Legislature(2001 - 2002)
02/27/2002 03:25 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 418-ELECTRONIC PROXY VOTING & NOTIFICATION Number 555 CHAIR MURKOWSKI informed the committee that the next order of business would be HOUSE BILL NO. 418, "An Act amending the Alaska Corporations Code as it relates to delivery of annual reports, notice of shareholders' meetings, proxy statements, and other information to shareholders, and providing for electronic proxy voting." The committee took an brief at-ease from 4:10 p.m. to 4:11 p.m. Number 562 AMY ERICKSON, Staff to Representative Lisa Murkowski, Alaska State Legislature, introduced HB 418 on behalf of the House Labor and Commerce Standing Committee, which was sponsoring the bill by request. She explained that HB 418 very generally gives Alaska corporations a more convenient, timely, and efficient method of voting, by giving them the explicit ability to offer electronic proxy voting to their shareholders. Approximately 25 states already offer electronic proxy voting and the process is simple and quick. She explained that a shareholder receives a PIN [personal identification number] electronically, which the shareholder then uses to vote. The bill includes provisions that permit corporations to send one copy of an annual report and proxy materials to multiple shareholders at the same address, and to stop sending annual reports and proxy statements to shareholders whose mailing addresses are invalid. MS. ERICKSON offered that this will result in cost savings and added convenience for Alaska corporations. Reduction of paper, printing, and postage costs will be substantial - especially for larger corporations. She explained that proxy voting will allow for faster tabulation and higher accuracy of voting results. She said that because households in Alaska have the highest computer ownership and Internet access of any state in the nation, electronic voting will likely increase shareholder participation. Number 574 REPRESENTATIVE HAYES suggested that since electronic proxy voting has worked so well for shareholders, maybe it should be considered for elections in general in Alaska. CHAIR MURKOWSKI responded that the title of [HB 418] is tight enough that the committee wouldn't be including Representative Hayes's suggestion in this particular legislation. She thanked Ms. Erickson for presenting HB 418 to the committee. Number 585 BUDD SIMPSON, Attorney, Simpson Tillinghast Sorensen & Longenbaugh, testified on behalf of Sealaska Corporation. He said HB 418 is not particularly directed at Native corporations, but rather is an amendment to Title 10, "the regular corporations code," and would apply to all Alaskan business corporations. Addressing Representative Hayes's question relating to the application of electronic voting to general elections, he recalled that in 2000 the Republican Party of Alaska had conducted a "straw poll" relating to making electronic voting available to people who wanted it. He said, "It was tried once before ... and I guess it worked out well, with a lot of participation." TAPE 02-25, SIDE B Number 595 MR. SIMPSON emphasized that the language in HB 418 is not something [Sealaska Corporation] made up itself. The language has been modeled after various other states' existing statutes. California and Delaware, in particular, are often ahead of other states in corporate law areas. He said, "Everything that we've suggested here has been approved by the federal Securities and Exchange Commission [SEC]," so it already applies to most of the larger, publicly traded business corporations in the country. Number 583 MR. SIMPSON reported that 25 states have adopted similar legislation relating to electronic voting and electronic delivery of corporate materials. He explained that the "householding" provision is the shorthand term for sending one set of materials to the same address where several shareholders live. Sealaska Corporation has found that in many cases, four or five shareholders are at one address - for example, two parents with two or three children - and "in real life, probably one of those people is reading the materials anyway." He explained that the parents are custodians for the minor shareholders, and under current law [Sealaska] is sending a five- or six-dollar set of brochures and proxy statements to everybody at the address, which is pointless. Number 574 MR. SIMPSON said Sealaska Corporation has done some scientific surveying and found that over 60 percent of its shareholders have either a computer or access to the Internet. These results show that there is a big possibility that a lot of people would actually use [electronic proxy voting]. Sealaska Corporation also found that 29 percent to 30 percent of those polled indicated an interest in both receiving corporate information electronically and being able to vote through electronic