemption for
electronic shareholder forums that we proposed to add to Rule 14a-2 and
proposed new Rule 14a-17.\17\ The commenters generally favored the
continued development of electronic shareholder forums as a means of
facilitating communication among shareholders and between shareholders
and companies.\18\
---------------------------------------------------------------------------
\17\ See, e.g., comment letters from Allstate; BRT; Capital
Research; GreenMachines; and ICI.
\18\ See, e.g., comment letters from Calvert Group, Ltd.
(``Calvert''); Senator Carl Levin (``Senator Levin''); and Stephen
R. Van Withrop (``Van Winthrop'').
---------------------------------------------------------------------------
Despite the generally favorable reaction, some commenters predicted
that electronic shareholder forums might develop into the same types of
shareholder chat rooms that exist today.\19\ Other commenters suggested
that the issues related to electronic shareholder forums require more
time to be fully analyzed and should be addressed only upon completion
of a comprehensive study reviewing the shareholder communications
process.\20\ Finally, some commenters asserted that we did not
adequately address whether the proposed 60-day, non-solicitation period
prior to a proxy vote would provide sufficient protection against a
coordinated proxy campaign waged on an electronic shareholder
forum.\21\
---------------------------------------------------------------------------
\19\ See, e.g., comment letters from Bricklayers and Trowel
Trades International Pension Fund (``Bricklayers''); Green Century
Capital Management (``Green Century''); Social Investment Forum
(``SIF''), and Walden Asset Management (``Walden'').
\20\ See comment letters from American Bar Association (``ABA'')
and Society of Corporate Secretaries and Governance Professionals
(``SCSGP'').
\21\ See comment letters from ABA and SunTrust Banks, Inc.
(``SunTrust'').
---------------------------------------------------------------------------
Most of the commenters expressing concerns regarding non-binding
shareholder proposals stated that they would oppose making the
electronic shareholder forum a substitute for the current process under
Rule 14a-8. Several of these commenters made it clear that they support
electronic shareholder forums, provided that they are only a supplement
to the current Rule 14a-8 process.\22\
---------------------------------------------------------------------------
\22\ See, e.g., comment letters from Christus Health
(``Christus''); Domini Social Investments (``Domini''); and Trillium
Asset Management (``Trillium'').
---------------------------------------------------------------------------
Additionally, some commenters mentioned that keeping the identity
of participants who post messages on these electronic forums private
would threaten meaningful communications among shareholders and with
the company.\23\ These commenters asserted that participants'
identities should be disclosed and that the participants' ownership
interests in the company should be made known as well.
---------------------------------------------------------------------------
\23\ See comment letters from ABA and Christian Brothers
Investment Services, Inc. (``Christian Brothers'').
---------------------------------------------------------------------------
III. Final Rules To Facilitate Electronic Shareholder Forums
As stated above, the amendments that we are adopting in this
release provide an additional means for shareholders to communicate,
and do not in any manner restrict a shareholder's ability under Rule
14a-8 to submit a non-binding proposal to a company for inclusion in
the company's proxy materials. Furthermore, the amendments neither
mandate nor preclude private communications in electronic shareholder
forums; instead, they allow for flexibility in different approaches and
to allow innovation and experimentation.\24\
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\24\ Because the antifraud provisions of Rule 14a-9 would apply
to any postings, it could conceivably be necessary for a participant
to identify itself in an otherwise anonymous forum if failure to do
so in the circumstances would result in the omission of a ``material
fact necessary in order to make the statements therein not false or
misleading.'' 17 CFR 240.14a-9.
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The amendments are designed to facilitate greater online
interaction among shareholders by removing two major obstacles to the
use of electronic shareholder forums.\25\ The first major obstacle to
the use of electronic shareholder forums is the concern that a
statement made by a participant in an
[[Page 4453]]
electronic shareholder forum will be construed as a solicitation under
the proxy rules. Section 14(a) of the Exchange Act\26\ requires that
the solicitation of proxy voting authority be conducted in a fair,
honest, and informed manner.\27\ Any solicitation of proxies in
connection with securities registered pursuant to Section 12 of the
Exchange Act\28\ is subject to the filing and disclosure requirements
of the Commission's proxy rules.\29\ In this regard, the Commission has
broad authority to control the conditions under which proxies may be
solicited so that it promotes ``fair corporate suffrage.'' \30\ A
necessary element of this authority is to prevent solicitors from
obtaining authorization for corporate action by means of ``deceptive or
inadequate disclosure in proxy solicitations.'' \31\
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\25\ 17 CFR 240.14a-2(b)(6) and 17 CFR 240.14a-17.
\26\ 15 U.S.C. 78n(a).
