Political democracy might not be in great shape but shareholder democracy is surely worse, as voting shareholders often feel powerless to make much of a difference. Now, regulators are proposing a change that could push retail investors even further away from having a say in how public companies are run.

The Canadian Securities Administrators is proposing a series of changes to shareholder communication rules, including the introduction of a “notice and access” model for routine proxy votes. Essentially, this would allow share issuers to send their shareholders a notice informing them that their proxy materials are available online, or on demand, rather than automatically sending the entire package of materials.

The benefit for companies is the cost savings from not having to mail out the proxy materials to all of their shareholders, many of whom likely won’t bother to vote anyway. The cost is the possibility that even fewer retail investors will exercise their votes if they don’t get the prod of a physical proxy, which, in turn, may weaken management’s accountability to shareholders even further.

Indeed, the N&A model has been in use in the U.S. for a couple of years — to the apparent detriment of voter turnout by retail shareholders. According to data published by Broadridge Financial Solutions Inc., the percentage of retail shareholders that vote their proxies is much lower among those that simply receive the notice of proxy materials vs those that receive the full package of materials.

For the first year that the N&A model was available to issuers in the U.S., just 5% of shareholders who received a notice actually voted vs 19.4% of those who received the full proxy package. Overall, 12.5% of all retail accounts voted vs 19.5% of all shareholders. Among companies that mailed out proxies, 20.5% of retail shareholders voted vs 26.3% of all shareholders.

In the second year of the new N&A process, the response rates went down further — just 4% of shareholders who received only the notice voted. The proportion of shareholders receiving the notice who requested the full package of proxy materials also declined.

The U.S. Securities and Ex-change Commission points out that there may be other factors contributing to this low response rate, apart from the new process, and that companies may be either using the notice-only method primarily with shareholders who haven’t voted much in the past or by targeting only larger shareholders with the full proxy package.

Nevertheless, these sorts of voting statistics have motivated the SEC to revisit its proxy voting rules. Earlier this year, the regulator adopted some changes designed to improve retail investors’ response rates by making the process more flexible in an effort to reduce to possible investor confusion. The SEC also launched a new web page to explain the mechanics of proxy voting, as well as the rules governing proxy voting.

The CSA appears to be a taking a fairly cautious approach to the introduction of N&A here in Canada. In its proposals, the CSA stresses that the N&A process would not apply to “special meetings” called to vote on major changes at a company, as the CSA wants to monitor the N&A procedure before the regulators consider applying it to these sorts of meetings.

And the CSA points out that its proposal has some differences from the U.S. model, which are intended to minimize the impact on retail shareholders, which include: the N&A model would not be mandatory for reporting issuers in Canada; voting instructions must be sent with the initial notice; and the issuer is responsible for fulfilling requests for paper copies of information circulars, not an intermediary.

Notwithstanding the fact that these differences between the proposed CSA model and the U.S. model are intended to limit the effect on retail shareholders, firms that are also U.S. issuers will be permitted to follow the U.S. model. Thus, these differences may not come into play for many of the larger public firms.

There is no question that there are savings to be had for issuers. The Broadridge report estimates the 653 companies that employed the N&A model in its first year saved US$143 million in postage and printing costs; this figure rose to US$239 million in the second year, as the number of issuers using the method rose to more than 1,300. The question is whether these savings are worth the harm done to already fragile shareholder democracy.