Corporate “Get-Out-The-Vote” Campaigns: Better Shareholder Communications and Proxy Voting May Shareholder Communications Coalition “Fair corporate suffrage is an important right that should attach to every equity security bought on a public exchange.” - U.S. House of Representatives, Report No Securities Exchange Act of 1934

Table of Contents 2 Coalition Membership3 Summary of Recommendations4 Background – U.S. Proxy System5-9 Public Company Concerns10-11 Coalition Recommendations12-13 Background – Proxy Advisory Firms14-16 Coalition Recommendations17-19 Conflicts of Interest20 SEC Staff Bulletin 2021 Next Steps22-23 Contact Information24

Membership of the Shareholder Communications Coalition Business Roundtable National Investor Relations Institute Society of Corporate Secretaries & Governance Professionals 3

Summary of Recommendations: Shareholder Communications and Proxy Advisory Firms 4 Permit companies to communicate directly with all their shareholders. Reform the SEC’s antiquated rules that prevent companies from knowing the identities of all their shareholders. Allow companies to deliver proxy materials electronically to all shareholders. Require proxy advisory firms to register and provide public disclosure of conflicts of interest. Require proxy advisory firms to provide each company an opportunity to review a draft of its annual meeting report for factual accuracy. Require proxy advisory firms to publicly release company reports no later than 90 days after each annual meeting.

Background Public companies are required to hold annual shareholder meetings to elect directors, consider proposals offered by shareholders and management, and for other purposes. State laws require companies to have a quorum for their meetings. Most shareholders do not attend these annual meetings to vote in person, requiring public companies to solicit votes through an absentee ballot/proxy process. Securities and Exchange Commission (SEC) rules govern how public companies distribute proxy materials and “get-out-the-vote” among millions of institutional and individual investors. Proxy distribution and processing is complicated and involves companies, brokers, processors, advisors, and investors. 5

The Current Proxy System 6

Status of Shareholder Communications and Proxy Voting Rules Since 2004, Business Roundtable and the Shareholder Communications Coalition have urged the SEC to undertake a comprehensive evaluation of the proxy process, and modernize the shareholder communications and voting system. In 2010, the SEC issued a Concept Release on the U.S. Proxy System. This Concept Release outlined a number of potential reforms in shareholder communications, proxy distribution and voting, and proxy advisory services. As the SEC winds down its rulemaking responsibilities under Dodd- Frank and the JOBS Act, the agency should turn its attention to reforming the proxy system. With more than 600 billion shares voted each year at approximately 13,000 shareholder meetings, shareholders need a proxy system that promotes efficient communications and accurate voting. 7

History of the U.S. Proxy System More than 75% of all public companies’ shares are held in “street name,” i.e., through brokers and banks. Investors holding in street name are known as beneficial owners. The other 25% of company shares are registered directly with a company. After a paperwork crisis occurred in the 1970’s, the street name system of stock ownership expanded, to enable securities transactions to be processed and cleared more efficiently. Under SEC and stock exchange rules, brokers and banks are responsible for distributing annual meeting materials and otherwise communicating with shareholders who use the street name system. Public companies have limited ability to communicate with these shareholders, or otherwise to encourage them to participate in an annual meeting. 8

History of the U.S. Proxy System The structure of the current proxy processing system has been in place since This structure has been left largely unchanged, despite significant advances in communications technology and the growth of the Internet. Corporate governance has also changed significantly over the past 30 years, as public companies now face “Say-on-Pay” votes, aggressive hedge fund activists, and closer votes on directors and shareholder proposals. Companies need to know who their shareholders are and be in a position to engage with them more efficiently and effectively. 9

Public Company Concerns Public companies should be able to know who their “street name” shareholders are and should be permitted to communicate with them directly. Current SEC rules inhibit public companies from interacting with their “street name” shareholders throughout the year and during the annual meeting process. The process of identifying and communicating with these shareholders, especially individual investors, is inefficient and expensive. Direct two-way communications between shareholders and public companies should be a fundamental element of our capital markets. 10

Public Company Concerns The proxy voting process also needs to be changed. Shareholders registered directly with a public company receive proxy cards with their annual meeting information materials. Shareholders in the street name system receive a separate voting form (“VIF”) that communicates voting instructions only and does not authorize shareholders to vote at annual meetings. Only brokers and banks are authorized to vote. Instead of having such a complicated system, with different cards and forms, the system should be changed so that shareholders can vote directly with the company. The proxy voting system also can produce inaccuracies. Share lending practices in retail investor margin accounts have generated confusion over which investors are eligible to vote as of a record date. Additionally, a lack of coordination and communication among depository institutions, nominees, and tabulators can cause inaccurate vote counts. This latter problem is being addressed by an industry working group, although more needs to be done to ensure accuracy in voting entitlements. 11

Coalition Recommendations: Public Company Communications Public companies want to have direct communications with their shareholders. They should be able to distribute annual meeting materials and otherwise communicate with them whenever necessary. Shareholders should have the ability to vote their shares directly with a public company and not have to go through their broker. Many banks use this more direct approach to voting. Individual shareholders who want to remain anonymous can hold shares in the name of their broker or bank, using the same nominee status as institutional investors. 12

Coalition Recommendations: Proxy Voting As companies face more contested votes on directors, executive compensation, and shareholder proposals, there is a greater need for a proxy voting system that can be accurate, verifiable, and auditable. The proxy voting system should be structured to permit all votes to be tracked through to final tabulation and in a manner that can be audited by a third-party if necessary (i.e., in a close contest). Some of these issues are being addressed by an industry working group, but more comprehensive solutions are also necessary. 13