media. He said [Sealaska Corporation] thinks that not only will [HB 418] save money, but it will increase participation in voting. Mr. Simpson noted that contrary to what some people think, "corporations do like to get a big turnout for their elections and get as much participation as possible." Number 557 MR. SIMPSON said he'd had a chance to briefly review a fiscal note and comments provided by the Division of Banking, Securities & Corporations (DBSC). He said he disagreed with nearly everything in the comments provided by DBSC. He noted that there are basically two areas where [DBSC] anticipates additional cost. The first is the supposed need to revise the regulation pertaining to Native corporations. Mr. Simpson offered that he doesn't view [HB 418] as particularly a Native corporation bill. He said that after reading the regulations, he didn't see any one place that needs to be revised if HB 418 is passed. MR. SIMPSON offered that second, the fiscal note anticipates a lot more adjudicative proceedings and shareholder complaints. Mr. Simpson said he doesn't understand why this would be, and suggested it is at least as likely there would be fewer complaints filed and less problems [if HB 418 passes]. He also suggested the division would actually have an easier time dealing with these issues if it is dealing with things like electronic proxies, rather than having to manually sift through thousands of written paper proxies to check signatures. Concluding that the DBSC is wrong about the fiscal note, Mr. Simpson said he thinks the fiscal note should represent zero. Number 533 MR. SIMPSON addressed another big concern of DBSC, that electronic voting will benefit the corporations unfairly, to the detriment of independent shareholders who are trying to run for the board or trying to pass a resolution. He disagreed, saying electronic voting will allow independent candidates to take advantage of this process at least as much as the corporation can. The ability to send materials to a large number of shareholders electronically, without having to print something or having to pay for postage, is a tremendous advantage to whoever is doing it; corporations will save tens of thousands of dollars a year. Mr. Simpson suggested that individual shareholders are the ones that these kinds of costs really "kill" in an election process. He concluded, "I think that this will open up the process even more to independent candidates and individual shareholders." Number 510 CHAIR MURKOWSKI remarked that members of her family are shareholders in several Alaskan corporations, and get too much proxy information in the mail from the corporations. She indicated the "householding" provision is a wonderful advantage, not only for the corporation, but also for the shareholder. Representative Murkowski asked: If her sons decided to get independent and vote on their own, is there a process through which they could notify the corporation that they want their own statements to come to them individually? MR. SIMPSON said that particular issue is addressed. He explained how way this process would work: before a corporation could use the householding provision, it would have to notify the shareholders in writing and give them the opportunity to either consent to that [or not], or advise them of the opportunity. The shareholder could opt out easily at any time by, for example, calling an 800 number or mailing a postcard to the corporation. He said the corporation would be required to make the changes within 30 days. CHAIR MURKOWSKI asked Mr. Simpson how the SEC comes into play with this type of legislation, because Native corporations in Alaska are Alaska Native Claims Settlement Act (ANCSA) corporations, which puts a different twist on things. Number 480 MR. SIMPSON responded that he doesn't want to leave the impression that the SEC has approved this exact bill [HB 418]. The SEC has adopted similar provisions on a national level, and Sealaska Corporation hasn't been in touch with the SEC on this particular legislation. He explained that the Native corporations are exempt from regulation by the SEC with the intent that the State of Alaska corporate code will control Alaska Native corporations. The reason for that was so that the corporations wouldn't be burdened by excessive regulation when they were getting started up. While the SEC has approved of this exact type of provision, it doesn't apply to Alaska Native corporations. It would already apply to Alaskan corporations that are publicly traded, which would make them subject to SEC regulations; he added that he doesn't know if there even are any of these corporations in Alaska. Number 463 REPRESENTATIVE ROKEBERG asked Mr. Simpson if he could provide the committee copies of the appropriate documents pertaining to California and Delaware's statutes that "mirror" [HB 418]. MR. SIMPSON said he