September 14, 2010 Forum Report: Development of an Independent Shareholder Verification Process

Forum Report: Electronic Participation in Shareholder Meetings

Development of an Independent Shareholder Verification Process

In the course of the Shareholder Forum’s special project for identifying practices to support information exchanges associated with shareholder meetings, we confirmed in a demonstration test yesterday that current technologies can be used to conduct online verifications of an investor’s beneficial stock ownership. The Forum is therefore proceeding with the development of an independent shareholder verification service that can be made available to any company or its administrator of shareholder records.

Requirements of verification in electronic investor communications

The ability to verify shareholder status is one of the key issues addressed in the recent SEC initiative to address “proxy plumbing” reform,[1] and is a critical requirement of effective investor communications – electronic or otherwise. Verification of current ownership of stock is a condition of many shareholder rights, including requesting information from a company and submitting proposals.[2] It can also be important for corporate managers as well as for other investors to know the status of someone presenting comments or questions, especially if the source is anonymous.[3]

Verification requirements were considered especially challenging in the context of electronic communications. The brokerage account statements typically provided to verify ownership in written or in-person communications could theoretically be used also in electronic form, but the complexity of the process would detract from the convenience and accessibility of electronic communication. The solution we developed for a simpler, more efficient process was to make use of the online records accessible through the "Open Financial Exchange" ("OFX"), a protocol used by 5,500 financial service firms for online banking and account management. With an investor’s permission as part of a log-in process, we are now able to conduct a fully automated, rigorously secure review of the broker’s current records – essentially the same as if a printed copy of that day’s account statement had been presented in written communications – and immediately report the verification.

Inviting advice to guide development of process applications

The Forum is committed to making the verification process available as an independently controlled service that

(a) can be readily adapted to a broad range of company and transfer agent requirements for their verifications of beneficial ownership,

(b) assures the privacy rights of investors who request ownership verification, and

(c) provides competitively efficient and reliable support for the investor communications on which capital markets depend.

Any Forum participants interested in helping to guide our design of the service, including its features and policies, are encouraged to offer comments and suggestions.

GL – September 14, 2010

Gary Lutin

Chairman, The Shareholder Forum

c/o Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335

Email: gl@shareholderforum.com

[1] See July 14, 2010 U.S. Securities and Exchange Commission: "SEC Votes to Seek Public Comment on U.S. Proxy System."

[2] See March 15, 2010 Forum Report: Requirements of Proving Stock Ownership Rights.

[3] It should be noted that the ownership requirements for voting at meetings are different from those associated with most other shareholder rights. To vote, a person must be a direct registered holder of stock as of a specified record date, or have proxy authority from such a registered holder. Addressing this in the context of electronic meeting participation proved to be relatively easy, as demonstrated in this year’s Charles Schwab Corporation meeting, by simply replicating the in-person process for submission of the same forms by electronic means. A typical proxy statement voting instruction requires the addition of only a few words for adaptation to electronic meeting processes, as in this example (from the “Voting Your Proxy” section in the “Voting Instructions and Information” page of Prudential Financial’s 2010 proxy statement for its traditional, in-person annual meeting) with inserted phrases in bold italics:

If your Common Stock is held through a broker, bank or other nominee (held in street name), you will receive instructions from them that you must follow in order to have your shares voted. If you want to vote in person or online during the meeting, you must obtain a legal proxy from your broker, bank or other nominee and bring it to the meeting.

If you hold your shares in your own name as a holder of record with our transfer agent, …you may instruct the proxies how to vote following the instructions listed on the Notice of Internet Availability and the proxy card, or by signing, dating and mailing the proxy card in the postage paid envelope. Of course, you can always come to the meeting and vote your shares in person, or participate in the meeting online and submit your voting documentation electronically.