\27\ Release No. 34-31326 (October 16, 1992) [57 FR 48276 and
48277].
\28\ 15 U.S.C. 78l.
\29\ See 15 U.S.C. 78n(a) and 17 CFR 240.14a-1 and 240.14a-
2(b)(1).
\30\ 17 H.R. Rep. No. 1383, 73d Cong., 2d Sess. 13 (1934) at 14.
The House Report indicated that the Commission was provided with
this broad power ``with a view to preventing the recurrence of
abuses which...[had] frustrated the free exercise of the voting
rights of stockholders.'' Id.
\31\ J.I. Case v. Borak, 377 U.S. 426, 431 (1964).
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As defined by the Commission, the term ``solicitation'' encompasses
not only a request that a shareholder execute a proxy, but also the
``furnishing of a form of proxy or other communication to security
holders under circumstances reasonably calculated to result in the
procurement, withholding or revocation of a proxy.'' \32\ As such, the
proxy rules apply to any person seeking to influence the voting of
proxies, regardless of whether the person is seeking authorization to
act as a proxy. Both the courts and the Commission have construed this
necessarily fact-intensive test broadly to bring within the ambit of
the proxy rules any communication that, under the totality of relevant
circumstances, is considered ``part of a continuous plan ending in a
solicitation and which prepare(s) the way for its success.'' \33\
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\32\ 17 CFR 240.14a-1(l). Pursuant to Rule 14a-1(1)(2), the term
``solicitation'' does not include the furnishing of a form of proxy
to a shareholder upon the latter's unsolicited request, the issuer's
performance of acts mandated by 17 CFR 240.14a-7, the shareholder
list requirement, or ministerial acts performed by any person on
behalf of the soliciting party.
\33\ Release No. 34-29315 (June 17, 1991) [56 FR 28987 and
28989]. See, e.g., Long Island Lighting Company v. Barbash, et al.,
779 F. 2d 793 (2d Cir. 1985).
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Therefore, we are adding a new exemption to Rule 14a-2 to state
explicitly that Rules 14a-3 through 14a-6 (other than Rule 14a-6(g)),
Rule 14a-8, and Rules 14a-10 through 14a-15 do not apply to any
solicitation in an electronic shareholder forum if all of the
conditions to the exemption are satisfied.\34\ Rule 14a-2(b)(6) exempts
from most of the proxy rules any solicitation by or on behalf of any
person who does not seek directly or indirectly, either on its own or
another's behalf, the power to act as proxy for a shareholder and does
not furnish or otherwise request, or act on behalf of a person who
furnishes or requests, a form of revocation, abstention, consent, or
authorization in an electronic shareholder forum that is established,
maintained or operated by a company, shareholder, or a third party
acting on a company's or shareholder's behalf.\35 \
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\34\ Id.
\35\ See Exchange Act Rule 14a-2(b)(6).
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A solicitation on an electronic shareholder forum will be exempt so
long as it occurs more than 60 days prior to the date announced by the
company for its annual or special meeting of shareholders. If the
company announces the meeting less than 60 days before the meeting
date, the solicitation may not occur more than two days following the
company's announcement.\36\ We are adopting the limitations to the
exemption because, although an electronic shareholder forum should
provide a medium for, among other things, open discussion, debate, and
the conduct of referenda, the actual solicitation of proxy authority
for an upcoming meeting should be conducted in full compliance with the
proxy rules. Any proxies obtained prior to the application of our proxy
rules will not benefit from the full and fair disclosure required under
the regulations.
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\36\ The proposal would not affect the application of any other
exemptions under Regulation 14A. For example, a person could rely on
the other applicable exemptions in Exchange Act Rule 14a-2 (17 CFR
240.14a-2).
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A person who participates in an electronic shareholder forum and
makes solicitations in reliance on the Rule 14a-2(b)(6) exemption will
be eligible to solicit proxies after the date that the exemption is no
longer available, or is no longer being relied upon, provided that any
such solicitation complies with Regulation 14A. In fact, it is for this
reason that Rule 14a-2(b)(6) is necessary. Existing Rule 14a-
2(b)(1)\37\ provides that most of the proxy rules do not apply to
``[a]ny solicitation by or on behalf of any person who does not, at any
time during such solicitation, seek directly or indirectly, either on
its own or another's behalf, the power to act as proxy for a security
holder and does not furnish or otherwise request, or act on behalf of a
person who furnishes or requests, a form of revocation, abstention,
consent or authorization.''
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\37\ 17 CFR 240.14a-2(b)(1).
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Therefore, statements on an electronic shareholder forum could be
exempt under Rule 14a-2(b)(1), even if these amendments were not
adopted. Once an exempt solicitation is made under Rule 14a-2(b)(1),
however, the individual making the solicitation cannot later request
proxy authority. Consequently, Rule 14a-2(b)(6) states that a person
who participates in an electronic shareholder forum and makes a
solicitation in reliance on this rule can later solicit proxies without
threatening the exemption's validity.