Proxy Advisory Firms: Need for More Oversight and Transparency One issue raised in the SEC’s 2010 Concept Release was the role and activities of private firms providing proxy advisory services to institutional investors. These firms have considerable influence in the proxy voting process, by generating voting recommendations and making voting decisions for their clients, which are typically pension plans, mutual funds, hedge funds, and endowments. Despite their large role in proxy matters, these firms generally use a “one-size- fits-all” approach to their work, instead of evaluating the specific facts and circumstances of each public company. Substantial concerns also have been raised about: A lack of transparency concerning their standards, procedures, and methodologies; Their use of incorrect factual information to formulate specific recommendations; and The conflicts of interest resulting from several of their business practices. 14

Why Do We Have Proxy Advisory Firms? Current regulatory rules impose fiduciary responsibilities on investment companies, investment advisers, and most retirement and pension plans in voting their proxies. Pursuant to SEC rules, investment companies and investment advisers are required to adopt policies and procedures to ensure that proxies are voted in the best interests of their shareholders and clients. Similarly, the Department of Labor requires ERISA retirement and pension plans to vote proxies for stocks in their plans, as a part of their fiduciary obligations to plan beneficiaries. Both agencies permit institutional investors and retirement plans to engage in a cost-benefit analysis before deciding whether to participate in voting their shares. 15

Why Do We Have Proxy Advisory Firms? Many institutional investors and their third-party investment managers – especially mid-size and smaller investment managers – choose to reduce costs by not having in-house staff to analyze and vote on proxy items. These institutional investors and managers typically outsource their voting decisions to proxy advisory firms. 16

Coalition Recommendations: Regulatory Oversight of the Proxy Advisory Industry Proxy advisory firms should be subject to more robust oversight by the SEC. Proxy advisory firms should be required to register as investment advisers under the Investment Advisers Act of A new SEC regulatory framework unique to these firms should be established to enhance transparency of their internal processes, improve accuracy of factual information, and address conflicts of interest. 17

Increased Transparency by Proxy Advisory Firms There is a need for greater transparency about the internal procedures, guidelines, standards, methodologies, and assumptions used in the development of voting recommendations by proxy advisory firms. Proxy advisory firms should be required to disclose their public company reports a reasonable time after each annual meeting is completed (e.g., 90 days). 18

Accuracy of Factual Information Used by Proxy Advisory Firms Proxy advisory firms should be required to provide all public companies with draft reports in advance of distribution to their clients, to permit companies to review and correct the factual information contained in these reports for accuracy. Consideration also should be given to whether these firms should be required to include in their reports any information they receive from a company, or, at a minimum, provide disclosures in reports if a company disagrees with a particular factual assertion. 19

Conflicts of Interest in the Proxy Advisory Industry Corporate Consulting: the largest proxy advisory firm – Institutional Shareholder Services (ISS) – provides corporate governance and executive compensation consulting services, in addition to providing voting recommendations on proposals submitted in shareholder elections. Investor Proponents: institutional investors that are clients of a proxy advisory firm may be a proponent of a matter to be voted on at a shareholder meeting, raising concerns that proxy advisory firms will make favorable recommendations to other institutional clients on such matters to maintain the business of the proponent. 20

Improvements to the Institutional Investor Due Diligence Process On June 30, 2014, the SEC staff issued Staff Legal Bulletin 20, to clarify the fiduciary responsibilities of institutional investors in overseeing the proxy advisory firms they retain for proxy voting purposes. Each investment adviser is obligated to engage in sufficient ongoing oversight to ensure that it continues to vote proxies in the best interests of its clients. Proxy advisory firms are also required to specifically disclose any conflict of interest that involves a “significant relationship” or a “material interest.” This disclosure is intended to permit each client to assess the conflict at or about the same time that proxy voting advice is received. Proxy advisory firms are not permitted to use their discretion to vote proxies for institutional clients based only on general guidelines or policies established in advance of shareholder meetings. For clients that rely on the voting services of a proxy advisory firm, this is expected to facilitate more evaluation by the investment adviser of the specific facts and circumstances of each public company, in lieu of making voting decisions based on “one-size-fits-all” or “check the box” methodologies. 21

What’s Next? The Coalition seeks support from Members on the House Committee on Financial Services to encourage the SEC to adopt the following shareholder communications reforms: Permit public companies to communicate directly with all their shareholders. Reform the SEC’s antiquated rules that prevent companies from knowing the identities of all their shareholders. Allow companies to deliver proxy materials electronically to all shareholders. 22

What’s Next? 23 The Coalition seeks support from Members on the House Committee on Financial Services to encourage the SEC to adopt a regulatory framework for proxy advisory firms that includes the following: Require proxy advisory firms to register and provide public disclosure of conflicts of interest. Require proxy advisory firms to provide companies an opportunity to review drafts of annual meeting reports for factual accuracy. Require proxy advisory firms to publicly release company reports no later than 90 days after each annual meeting.

Contact Information Niels Holch, Executive Director Shareholder Communications Coalition 400 N. Capitol St, NW Suite 585 Washington, D.C (202) Michael Ryan Vice President, Business Roundtable 300 New Jersey Ave NW Suite 800 Washington, DC (202) Ted Allen Director – Practice Resources National Investor Relations Institute 225 Reinekers Lane Alexandria, Virginia (703) Darla Stuckey President and CEO Randi Morrison Director – Policy & Reporting Society of Corporate Secretaries & Governance Professionals 240 West 35 th Street Suite 400 New York, NY (212)