The proxy solicitation season is upon us. It is supposed to be the season for management and governing boards of directors or trustees to account to shareholders and investors for their corporate stewardship.

It’s anything but, however, thanks to the changes that securities regulators have implemented in the past few years with respect to the delivery of financial statements, annual reports, notices of meetings and proxy solicitation circulars.

Each day brings new frustrations to shareholders who want to use the material to make reasoned decisions about whether to continue to own the securities in question and how to exercise the attached voting rights. Instead, they find that the core information contained in the financial statements and annual reports is missing from the package.

Securities regulators have changed the rules for the delivery of financial statements and annual reports. They no longer have to be sent to shareholders unless the shareholder expressly requests delivery. Shareholders have to make their requests annually and have to specify that their requests cover both the annual and interim financial statements and reports if they want to receive them.

One has to wonder how the use of a negative option — which has generally been outlawed in commercial transactions — was allowed to creep into securities law disclosure requirements. This is especially astounding in light of the fact that securities laws are based on the fundamental principle of ensuring the truthful and timely disclosure of all material information.

Even when a shareholder overcomes the behavioural inertia of not getting around to sending back forms asking for annual and interim financial statements and reports, it is no easy task to find the right forms, complete them properly and then return them. Some companies bury the information in long letters, while others include a line in the proxy form or include a form with a self-addressed envelope or a postcard.

There is no central place for recording your preferences. Some companies do not prepay the postage, which operates as another disincentive to return the form. The use of postcards — which contain your name, address and signature — is a major disincentive in this age of identity theft.

The result of this regulatory negative option approach is that many shareholders are not receiving the information they need to make reasoned decisions. The process is effectively disenfranchising individual investors and making it more difficult for them to increase their knowledge and awareness of the factors that affect their financial well-being.

A recent letter from one individual investor urges regulators to get rid of the negative option and replace it with the requirement to send reports unless the investor expressly requests no reports. He would get rid of the “little cards” in favour of directing his advisor as to what he wants and the form he wants it in (electronic or paper).

This investor points out that the negative option is another example of how the industry has influenced regulators to do what is convenient for it. He queries whether there were “real investors” on the panel that recommended this anti-investor approach. The investor goes on to say that the pendulum has swung too far in favour of the companies.

One has to wonder why companies that spend vast amounts of money on shareholder and investor relations would pass up an opportunity to communicate meaningfully with their shareholders and investors. One hears a lot about cost savings, but it is a legitimate question to ask about the trade-offs in decreased accountability and ability to monitor board and management conduct. Even in the case of direct costs, one has to wonder whether the supposed cost savings are not offset by higher costs for smaller print runs.

The regulatory approach to disclosure is extremely troublesome and fuels the concerns that regulators are falling far short of their investor-protection mandate. IE