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Concept Release: Proxy Distribution System

September 28, 2010

Over the past few years, there have been dramatic changes in the corporate governance issues that have made obtaining shareholder approval of even mundane resolutions more difficult and more expensive. Contributing to this has been the gradual shift of retail share ownership into street name. This movement directly correlates with the decline in retail shareholder voting over the past decade. The votes of retail shareholders, who tend to support management, may be essential to passing a critical proposal. Unfortunately, the archaic and opaque street voting process in existence today has proven to be a barrier for many companies trying to stimulate retail shareholder voting. No effective means exists for issuers or retail beneficial holders to audit the street name voting process, so the risk of disenfranchisement of retail beneficial shareholders is high. The importance of issuers gaining responsive access to beneficial retail shareholders has increased with the heightened awareness of investors on issues such as compensation, option plans and director accountability. This is further exacerbated with the issuance of the "proxy access" regulations giving shareholder(s) continually owning 3% or more of the company’s stock for three years access to the ballot. 

In anticipation of the growing need to fix the current proxy system, the SEC issued the proxy Concept Release asking for input on potential changes to this system. Comments from issuers are critical in the SEC decision-making process.

We are urging all issuers to focus on the Concept Release and submit comments to the SEC. Please feel free to contact your Bracewell attorney if you need assistance in formulating responses to areas of the Concept Release of potential concern to issuers.