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On July 14, 2010, the Securities and Exchange Commission issued a Concept Release seeking public comment on various aspects of the U.S. proxy system. The purpose behind the solicitation of public comment is to consider “whether the U.S. proxy system as a whole operates with the accuracy, reliability, transparency, accountability, and integrity that shareholders and issuers should rightfully expect.” The Concept Release poses more than 300 questions in the following areas: the accuracy, transparency and efficiency of the voting process; communication and shareholder participation; and the relationship between voting power and economic power, as summarized below. The full text of the Concept Release is available at http://www.sec.gov/rules/concept/2010/34-62495.pdf. Comments should be received by the SEC on or before October 20, 2010.

Accuracy, Transparency and Efficiency of the Voting Process

• Over-Voting and Under-Voting. Securities lending transactions and the timing for clearance and settlement of trades can result in differences on the books and records of a broker-dealer and other proxy participants with respect to the number of shares entitled to vote at a meeting. These differences may result in a broker-dealer voting a greater or lesser number of shares at a shareholder meeting than it is entitled to vote. Broker-dealers have developed different methodologies with respect to allocating voting rights among customer accounts. The SEC seeks information to determine the extent of over-voting and under-voting. The SEC also requests public comment on whether a broker-dealer (or other intermediary) should be required to disclose its allocation and reconciliation methodology or whether the SEC should mandate the use of a particular allocation and reconciliation methodology. The SEC also seeks comment on whether brokers should be required to disclose the effect of share lending programs on the ability of retail investors to cast votes and whether steps should be taken to address problems or inefficiencies in the proxy process created by the current system of settlement and clearance of securities transactions.

• Voting Confirmation. Under the current system, a beneficial owner is not able to confirm whether shares have been voted in accordance with the holder’s instructions. The SEC seeks comment on the development of a process to permit voting confirmation, including whether vote tabulators, securities intermediaries and proxy service firms should be required to provide access to certain information for the purpose of enabling a holder and the issuer to confirm the vote information, while preserving the anonymity of those investors who choose not to have their identities disclosed to the issuer.

• Proxy Voting by Institutional Securities Lenders. Many institutions engage in a securities lending program in order to earn additional income on the securities held in its portfolio. When shares are loaned the voting rights generally transfer to the borrower for the period of the loan. If the lender of the securities desires to vote those shares, the lender must terminate the loan and recall the security on or prior to the record date of the meeting. The SEC seeks comment on whether an issuer should be required to provide notice (through the securities exchange, press release, Form 8-K or some other method) in advance of the record date of a shareholders meeting that includes the record date, the meeting date and a description of the matters to be considered at the shareholder meeting. Such notice would allow a lender to recall loaned securities in order to vote the shares. The SEC also seeks comment regarding whether management investment companies should be required to provide additional disclosure regarding the actual number of votes cast at meetings and the number of securities that were not voted as a result of securities lending or other reasons.

• Proxy Distribution Fees. The stock exchanges have adopted rules, approved by the SEC, to establish the maximum amount that a broker-dealer may receive for distributing proxy materials to beneficial owners. The SEC seeks comment on the structure and amount of proxy distribution fees (including the maximum amount of fees to be charged for the access and notice proxy delivery model) and whether the proxy distribution process can or should be modified in order to create competition among service providers to reduce the costs to issuers for the distribution of proxy materials.

Communications and Shareholder Participation

• Issuer Communications With Shareholders. Most public issuers’ shares are held in street name, and a majority of shares are held as objecting beneficial owners, or OBOs. An OBO may only be contacted by the securities intermediary who has the customer relationship with that OBO. Therefore, the issuer does not know the identity of, and is not able to directly communicate with, an OBO. As a result of recent rule changes and other developments, including the elimination of broker discretionary voting in uncontested director elections, issuers may need to be able to communicate more readily with their shareholders. The SEC seeks comment on whether to eliminate or limit OBO status in order to facilitate direct communication between the issuer and its beneficial owners. The SEC also seeks comment on whether to require broker-dealers to provide additional information to its customers regarding the choice of OBO status.

• Means to Facilitate Retail Investor Participation. The Concept Release requests public comment on ways to promote and facilitate voting by retail investors, including through (i) improved investor education regarding the proxy voting process and the importance of voting, (ii) enhanced brokers’ internet platforms, (iii) solicitation by brokers or other proxy service providers of voting instructions from retail investors on particular matters in advance of receipt of company proxy materials, (iv) facilitation of investor-to-investor communications, and (v) improved use of the Internet for distribution of proxy materials.

• Data-Tagging Proxy-Related Materials. Proxy statements and voting information are neither required nor permitted to be filed with the SEC in XBRL or other interactive data format. Information provided in interactive data format may allow an investor to search and obtain specific information about issuers, compare information across different issuers and observe how issuer-specific information changes over time. The SEC seeks comment on whether it would be beneficial to permit or require issuers and mutual funds to provide all or a portion of the proxy statement and voting information in interactive data format.

Relationship Between Voting Power and Economic Interest

• Proxy Advisory Firms. Institutional investors are increasingly using the services of proxy advisory firms to analyze and make voting recommendations on shareholder matters or to execute votes on shareholder matters on behalf of the institutional investor pursuant to a voting policy. Some proxy advisory firms providing these services to institutional investors also provide consulting services to issuers on corporate governance or executive compensation matters or qualitatively rate issuers’ corporate governance structures and practices. The SEC seeks comment on whether it should provide additional guidance under existing regulations or adopt new regulations to require disclosure by proxy advisory firms about actual conflicts of interest, potential conflicts of interest and procedures to manage conflicts of interest. In addition, the SEC seeks comment on whether to require increased disclosure by a proxy advisory firm regarding the process undertaken to formulate its voting recommendation and procedures to ensure accuracy of issuer data.

• Dual Record Dates. Certain states, including Delaware, have recently amended statutes to permit a company to establish dual record dates—a record date for determining shareholders entitled to notice of a meeting and a different record date to determine the shareholders entitled to vote at such meeting. Dual record dates can make it more likely that the persons entitled to vote at the meeting continue to have an economic interest in the issuer at the time of the meeting; however, dual record dates present challenges, including delivery of adequate disclosure to the shareholder in a timely manner with respect to the matters to be considered at the shareholders meeting. The SEC seeks comment on whether to take action to facilitate issuers’ use of dual record dates.

• “Empty Voting” and Related “Decoupling” Issues. “Empty voting” occurs when a shareholder’s voting rights substantially exceed the shareholder’s economic interest in the company. A variety of techniques can result in empty voting, such as holding shares but hedging the economic interest in those shares through puts, options, credit derivatives or other devices; actively trading shares after the record date for the meeting and voting those shares for which the investor has no economic interest; voting of employees’ unallocated shares in an employee stock ownership plan; or voting borrowed shares. The SEC seeks comment on whether to require disclosure of empty voting or whether to take steps to limit or prohibit empty voting, especially in situations where the investor has a negative economic interest.

For more information regarding the Concept Release, or for assistance in submitting comments to the SEC in response to the Concept Release, please contact your regular Baker Hostetler contact person.

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