The Shareholder Communication Rules and the Securities and Exchange Commission: An Exercise in Regulatory Utility or Futility?

Abstract:     
One of the most difficult problems of corporate governance concerns the relationship between a company and its indirect owners, those who mostly hold shares in street name accounts. Voting rights under state law rests with the record owner (usually a broker, bank or depository), not the beneficial owner. Yet the rules of the Securities and Exchange Commission and the stock exchanges provide a mechanism for ensuring that street name owners in fact can vote their shares. The system is, however, built mostly around the notion that brokers and banks must forward proxy and other materials to beneficial owners, a circuitous, time consuming, and wasteful process. While the Shareholder Communication Rules do allow for some direct contact between the company and its beneficial owners, at least where the beneficial owners do not object, the rules are ineffective and do not promote direct communication. This article, although written back in the late 1980s, discusses the system of communicating with beneficial owners and the problems with the existing system.

Number of Pages in PDF File: 110

Accepted Paper Series