We believe that exempting participation in an electronic
shareholder forum only up until 60 days before an annual or special
meeting will limit the potential for abuse, and therefore we are
adopting the 60-day limitation.\38\ Communications within an electronic
shareholder forum that occur less than 60 days prior to the annual or
special meeting, or more than two days after the announcement of the
meeting if the announcement is made less than 60 days prior to the
meeting date, will continue to be treated as they were under the proxy
rules prior to these amendments. We recognize the concern that, as one
commenter noted, 60 days may not be ``sufficient practical protection
against the ability of a coordinated campaign to so color shareholder
perceptions as to make the vote a likely, if not foregone,
conclusion.'' \39\
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\38\ Sixty days corresponds with the maximum amount of time
prior to a scheduled meeting that the company may fix the record
date for determining the stockholders entitled to notice of, or to
vote at, a meeting under the Delaware Code. See Del. Code title 8,
Sec. 213 (2007).
\39\ See comment letter from ABA.
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We believe that the 60 day cut-off period will provide sufficient
time for shareholders to consider the information disclosed to them
about a planned shareholder meeting. We also believe that removing
obstacles to shareholder participation in electronic forums outweighs
the potential for such communications to impact a shareholder's vote.
Of course, persons relying on Rule 14a-2(b)(6) who later solicit proxy
authority will need to comply with other Commission rules as
applicable.
Additionally, although commenters did not request specifically that
we provide guidance on the potential proxy rule implications of stored
communications available on a forum
[[Page 4454]]
after the 60-day period, one commenter referenced this subject.\40\ In
this regard, shareholders who post communications on forums in reliance
on Rule 14a-2(b)(6) and later solicit the power to act as a proxy for a
shareholder will need to determine whether the earlier postings must be
filed as soliciting materials. For instance, it is possible that
earlier postings remaining available to shareholders could be
``reasonably calculated to result in the procurement, withholding or
revocation of a proxy.'' \41\ Therefore, any communications made, or
that remain available, on the forum after the 60-day period must comply
with the proxy rules if they constitute a solicitation, unless they
fall within an existing exemption. One way that a forum might deal with
this question is to give participants the opportunity to delete their
postings as of the 60-day cut-off, or have the forum ``go dark'' during
this period.\42\
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\40\ See comment letter from SunTrust.
\41\ 17 CFR 240.14a-1(l)(1)(iii).
\42\ Of course, if a person begins soliciting proxies earlier
than the 60-day cut-off period, that person would no longer have the
benefits of the exemption and would therefore need to comply with
the proxy rules, including perhaps by filing any available postings
as soliciting materials or removing prior postings from the forum.
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The second major obstacle to the use of electronic shareholder
forums is the concern that one who establishes, maintains, or operates
the forum will be liable under the federal securities laws for
statements made by forum participants. With respect to the
establishment of such forums, which can be conducted and maintained in
any number of ways, new Rule 14a-17 clarifies that a shareholder or
company (or third party acting on behalf of a shareholder or company)
that establishes, maintains, or operates an electronic shareholder
forum is not liable for statements made by another person participating
in the forum.\43\
---------------------------------------------------------------------------
\43\ 17 CFR 240.14a-17(b).
---------------------------------------------------------------------------
The persons providing information to or making statements on an
electronic shareholder forum, however, will remain liable for the
content of those communications under traditional liability theories in
the federal securities laws, such as those in Section 17(a) of the
Securities Act and Section 10(b), Rule 10b-5, Rule 14a-9, and Section
20(e) of the Exchange Act. The prohibitions in the antifraud provisions
against primary or secondary participation in fraud, deception, or
manipulation will continue to apply to those supplying information to
the site, and claims will not face any additional obstacles because of
the new rule. Also, any other applicable federal or state law will
continue to apply to persons providing information or statements to an
electronic shareholder forum.
As adopted, new Rule 14a-17 provides liability protection for all
shareholders, companies, and third parties acting on behalf of a
shareholder or company that establish, maintain, or operate an
electronic shareholder forum under the federal securities laws,
provided that the forum is conducted in compliance with the federal
securities laws, applicable state law and the company's charter and
bylaws. The proposed rule would have applied only to companies and
shareholders, but we believe it is appropriate to expand liability
protections to other types of forum sponsors or operators, such as
Internet service providers and shareholder or corporate associations,
acting at the request, and on the behalf, of a shareholder or company.