would do that. REPRESENTATIVE ROKEBERG addressed the issue of how many times "undeliverable mail" needs to be re-sent to shareholders. He said currently [HB 418] requires that mail to be sent and returned as undeliverable two times before ceasing to mail any longer. He asked Mr. Simpson if two attempts is consistent with what other states have enacted. Number 447 MR. SIMPSON responded that currently, the corporations keep sending mail to an address where a shareholder used to live and has left no forwarding address. He noted that many times, the U.S. Postal Service will forward mail; this wouldn't apply to something that is actually forwarded to the shareholder. He said the "two-times requirement" is from other state's statutes, and is about right in terms of how often the mailings go out. He mentioned that when dividend checks are returned as undeliverable, that usually tells the corporation that nobody is there. Number 436 REPRESENTATIVE ROKEBERG asked if [Sealaska Corporation] would be in compliance with state law if it continued sending out the proxy statements and annual reports to an address where nobody lives. MR. SIMPSON said yes. REPRESENTATIVE ROKEBERG asked Mr. Simpson what Sealaska Corporation does with dividend checks that are returned as undeliverable. Number 426 MR. SIMPSON stated that Sealaska Corporation is required to send the check to the shareholder's last known address. He said Sealaska Corporation doesn't keep sending the "same ones over and over again, but when new stuff comes out, we send it." He said it's possible there are corporations out there that are not doing this. REPRESENTATIVE ROKEBERG asked Mr. Simpson if Sealaska Corporation has around 17,000 shareholders. MR. SIMPSON replied, "Almost [17,000], yes." REPRESENTATIVE ROKEBERG said other than major "Fortune 500" companies, 17,000 is a very large number of shareholders. MR. SIMPSON said Sealaska Corporation is the largest in Alaska. REPRESENTATIVE ROKEBERG asked Mr. Simpson if he has any idea what the [national] average is. MR. SIMPSON said no. Number 407 CHAIR MURKOWSKI said she is "shocked and appalled" at the fiscal note, which she'd been led to believe would represent zero, and then "at 12:30 p.m., we find out that not only is it not a zero fiscal note, but it's one of those 'oh, my gosh' fiscal notes." She said she has been impressed by DBSC's attempt to get the rest of Alaska online to do things like file a business license. She asked why the fiscal note represents that it is "impossible" for the corporations to come online like other businesses have. Number 397 TERRY ELDER, Director, Division of Banking, Securities & Corporations, Department of Community and Economic Development, offered to meet with Mr. Simpson at some point and work through some details pertaining to HB 418. He said Mr. Simpson had indicated to DBSC what Mr. Simpson's interest was, but that wasn't forwarded to him. He added that if there weren't ANCSA corporations in Alaska, then he "wouldn't be here." He said Alaska is the only state in the country that has responsibility for "monitoring the director of proxy elections." He'd learned through conversations with the corporate finance section of the SEC that its experience dealing with proxy issues is totally different from [Alaska's] experience. He said, "That's, in fact, the reason why it is exempt from the SEC rules." Number 368 MR. ELDER said the idea at the time was that the proxy regulations should be closer to home and be done in Alaska, rather than having people in Alaska always having to deal with people in Washington, D.C. He said, "When we look at something that otherwise would be fine and would appear to be innocuous in corporation rules, we have to view them with the thought of what impact does this have on the one program which is unique in Alaska - ANCSA." He said [HB 418] doesn't deal specifically with the corporation code but rather with proxy materials. Number 354 MR. ELDER addressed the issue of the fiscal note and said when "the program" was first started, the responsibility was first given to Alaska. He continued by saying that later on when the securities Act rules were changed to include enforcement, the division at that time submitted a fiscal note that the legislature "zeroed out." He said, "The fact is that it has had - and does have - a fiscal impact." Number 339 MR. ELDER said the DBSC has a number of concerns. He offered that maybe some language could be worked out that would allay the division's concerns. He noted that in a phone conversation that day, he'd told Mr. Simpson that the division would want to expand [the language] to make sure that other corporations and shareholders had some input into this issue, which is, in fact, their election. MR. ELDER explained that "what makes [ANCSA corporations] so different from anything the SEC does is the fact that ... the shares