To their credit, SEC commissioners use the rather colloquial and workman-like (and inapt, see below) “proxy plumbing” only around the office. In external speeches they call their new project “voting infrastructure”. But, even “voting” fails to capture the majestic scope of what the SEC has in mind.

Neither phrase does justice to this massive undertaking, encompassing shareholder communication, participation, and tracking, voting mechanics, record dates, and a number of other areas. The SEC issued a lengthy concept release last month, seeking comments about these and other subjects. They will use these comments to inform what may amount to a significant overhaul of the structures and processes linking corporations to their investors.

Among activist investors, the release and comment process should interest mostly governance junkies, and the proxy solicitors and securities attorneys that represent them. Yet, the potential outcomes could make a meaningful difference in dozens of details around how activist investors compel change at portfolio companies.

Otherwise, it could be huge to corporations, at least to the investor relations folks (they’ve pushed the SEC to do this for several years), and could affect retail shareholders to a degree. It does have the potential to make the shareholding and voting system much more efficient.

The concept release addresses a number of issues, both interesting and arcane:

1. •Regulation of proxy advisors, such as RiskMetrics/ISS and Glass Lewis, similar to regulation of accounting or bond rating firms.
   

2. •Role of the numerous and perplexing intermediaries (or perhaps hangers-on) between corporations and their investors, such as custodians, depositories (DTC and Cede & Co.), clearing companies (NSCC), transfer agents, proxy service providers (Broadridge), proxy solicitors, and vote tabulators, and the fairness of the fees these intermediaries charge.
   

3. •Anonymity of investors, and whether corporations should communicate more directly with investors, rather than through those layers of intermediaries.
   

4. •How investors use derivatives to alter the relationship between voting and economic interest in a corporation.
   

5. •How corporations confirm that they have recorded and counted investors’ votes properly and as investors intend.
   

6. •Cleaning up how to vote shares lent to support short sellers.
   

7. •Promoting retail investor participation in corporate elections, including allowing investors to communicate among themselves without violating proxy solicitation rules.
   

In addition to seeking comment on dozens of questions arising from these and other issues, the release also serves as a thorough guide to the current systems related to shareholder recordkeeping and voting. For newcomers to activism, it’s worth a read or at least a skim on that basis.

Throughout the concept release the SEC keeps alive what strikes me as an anachronism, the “proxy voting system” and other related “proxy” subjects. It begins with the title, “Concept Release on the U.S. Proxy System”, and proceeds to invoke “proxy” hundreds of times. Yet, I can’t find one specific issue in the release that pertains directly to “proxy voting”, which I take as the concept and process of how a shareholder appoints a representative to vote on their behalf at an annual meeting. As technology evolves, and more corporations conduct electronic annual meetings, or allow shareholders to vote directly in advance of an annual meeting, the entire idea of a shareholder appointing a proxy becomes less and less important.

The concept release does highlight a fundamental dilemma in how the securities markets work in the U.S. The current structure allows prompt securities trading and clearing of trades, using a well-established clearinghouse concept. This system generally requires those layers of middlemen, which also serves to conceal the identity of individual owners from the issuing corporation. Perhaps technology will allow the SEC to structure a system that preserves the anonymity of investors while making the system more efficient.

The concept release discusses in depth whether to promote individual investor participation in corporate votes, and the best way to do that. I continue to think this effort futile, and that the SEC should spend its limited resources on policing how the institutions that represent individual investors (mostly mutual funds) discharge their fiduciary duty to these investors.

The concept release solicits comments on hundreds of questions related to dozens of issues. If an activist investor wants to participate, I suggest commenting as follows:

1. •If you use a proxy advisor – their role and regulation (Section V. A of the concept release)
   

2. •Disclosure of equity derivatives (Section V. C)
   

3. •Fees related to distribution of proxy materials (Section III. D)
   

4. •Anonymity or disclosure of investor identity (Section IV. A).
   

Commenting is easy, at the comment page on SEC website.