As noted above, liability under the federal securities laws for
statements made on an electronic shareholder forum is one area of
concern for shareholders, companies, or third parties acting on behalf
of a shareholder or company when making the decision about whether to
establish such a forum. The main purpose of Rule 14a-17 is to protect
the person establishing, maintaining, or operating an electronic
shareholder forum from liability under the federal securities laws in
much the same way that the federal telecommunications laws protect an
interactive computer service.\44\
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\44\ See Section 230(c)(1) of the Telecommunications Act of 1996
(47 U.S.C. 230(c)(1)) (``No provider or user of an interactive
computer service shall be treated as the publisher or speaker of any
information provided by another information content provider.'').
The protection against liability in Section 230(c)(1) would
presumably also apply to providers and users of electronic
shareholder forums.
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Commenters suggested certain other changes to the proposed rules.
For instance, one commenter questioned whether statements made in
reliance on Rule 14a-2(b)(6) are in fact solicitations as defined in
Rule 14a-1(l),\45\ and why the antifraud provisions of Rule 14a-9 and
the filing requirements of Rule 14a-6 did not apply to such
statements.\46\ We believe that statements posted on an electronic
shareholder forum may constitute a solicitation as defined in Rule 14a-
1(l) and that is why we are adopting Rule 14a-2(b)(6) as an exemption
from most of the proxy rules for such postings and specifically
designating which proxy rules would apply to the postings.
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\45\ 17 CFR 240.14a-1(l).
\46\ See comment letter from SunTrust.
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We also considered whether certain persons who rely on the new Rule
14a-2(b)(6) exemption should be required to file a notification with
the Commission. We concluded that filing such a notification would be
unnecessary because the postings made in reliance on new Rule 14a-
2(b)(6) will be limited to postings made in a shareholder forum by
persons who are not seeking, directly or indirectly, the power to act
as a proxy for a shareholder and to those made more than 60 days before
any meeting of shareholders.
Further, one commenter highlighted the need for persons who may
rely on the exemption in Rule 14a-2(b)(6) to give consideration to the
impact of the postings under other Commission rules and regulations. In
particular, the commenter cited the potential implications of
electronic shareholder forum postings on Regulation 13D beneficial
ownership reporting.\47\ Again, we agree that any person relying on
Rule 14a-2(b)(6) would need to assess whether compliance with other
Commission rules and regulations is required. For instance,
communications among shareholders in an electronic shareholder forum
for the purpose of acquiring, holding, voting, or disposing of the
equity securities of a company might result in the formation of a group
for purposes of Regulation 13D.\48\ Also, soliciting activities may
impact the eligibility to file a Schedule 13G.\49\
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\47\ See comment letter from ABA.
\48\ 17 CFR 240.13d-5.
\49\ See Release No. 34-39538 (January 12, 1998) [63 FR 2854],
Section G (Shareholder Communications and Beneficial Ownership
Reporting).
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In conclusion, we intend to remove legal ambiguity that might
inhibit shareholders, companies, or third parties acting on behalf of a
shareholder or company from the energetic pursuit of this mode of
communication. We also intend that the amendments will encourage
shareholders, companies, or third parties acting on behalf of a
shareholder or company to take advantage of electronic shareholder
forums to facilitate better communication among shareholders and
between shareholders and companies.
IV. Paperwork Reduction Act
The proxy rules constitute a ``collection of information''
requirement within the meaning of the Paperwork Reduction Act of 1995,
the PRA.\50\ The amendments described in this release relate to a
previously approved collection of information, ``Proxy Statements--
Regulation 14A
[[Page 4455]]
(Commission Rules 14a-1 through 14a-16 and Schedule 14A (OMB Control
No. 3235-0059).'' Regulation 14A was adopted pursuant to the Exchange
Act and sets forth the disclosure requirements for proxy statements
filed by companies to help shareholders make informed voting decisions.
We do not believe that the amendments to Rule 14a-2, or the creation of
new Rule 14a-17, require any revision to our current burden estimates
for Regulations 14A or impose any new recordkeeping or information
collection requirements under the PRA that require approval of the
Office of Management and Budget, the OMB.
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\50\ 44 U.S.C. 3501 et seq.
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V. Cost-Benefit Analysis
We are adopting amendments to the proxy rules under the Exchange
Act to facilitate electronic shareholder forums by removing legal
ambiguity under the federal securities laws that might deter
shareholders, companies, or third parties acting on a shareholder's or
company's behalf from establishing or contributing to such forums.
These amendments clarify that participation in an electronic
shareholder forum which potentially could constitute a proxy
solicitation subject to the proxy rules, is exempt from most of the
proxy rules if the conditions to the exemption are satisfied. In
addition, these amendments state that a shareholder, company, or third
party acting on a shareholder's or company's behalf that establishes,
maintains, or operates an electronic shareholder forum generally will
not be liable under the federal securities laws for any statement or
information provided by another person participating in the forum.
