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Hastings Communications and Entertainment Law Journal

Authors

Kevin Kearney

Abstract

The SEC is conducting a comprehensive reevaluation of the U.S. corporate proxy system. One issue under the SEC's microscope is public companies' inability to communicate directly with shareholders. When stock trading migrated to the depository system, securities intermediaries undertook the book-entry settlement function. As a result, a public company issuer today cannot identify who holds the right to vote its shares without going through intermediary proxy service providers. Public companies thus communicate with shareholders through a proxy system that is indirect, inefficient, and expensive. Commentators, including issuers, believe that recent developments in the corporate governance landscape require a system that allows for direct communication. In any case, technological limitations can no longer justify-as they did when the SEC last undertook to seriously consider the issue-companies' inability to communicate directly with shareholders. Concerns regarding efficiency and shareholder privacy narrow the horizon of possibilities for direct communication systems, but do not eliminate such possibilities entirely. The direct communication system this note proposes involves a centralized data facility owned and operated by the SEC. This proposed system seeks to restore significance to the concept of issuer-maintained shareholder lists without compromising objecting beneficial owner anonymity, or the current ownership and trading system.

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