1. Corporate “Get-Out-The-Vote” Campaigns: Better Shareholder Communications and Proxy Voting Shareholder Communications Coalition Congressional Staff Briefing House Committee on Financial Services May 1, 2013 10:00 – 11:00 AM 2128 Rayburn House Office Building 1 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. 73-1383 Securities Exchange Act of 1934

2. Membership of the Shareholder Communication Coalition Business Roundtable National Investor Relations Institute Society of Corporate Secretaries & Governance Professionals 2

3. Speakers Don Green, Vice President, Corporate Governance, Business Roundtable Amy Goodman, Partner, Gibson, Dunn & Crutcher LLP Jeff Morgan, President and Chief Executive Officer, National Investor Relations Institute (NIRI) Niels Holch, Executive Director, Shareholder Communications Coalition Darla Stuckey, Senior Vice President, Policy & Advocacy, Society of Corporate Secretaries & Governance Professionals 3

4. 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. 4

5. The Current Proxy System 5

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. 6

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 encourage them to participate in an annual meeting. 7

8. History of the U.S. Proxy System The structure of the current proxy processing system has been in place since 1985. This structure has been left largely unchanged, despite significant advances in technology and the growth of the Internet. Corporate governance has also changed over this period, increasing the need for public companies to know who their shareholders are and be able to engage with them more efficiently and effectively. 8

9. Public Company Concerns Public companies need to know who their shareholders are and be able to communicate with them directly. Current SEC rules inhibit public companies from interacting with their shareholders throughout the year and during the annual meeting process. The process of identifying and communicating with 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. Additionally, public companies want to improve the SEC reporting regime applicable to institutional investors. 9

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 that communicates voting instructions only and does not authorize shareholders to vote at annual meetings. Only brokers 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 system should be able to track all votes through to the actual vote count and be capable of having a third-party audit the final tabulation, just like in a Federal election. 10

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. 11

12. Coalition Recommendations: Proxy Voting Changes in corporate governance are also demanding a proxy voting system that is accurate, verifiable, and can be audited. The proxy voting system would 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. 12

13. Proxy Advisory Services: 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 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 caused by several of their business practices. 13

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. A 2008 interpretive document does permit retirement plans to engage in a cost-benefit analysis before deciding whether to participate in a specific vote. 14

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. 15

16. Regulatory Oversight of the Proxy Advisory Industry Proxy advisory firms should be subject to more robust oversight by the SEC. New SEC regulations should enhance transparency of the internal processes of these firms, improve accuracy of factual information, and address conflicts of interest. 16

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. 17

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. 18

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. 19

20. Proposed Improvements to the Institutional Investor Due Diligence Process The SEC and Department of Labor should review the existing regulatory framework applicable to the use of proxy advisory firms by institutional investors, including the issue of whether these investors should be required to vote on each and every matter at a shareholder meeting. This review should evaluate whether such investors are exercising sufficient oversight responsibility with respect to their use of proxy advisory firms to satisfy their fiduciary duties. For example, are they using methodologies that are evaluating the facts and circumstances of each public company and are they avoiding “one-size-fits-all” or “check the box” methodologies? 20

21. What’s Next? The Coalition seeks support from Members on the House Committee on Financial Services to encourage the SEC to make reform of the U.S. proxy system a higher priority and address the issues in its 2010 Concept Release. 21

22. Contact Information Niels Holch, Executive Director Shareholder Communications Coalition 400 N. Capitol St, NW Suite 585 Washington, D.C. 20001 (202) 624-1461 nholch@holcherickson.comnholch@holcherickson.com - www.shareholdercoalition.com www.shareholdercoalition.com Don Green Vice President, Business Roundtable 300 New Jersey Ave NW Suite 800 Washington, DC 20001 (202) 496-3275 dgreen@brt.org Jeff Morgan President and CEO, National Investor Relations Institute 225 Reinekers Lane Suite 560 Alexandria, VA 22314 (703) 562-7676 jmorgan@niri.org Kenneth Bertsch President and CEO, Society of Corporate Secretaries & Governance Professionals Darla Stuckey Senior Vice President, Policy and Advocacy, Society of Corporate Secretaries & Governance Professionals 240 West 35 th Street Suite 400 New York, NY 10001 (212) 681-2000 kbertsch@governanceprofessionals.org dstuckey@governanceprofessionals.org 22