A. Benefits
The most important benefit of the amendments that we are adopting
is that they will eliminate a regulatory obstacle to electronic
shareholder forums which hold the potential to significantly improve
communications among shareholders and between shareholders and the
companies they own. As a result of the amendments, shareholders and
companies may be more willing to create or sponsor these forums,
because the regulatory and liability regime will be more clearly
defined.
Among the potential benefits to shareholders and companies are
cheaper, more timely, and more relevant exchanges of information among
shareholders and between shareholders and companies. Electronic
shareholder forums could generate attention for sound proposals that
could increase the value of share ownership, and they could filter out
proposals not supported by other shareholders. They could also help
disparate shareholders form stronger coalitions and coordinate their
voices.\51\ These forums can also better educate or otherwise inform
shareholders with respect to the issues that will likely come up
through proxy solicitations during the 60 days prior to an annual
meeting.
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\51\ Of course, communications among shareholders in an
electronic shareholder forum for the purpose of acquiring, holding,
voting, or disposing of the equity securities of a company might
result in the formation of a group for purposes of Regulation 13D.
17 CFR 240.13d-5. Also, soliciting activities may impact the
eligibility to a file a Schedule 13G. See Release No. 34-39538
(January 12, 1998) [63 FR 2854], Section G (Shareholder
Communications and Beneficial Ownership Reporting).
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In this regard, the majority of the amendments' benefits flow from
the potential reduction in costs of collective action among
shareholders and the potential reduction of costs in communications
between shareholders and companies if there is more extensive use of
electronic forums. For example, a shareholder who does not agree with a
corporate policy and therefore is considering taking steps to have the
company change that policy may not be able to easily and inexpensively
survey other shareholders and determine their sentiments regarding the
policy. Therefore, that shareholder presently has to decide whether to
take the costly steps of opposing the company's action by submitting a
non-binding proposal or running a proxy contest without having the
benefit of knowing whether the initiative is favored or will be
supported by other shareholders.
Electronic shareholder forums may reduce communication and
coordination costs among shareholders and also reduce companies' costs
in replying if they choose to do so. A shareholder seeking to submit a
non-binding proposal or conduct a proxy contest may be encouraged or
discouraged from doing so in accordance with the better information
that he or she will have acquired, at little or no cost, about the
preference of other shareholders. And if a proposal is enthusiastically
supported by a significant number of shares, the company might take
notice and voluntarily adopt it; again, saving the shareholder
considerable expense and benefiting the company and its shareholders
overall.
Even if the company does not voluntarily adopt an initiative that
reflects strong shareholder sentiment, knowledge of this fact by other
shareholders will make it more likely that the initiative will be
submitted and adopted. Shareholders may be encouraged to run successful
proxy contests to pursue such changes, or management may be more
responsive to the concerns in other ways. Thus, shareholders may
benefit from a closer alignment between management and the interests of
shareholders.
Another way that shareholders and companies may benefit from the
amendments is that they could have more information to use in
evaluating initiatives submitted for their consideration by other
shareholders or by management. This information could be available at
little or no incremental cost and could be readily accessible and
searchable because it is in electronic form. Therefore, the amendments
may reduce the cost of monitoring issues among shareholders.
Finally, more extensive use of electronic shareholder forums may be
a step towards improving the informational efficiency of the market
generally.
B. Costs
There are several potential costs to shareholders of implementing
the amendments to the proxy rules, although all such costs would be
voluntarily undertaken. One immediate cost of an electronic shareholder
forum is that of maintaining and operating it. Although empirical data
are not available for the exact costs of operating electronic
shareholder forums, based on comparable costs of maintaining
interactive Web sites, the costs of starting and maintaining a basic
shareholder forum are not expected to be high. As more complicated
features are included in a forum by its operators, such as eligibility
verification procedures, anonymous accountability programs, and share
ownership displays, costs could be expected to increase accordingly.
Again, however, the decision to establish, operate, or maintain an
electronic shareholder forum, and to add more expensive features, is
voluntary.
Additionally, to the extent that the amendments to the proxy rules
we are adopting result in an increase in the number of electronic
forums, there could be increased costs related to the additional time
that a shareholder or company chooses to spend monitoring, processing,
and considering information that is posted on the forums. These costs
will generally correspond to the number of shareholders using the
forums, the frequency with which those shareholders post information on
the forums, and the level of attention that shareholders or companies
choose to
[[Page 4456]]
pay to the ideas and opinions of the shareholders.