aren't transferable." If a typical shareholder in a "tradable" company were upset about something, it would be fairly unusual for that person to wage a proxy war; more likely, the person would sell his/her shares. However, because ANCSA corporation shares aren't tradable or transferable, a shareholder with a problem might attempt to have changes made through proxy contests. Therefore, a lot of independent candidates file and seek election, and some are successful. Number 313 MR. ELDER informed the committee that [DBSC] gets a lot more complaints expressed both from a corporation against [individual] candidates and from those candidates against a corporation. The division also receives a lot of complaints about "mailing lists and other things which are covered in Title 10." He reported that it has always been the DBSC's position to not enforce those complaints. He said there is a private right of action in Title 10 whereby shareholders hire their own attorneys and sue a corporation if they feel somehow that the corporation has taken advantage of them or has violated Title 10. Mr. Elder remarked that the division's role is to bring to the committee's attention another view that needs to be heard. Number 280 REPRESENTATIVE HAYES asked why the figure for travel costs is $26,000. MR. ELDER said, "That is the total cost of both ... one Investigator III, with $10,000 of travel, ... and with public hearings to meet with shareholders around the state." He said the division's regulations haven't changed much in the last 10 or 12 years, whereas the dynamics of corporations and their elections have changed substantially. He said that when the regulations are opened up for review, [the division is] going to have first solicit comments from everybody - more than just three newspapers in the state, because these corporations are statewide. Therefore, the division's fiscal note includes a higher level of running notices and actually obtaining input, rather than relying on the mail. He explained that this is expensive and that the division has never done it. Number 256 CHAIR MURKOWSKI asked why the division would do it now. MR. ELDER answered that it's time to update the regulations. When the regulations were drafted 25 or 26 years ago - looking at the record - it appears that most of the conversation was between corporate executives and corporations. He explained that since the ANCSA corporations had only been in existence for 5 to 7 years at that point, that was probably reasonable; a sizeable percentage of minority shareholders weren't at that table forming the regulations. He said these are their elections for their corporations, and it's a mistake to ignore them. Mr. Elder offered that it would be nice to make everybody feel he/she had input in adopting regulations, as opposed to feeling forever excluded from that process. Number 215 MR. ELDER noted that the division has had a lot of complaints in the past from individual shareholders about the shareholder lists that they'd obtained from the corporation in order to conduct their own proxy contest. Examples of complaints are that the corporation wasn't responsive or timely enough, or that people don't think the corporation gave them the latest list, because they got a lot of returned mail. He said the corporation has always responded by explaining that it gets a lot of returned mail, also, and that it's hard to keep up a list that doesn't have a high percentage of returned mail. Number 189 CHAIR MURKOWSKI indicated she objected to the fiscal note. She offered her opinion that [HB 418] is intended to update things to allow for electronic voting. She told Mr. Elder that the division is "socking what I think is a pretty legitimate bill with a fiscal note to underwrite the full-course proxy regulation review." She wanted to know if there is a way the division could submit a fiscal note that applies only to the cost of implementing HB 418. She said, "Here's an effort to really bring about greater participation into the process, and if this fiscal note goes to [the House Finance Committee], which it would have to, even though it was not given a finance referral, ... it's not going to go anywhere." Number 153 MR. ELDER offered that as far as the regulations are concerned, the division could submit a "scaled-down" version of regulations that wouldn't include face-to-face meetings. For example, at the committee's option, [the solicitation costs for the regulation review] could be taken out and replaced with "the bare bones." Then, when it comes time to adopt new regulations, the division would do it without face-to-face meetings, if that is how it is funded. He added, "What appears ... to be a narrowly focused change is not going to be narrowly focused, because people are going to be able to make comments on the entire range of regulations." Number 130 CHAIR MURKOWSKI asked, "By