In a 3-1 decision, the U.S. Securities and Exchange Commission voted to approve amendments to its rules governing proxy solicitations, impacting the role of proxy advisor services. While the SEC presented the rules as providing investors with greater transparency and complete information, several prominent shareholder advocates have criticized the new rules, raising concerns that they will impact the independence and effectiveness of proxy voting advice.
The new rules codify that proxy voting advice constitutes a solicitation under the proxy rules, subjecting the providers of such services to more stringent filing and disclosure rules. The rules also require that companies that are the subject of proxy voting advice be provided with that advice at or prior to dissemination of that advice to shareholders, and that the proxy voting service provide the ability for shareholders to access any written statements provided by the issuing companies regarding the voting advice given.
In a statement announcing the adoption of the new rules, SEC Chairman Jay Clayton said:
“The majority of our Main Street investors participate in our public markets through ownership of mutual funds and ETFs managed by professional market participants. Today’s actions ensure that those who take on the responsibility of investing and voting on behalf of our Main Street investors have the accurate and decision useful information necessary to make an informed voting decision for the benefit of those investors.”
Several shareholder advocates and governance specialists, however, criticized the new rules, suggesting they would negatively impact shareholders, making the ability to provide proxy advice more costly and less efficient, while impacting the independence of the advice.
In a statement, Karen Barr, President and CEO of the Investment Adviser Association (IAA), said:
“While the final proxy voting rules and new guidance adopted by the SEC this morning have been modified from the initial proposal in response to widespread criticism—including from the IAA—we continue to believe that the SEC’s actions represent bad policy. They represent a major step backwards for corporate governance and will make it more difficult for investment advisers to use the services of proxy advisory firms to fulfill their proxy voting responsibilities on behalf of their clients.”
Gary Retelny, President and CEO of governance specialist Institutional Shareholder Services (ISS) issued a similarly critical statement, citing the dissenting opinion of SEC Commissioner Allison Lee. Retelny said:
“While the rules adopted today may appear less draconian than originally envisioned, they nevertheless serve as a blow to institutional investors seeking to judiciously monitor portfolio companies. As Commissioner Lee noted, these rules are ‘unwarranted, unwanted and unworkable.’ Despite seemingly reducing the previously contemplated burden on proxy advisers, the new rules, coupled with the new guidance for investment advisers, will hinder investors’ ability to vote in a timely, cost-effective, and objective manner.
“The rule, passed today along party lines, is based on the view that the provision of proxy voting advice constitutes a solicitation, a premise which we believe is inconsistent with the plain meaning of the federal securities laws. This issue was at the heart of the lawsuit which we initiated against the SEC last year and it continues to be of concern to ISS.”