Should a company choose to sponsor or use an electronic shareholder
forum, the company, and derivatively its shareholders, would bear the
associated costs. If the company or its shareholders used the forum to
conduct shareholder polls or surveys, the costs of the forums would be
commensurately higher due to the time and effort necessary to
accurately determine the results.
Moreover, because electronic shareholder forums may generally
reduce the cost of communication among shareholders and between
shareholders and companies, they may increase the frequency of that
communication and thus, incidentally, the subset of that communication
that constitutes misstatements, whether made intentionally or
unintentionally. This could increase the costs of the forums to
companies or shareholders. Although shareholders are held liable under
the federal securities laws for fraudulent statements made on the
forums, at least one commenter still expressed a concern that
fraudulent information may lead to problems for a company, such as
changes in stock prices,\52\ which could increase costs to
shareholders.
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\52\ See, e.g., comment letter from Domini.
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It should be noted, however, that the opportunity for online
fraudulent misstatements is not new, as a number of shareholder forums
exist online already, and there is nothing in the nature of electronic
shareholder forums that should attract misstatements in greater numbers
than other more public areas of the Internet. Regardless, it is
possible that misstatements on an electronic shareholder forum could be
taken more seriously in cases where the forum is restricted, for
example, to only shareholders and the company. Even so, given the
inevitability of occasional miscommunication, an electronic forum in
which both the shareholders and the company participate may provide a
means to quickly dispel any misleading information.
Another potential cost is that shareholders may have less complete
information with which to evaluate proposals than they would have
otherwise because the amendment facilitates solicitation, outside the
60-day period prior to an annual or special meeting, without mandating
extensive disclosure about the identity and the ownership of the
participants that would occur otherwise. Because disclosures of this
type may in some instances provide other shareholders with valuable
information regarding possible motivations behind proposals that they
would not otherwise receive, shareholders currently benefit from the
proxy rules mandating such disclosure. Under the current rulemaking,
some solicitations that would ordinarily be accompanied by these
additional disclosures would proceed without them. The magnitude of
this cost of lost information, however, depends on the extent to which
shareholders have easy access to substitute sources of information and
to the extent the information is material to the actions of
shareholders and companies in the proxy voting process.
Finally, a shareholder that cannot, or chooses not to, use the
Internet may be disadvantaged by not being able to fully participate in
this form of dialogue among shareholders and between shareholders and
the company. As a result, these shareholders may incur costs associated
with adjusting to the use of electronic forums or in searching for the
information being conveyed on the electronic forums in another medium.
Alternatively, a shareholder who has never used the Internet but feels
compelled to do so because of an electronic shareholder forum would
incur the costs of obtaining Internet access. These costs, however, are
similar to those that shareholders already must incur in to participate
in existing electronic forums. Nonetheless, it is possible that if
electronic shareholder forums are restricted to shareholders and
companies, they will be considered more relevant and meaningful than
existing forums that are available to any person. The costs to
shareholders not willing or able to use electronic shareholder forums
could be offset to some degree by the fact that other shareholders with
whom they share a common financial interest may take advantage of the
forums to propose initiatives and make their sentiments known to the
company.\53\
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\53\ Also, a forum operator, or a forum participant, could
choose to mail notice of important developments on the electronic
shareholder forum to shareholders who are not willing or able to use
the technology.
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VI. Consideration of Burden on Competition and Promotion of Efficiency,
Competition, and Capital Formation
Section 23(a)(2) of the Exchange Act \54\ requires us, when
adopting rules under the Exchange Act, to consider the impact that any
new rule would have on competition. In addition, Section 23(a)(2)
prohibits us from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act. Section 3(f) of the Exchange Act \55\ and Section
2(c) of the Investment Company Act of 1940 \56\ requires us, whenever
we engage in rulemaking and are required to consider or determine if an
action is necessary or appropriate in the public interest, also to
consider whether the action will promote efficiency, competition, and
capital formation.
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\54\ 15 U.S.C. 78w(a)(2).
\55\ 15 U.S.C. 78c(f).
\56\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------
By removing legal ambiguity, we anticipate the rules will promote
efficiency in shareholder communications. Electronic shareholder forums
may reduce communication costs and coordination costs among
shareholders and also reduce companies' costs in replying if they
choose to do so. Finally, more extensive use of electronic shareholder
forums may be a step towards improving the informational efficiency of
the market generally.
To the extent shareholders express interest in starting or
participating in forums, competition among service providers to host or
operate the forums may increase. We do not anticipate any effect on
capital formation.