doing this, are we opening up the whole shareholder dissident proxy fight ...?" MR. ELDER warned that it is impossible to ignore issues like mailing lists because these issues have been around for a couple of decades. REPRESENTATIVE ROKEBERG asked Mr. Elder if he is indicating that the administrative procedures are such that the division could not refuse to take comments on other provisions that aren't covered by the instructions in the statute. MR. ELDER replied that [DBSC] would take instructions from the Department of Law. REPRESENTATIVE ROKEBERG suggested [the committee] might want to look at a legal opinion that would ask whether it could narrow the focus of any regulatory revisions made just to conform to the statute. He stated that he would be "very concerned" if this were not possible. He said he appreciated Mr. Elder's concerns, but that the division is trying to solve a long-term problem, which is not what [HB 418] is trying to address. Number 085 MR. ELDER said that is only part of the fiscal note. He explained that the other part of the fiscal note is the investigator. REPRESENTATIVE ROKEBERG said what has him "baffled" is that [the division] says that it doesn't enforce Title 10, and then has to turn around and spend $100,000 to draft regulations on something it doesn't enforce. Number 079 MR. ELDER said, "[DBSC] enforces the proxy rules that are part of the securities Act, and those rules go to the delivery of ..." REPRESENTATIVE ROKEBERG interjected, "You said the private right of action, which is in Title 10, ... so are you changing your testimony now?" Number 069 MR. ELDER responded that [the division] has regulations that address the delivery of proxy materials, and [HB 418] would affect those regulations. He explained that anyone can file a complaint that goes to the receipt or the failure to send information, but currently the division doesn't get these kinds of complaints. The kinds of complaints [the division] gets most often relate to misstated or fraudulent material. He offered DBSC's opinion that this will open up the opportunity for more kinds of complaints that will require an investigation. CHAIR MURKOWSKI asked why the division thinks this will generate more complaints. Number 043 MR. ELDER offered that he doesn't think anyone has claimed that a corporation has failed to make delivery of the required information, the way things are now. However, when several issues like delivery of information, mailing lists, and householding are discussed together, Mr. Elder said he gets nervous because he see the opportunity for complaints requiring an investigation. REPRESENTATIVE HALCRO said whenever one is given more opportunities to participate in a process, the more opportunities there are to complain about the fairness of the process. He asked if this is similar to what Mr. Elder is describing. Number 002 MR. ELDER agreed it would certainly be part of the problem. He said it is a good idea to broaden it, but it also changes the methods of sending it. TAPE 02-26, SIDE A Number 001 MR. ELDER said if there is an increase in complaints, some of which may or may not be well-founded, the division still will have to investigate them, because it is the division's responsibility. Number 010 REPRESENTATIVE ROKEBERG asked, "Even though it's a private right of action?" MR. ELDER replied, "A private right of action goes to Title 10 itself. And in terms of the regulations that govern proxy contests, that is [the division's] responsibility." He said if something is covered in the proxy rules, then certainly a shareholder can file a complaint with the division, resulting in an investigation. CHAIR MURKOWSKI said the conversation has hit on the two main topics of discussion: revision of the regulations and an increased number of complaints. Number 040 REPRESENTATIVE HALCRO suggested that Mr. Elder might want to sit down with the supporters of HB 418 and talk about some of the "sticking points" he has with HB 418. CHAIR MURKOWSKI said Representative Halcro's suggestion is a sound recommendation because she believes some areas can be ironed out. She encouraged Mr. Elder and Mr. Simpson to meet and work out some details before the committee continues this hearing on Monday, March 4, 2002. Number 074 MR. ELDER noted that he had a phone conversation with Mr. Simpson and offered to work on any details. He also said he'd be willing to devote a fair amount of time between today and Monday, March 4, to meet with Mr. Simpson. CHAIR MURKOWSKI said she understands that Mr. Elder has some additional issues with HB 418 that have been documented, and encouraged him to include those issues in his discussion with Mr. Simpson. Number 101 CHAIR MURKOWSKI announced that the House Labor and Commerce Standing Committee would hold over HB 418 until Monday, March 4, 2002.
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