I previously posted about the increasing use by shareholders of proxy-exempt solicitations under Rule 14a-6(g).  That rule allows shareholders who are not seeking proxy authority to solicit other shareholders without filing a proxy statement, but under some circumstances, any holder of more than $5 million of stock must file their written solicitation materials with the SEC.  These days, however, even shareholders who do not need to file with the SEC choose to do so voluntarily, because EDGAR serves as a convenient and cheap mechanism by which materials can be distributed to other shareholders.

Well, Dipesh Bhattarai, Brian Blank, Tingting Liu, Kathryn Schumann-Foster, and Tracie Woidtke have just done a study of these solicitations: Proxy Exempt Solicitation Campaigns.  They find that a variety of institutional investors make these filings, including public pension funds (38%), union funds (26%), and other institutions, including hedge funds (22%).  The filings may be used to support shareholder proposals that are already on the ballot – and thus to exceed the 500-word limit for such proposals – and to oppose management proposals, such as director nominations and say-on-pay.  And these filings are taken seriously: 74% of them are accessed by a major investment bank, and they appear to have an effect on voting outcomes and forced CEO turnover.

So this is fascinating.  The rule, adopted in 1992, at least as I always understood it, was intended to ensure that all shareholders receive the same information, and to allow that information to be publicly vetted, so that large shareholders can't lobby others in secret (and away from management prying eyes).  But with modern computerized filings, the rule has been, functionally, hacked, to serve as a low-cost mechanism by which shareholders can communicate with other shareholders – and shareholders find it useful.  That's a good thing, and it tells us that maybe the SEC should in fact be more proactive in sponsoring platforms for shareholder communication.  Obviously, there are plenty of electronic forums today where shareholders congregate, but these are generally thought to appeal to retail shareholders and may have a high noise to signal ratio.  Now that the SEC knows it can provide an easy distribution mechanism for more formalized communications, I wonder if it's worth building out that possibility even more.