VII. Final Regulatory Flexibility Act Analysis
This Final Regulatory Flexibility Act Analysis, the FRFA, has been
prepared in accordance with the Regulatory Flexibility Act.\57\ This
FRFA relates to new Rule 14a-17 and the new Rule 14a-2 exemption, which
will facilitate greater online interaction among shareholders and their
companies by removing some obstacles to the use of electronic
shareholder forums. These amendments to the proxy rules clarify that a
shareholder, company, or third party acting on a shareholder's or
company's behalf that establishes, maintains, or operates an electronic
shareholder forum is not liable for statements made by another person
or entity participating in the forum. Also, the amended rules exempt
any solicitation in an electronic shareholder forum from the proxy
rules, other than from the shareholder list provisions in Rule 14a-7
and the antifraud provisions in Rule 14a-9, if all of the conditions to
the exemption are satisfied. An Initial Regulatory Flexibility Act
Analysis was prepared in accordance with the Regulatory Flexibility Act
and included in the Proposing Release.
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\57\ 5 U.S.C. 601.
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[[Page 4457]]
A. Need for the Amendments
These amendments to the proxy rules are necessary to remove legal
ambiguity that might deter shareholders, companies, and others from
establishing or participating in electronic shareholder forums. New
Rule 14a-17 and the new Rule 14a-2(b)(6) exemption will clarify the
responsibilities of those who establish, maintain, operate, and
contribute to electronic shareholder forums, with the purpose of
stimulating experimentation, innovation, and greater use of the
Internet to further shareholder communications. By facilitating such
communications on the Internet among shareholders, and between
shareholders and their companies, we hope to tap the potential of
technology to better vindicate shareholders' state law rights,
including their rights to elect directors, in ways that are potentially
both more effective and less expensive.
Despite the potential benefits of electronic shareholder forums,
shareholders and companies alike have been reluctant to establish,
maintain, or operate them due, in part, to uncertainty over liability
for statements and information provided by those participating in the
forum. In addition, shareholders and companies have expressed concern
regarding whether views and statements expressed through a forum would
be considered proxy solicitations.
Therefore, we are adopting Rule 14a-17 to provide liability
protection for a shareholder, company, or third party acting on behalf
of a shareholder or company that establishes or maintains an electronic
shareholder forum regarding statements or information provided by
others participating in the forum. Also, we are adopting the new Rule
14a-2(b)(6) exemption from the proxy rules to explicitly state that
Rules 14a-3 through 14a-6 (other than Rule 14a-6(g)), Rule 14a-8, and
Rules 14a-10 through 14a-15 do not apply to any solicitation in an
electronic shareholder forum. By taking these steps, we hope to remove
both real and perceived impediments to continued private sector
experimentation with, and use of, the Internet for communication among
shareholders, and between shareholders and the companies in which they
invest. We intend for the amendments to encourage the creation of, and
participation in, electronic shareholder forums.
B. Significant Issues Raised by Public Comments
In the Proposing Release, we published for comment a number of
amendments to the proxy rules under the Exchange Act concerning
shareholder proposals generally. The description of the proposed
amendments regarding electronic shareholder forums constituted only one
section of the release.\58\ In this release, we are adopting only the
proposed amendments to the proxy rules that relate to electronic
shareholder forums and not the proposed amendments dealing with other
aspects of shareholder proposals.
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\58\ Proposing Release, Section II.B (Electronic Shareholder
Forums).
---------------------------------------------------------------------------
The majority of the public comment regarding electronic shareholder
forums was favorable.\59\ Generally, the commenters favored the
exemption and new rule because they support the continued development
of electronic shareholder forums as a means of facilitating
communication among shareholders and between shareholders and
companies.\60\ A substantial percentage of the commenters opposed
substituting electronic shareholder forums for the current means of
presenting non-binding shareholder proposals in the company's proxy
statement pursuant to Rule 14a-8. Although we solicited comment on the
idea of using electronic shareholder forums as the sole means to
present non-binding shareholder proposals to shareholders, several of
the commenters made it clear that they supported electronic shareholder
forums provided that the forums were a supplement to, and not a
replacement for, the current Rule 14a-8 process.\61\ Under the final
rules, electronic shareholder forums will be an additional, rather than
substitute, means of communication.
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\59\ See, e.g., comment letters from Allstate, BRT, Capital
Research, GreenMachines, and ICI.
\60\ See, e.g., comment letter from Calvert, Senator Levin, and
Van Winthrop.
\61\ See, e.g., comment letters from Christus, Domini, and
Trillium.
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Additionally, some commenters believed that keeping the identity of
shareholders who post messages on these electronic forums anonymous
would threaten meaningful communications among shareholders and the
company.\62\ These commenters asserted that shareholders' identities
should be disclosed and that the shareholders' ownership interests in
the company should be made known as well. The rule amendments that we
are adopting today neither mandate nor preclude anonymous
communications because we want to allow forum sponsors to have
flexibility in creating electronic shareholder forums and to encourage
innovation and experimentation.
