The SEC finalized amendments designed to improve the accuracy and transparency of information provided by proxy advisory firms.

Under the final rule, the SEC amended:

  • SEA Rule 14a-1(l) ("Definition") by (i) expanding the definitions of "solicit" to generally include the provision of proxy voting advice, (ii) clarifying the circumstances in which a proxy advisor is engaged in a solicitation, and (iii) providing that a person's proxy voting advice in response to an "unprompted request" is not considered to be a solicitation;
  • SEA Rules 14a-2(b)(1) and 14a-2(b)(3) ("Solicitations to Which § 240.14a-3 to § 240.14a-15 Apply") by (i) establishing conditions that a proxy voting advice business must satisfy in order to rely on exemptions from information and filing requirements and (ii) providing "non-exclusive safe harbors" that a proxy voting advisor may rely upon to benefit from the exemptions; and
  • SEA Rule 14a-9 ("False or Misleading Statements") by providing examples of when a failure to disclose proxy-related material information could be deemed misleading.

The final rule will become effective 60 days after publication in the Federal Register.

In addition, the SEC supplemented prior guidance that had previously been issued to investment advisers detailing their proxy voting responsibilities. The supplemented guidance reflects the changes made under the final rule and will go into effect upon publication in the Federal Register.

SEC Commissioner Statements

SEC Chair Jay Clayton asserted that the final rule aims to address market participant concerns with regard to the proxy voting system by ensuring that proxy advisors (i) act in accordance with their fiduciary obligations and (ii) provide customers with transparent information on their voting decisions.

SEC Commissioner Elad L. Roisman supported the rule pointing to the "far-reaching" role that proxy voting advice businesses play in securities markets and the development of the proxy voting system.

SEC Commissioner Hester M. Peirce commended the principles-based regulatory approach for ensuring transparent and complete information for investors and advisers who rely on proxy voting advice while avoiding "unduly burdensome requirements."

SEC Commissioner Allison Herren Lee dissented, claiming that the final rule suppresses shareholder voting rights. She explained that the final rule (i) lacks evidence with regard to how "amplifying" the views of issuers will enhance proxy voting recommendations and (ii) imposes significant complexity and cost into a system that "just isn't broken."

Commentary

In this case, the Republican Commissioners supported more regulation and the Democrat dissented. The Republican Commissioners were likely concerned not only that proxy advisors may have significant influence over the voting results, but that much of this influence is concentrated in a very small number of firms.

Primary Sources

  1. SEC Press Release: SEC Adopts Rule Amendments to Provide Investors Using Proxy Voting Advice More Transparent, Accurate and Complete Information
  2. SEC Final Rule: Exemptions from the Proxy Rules for Proxy Voting Advice
  3. SEC Public Statement, Jay Clayton: Proxy Voting - Reaffirming and Modernizing the Core Principles of Fiduciary Duty and Transparency
  4. SEC Public Statement, Elad L. Roisman, Statement: Open Meeting to Adopt Amendments to the Proxy Solicitation Rules
  5. SEC Statement, Hester M. Peirce: Statement at Open Meeting on Exemptions from the Proxy Rules for Proxy Voting Advice and Supplement to Commission Guidance regarding Proxy Voting Responsibilities of Investment Advisers
  6. SEC Public Statement, Allison Herren Lee, Statement: Paying More for Less - Higher Costs for Shareholders, Less Accountability for Management

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