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\62\ See comment letters from ABA and Christian Brothers.
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Despite the generally favorable reaction, some commenters were
concerned about possible negative consequences of the amendments.
First, some commenters worried that the electronic shareholder forums
could develop into shareholder chat rooms, which may not provide for
meaningful communication.\63\ Other commenters asserted that we did not
adequately address whether shareholders and others could wage a
successful, coordinated proxy campaign beyond the 60-day period during
which the regular proxy rules would not apply.\64\ Finally, some
commenters suggested that we analyze the issue further and address
electronic shareholder forums as part of a more comprehensive study
reviewing the shareholder communications process.\65\
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\63\ See, e.g., comment letters from Bricklayers, Green Century,
SIF, and Walden.
\64\ See comment letters ABA and SunTrust.
\65\ See comment letters from ABA and SCSGP.
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In the Proposing Release, we requested comment on many aspects of
the proposed amendments to the proxy rules concerning shareholder
proposals generally, including the number of small entities that would
be affected by the proposed amendments, and the quantitative and
qualitative nature of the impact. Commenters, including the Office of
Advocacy of the Small Business Administration, addressed several
aspects of the proposed rule amendments that potentially could have
affected small entities. However, none of the commenters specifically
discussed the effect of the proposed amendments regarding electronic
shareholder forums on small businesses or entities. In particular,
because the electronic shareholder forums authorized by the amendments
that we are adopting are entirely voluntary, we believe that they will
beneficially affect small businesses and entities in the same manner
that they will beneficially affect larger businesses and entities. This
is because presumably, only those businesses and entities that find
them beneficial will choose to use them.
C. Small Entities Subject to the Final Amendments
The amendments that we are adopting in this release will affect
only shareholders and companies that voluntarily establish, maintain,
or operate electronic shareholder forums or that post information on,
or provide information to, such forums. Some of the companies or
shareholders may be small entities. Exchange Act Rule 0-
[[Page 4458]]
10(a) defines an issuer, other than an investment company, to be a
``small business'' or ``small organization'' if it had total assets of
$5 million or less on the last day of its most recent fiscal year. We
estimate that there are approximately 1,110 issuers, other than
investment companies, that may be considered small entities.
We are adopting the amendments to the proxy rules to facilitate
electronic shareholder forums by clarifying that participation in a
forum, which could potentially constitute a proxy solicitation subject
to the proxy rules, is exempt from most of the proxy rules if the
shareholder or company satisfies all of the conditions to the
exemption. Also, we are facilitating electronic shareholder forums by
clarifying that any shareholder, company, or third party acting on
behalf of a shareholder or company that establishes, maintains, or
operates an electronic shareholder forum will not solely because of
establishing, maintaining, or operating the forum be liable under the
federal securities laws for any statement or information provided by
another person participating in the forum. The amendments remove legal
ambiguity that might deter shareholders and companies from relying on
this mode of communication.
The amendments that we are adopting only apply to shareholders,
companies, or third parties acting on their behalf if they choose to
establish, maintain, operate, or participate in electronic shareholder
forums. We are not requiring a small entity to have any involvement
with electronic shareholder forums. We are only clarifying the
liability provisions for establishing, maintaining, or operating such a
forum and providing an exemption for forum communications that fall
within the broad definition of a solicitation.
D. Reporting, Recordkeeping, and Other Compliance Requirements
The amended rules do not impose any new reporting, recordkeeping,
or compliance requirements on small entities. In fact, a small entity
is not required to take any reporting or recordkeeping action or to
comply with any other new requirements, unless it chooses to rely on
the new Rule 14a-2(b)(6) exemption. If a small entity or shareholder
posts information on a forum in reliance on Rule 14a-2(b)(6), and later
solicits the power to act as a proxy for a shareholder, it will need to
determine whether any earlier postings remaining on the forum after the
Rule 14a-2(b)(6) exemption no longer is available must be filed as
soliciting materials.\66\ Regardless, if small entities choose to do
nothing regarding electronic shareholder forums, the amended proxy
rules have no additional reporting, recordkeeping, or other compliance
requirements that they must follow.
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\66\ See 17 CFR 240.14a-1(l)(1)(iii).
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E. Agency Action To Minimize Effect on Small Entities
The Regulatory Flexibility Act directs us to consider alternatives
that would accomplish our stated objectives, while minimizing any
significant adverse impact on small entities. Our objective in adopting
the amendments is to facilitate electronic shareholder forums by
clarifying that participation in a forum is exempt from most of the
proxy solicitation rules if the participant satisfies all of the
exemption's conditions, and that forum operators are not liable for
third-party statements on their forums. The amendments impact small
entities only if the entities choose to involve themselves in the
forums by establishing, maintaining, o
