United States: SEC's New Guidance Targets Proxy Voting Responsibilities

Possibly signaling the future direction of regulation of proxy advisers, the U.S. Securities and Exchange Commission (SEC) on Aug. 21 issued two sets of interpretive guidance, one regarding proxy advisory firms under the proxy solicitation rules, and one regarding investment advisers and their proxy voting responsibilities. Among other things, the SEC issued an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a "solicitation" under the federal proxy rules. The SEC did not seek public comment or propose or adopt any new rules—though it pointed to processes that are already underway pursuant to which comment may be provided and noted consideration of specific potential future rulemaking under which public comment would be a part of the normal part of the rulemaking process. The moves may be an indication of what the SEC staff and the commission are considering with regard to requirements on proxy advisers to improve transparency and to give an opportunity to issuers to respond.

Guidance to Proxy Advisory Firms

In the Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice (Release No. 34 86721), the SEC:

  • Noted their recent engagements with public input on the role of proxy advisory firms and their use by investment advisers, including the November 2018 proxy process roundtable, as well as a concept release (Release No. 34 62495) in 2010, a prior roundtable in 2013 and a Staff Legal Bulletin (SLB 20) in 2014;
  • Promulgated an interpretation that proxy voting advice constitutes a "solicitation" under the federal proxy rules (i.e., within the definition of a "solicitation" under Rule 14a 1), as their recommendations are "communication[s] to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy;"
  • Noted that Rule 14a 9, which prohibits false or misleading statements or omissions in connection with solicitations, applies to voting advice from proxy advisory firms, as Rule 14a-2(b) does not provide an exemption from that rule. To this end, the SEC noted that proxy advisory firms should consider whether to include with their voting advice:
    • "[A]n explanation of the methodology used to formulate its voting advice on a particular matter (including any material deviations from the provider's publicly-announced guidelines, policies, or standard methodologies for analyzing such matters);"
    • "[D]isclosure about [third-party information sources] and the extent to which the information from these sources differs from the public disclosures provided by the registrant;" and
    • "[D]isclosure about material conflicts of interest that arise in connection with providing the proxy voting advice in reasonably sufficient detail so that the client can assess the relevance of those conflicts;"
  • Noted that the SEC staff is also considering recommending that the commission propose rule amendments to address proxy advisory firms' reliance on the proxy solicitation exemptions in Rule 14a-2(b), which generally allows proxy advisory firms to be exempt from having to file a proxy statement as they are not soliciting the actual power to vote (they merely provide a recommendation).

Guidance to Investment Advisers

In the Guidance Regarding Proxy Voting Responsibilities of Investment Advisers (Release Nos. IA 5325; IC 33605), the SEC noted:

  • That investment advisers that control, for example, investment funds, "are fiduciaries that owe each of their clients duties of care and loyalty with respect to services undertaken on the client's behalf, including voting" and that to "satisfy [their] fiduciary duty in making any voting determination, the investment adviser must make the determination in the best interest of the client and must not place the investment adviser's own interests ahead of the interests of the client;"
  • That where "an investment adviser has assumed the authority to vote on behalf of its client, the investment adviser, among other things, must have a reasonable understanding of the client's objectives and must make voting determinations that are in the best interest of the client" and "for an investment adviser to form a reasonable belief that its voting determinations are in the best interest of the client, it should conduct an investigation reasonably designed to ensure that the voting determination is not based on materially inaccurate or incomplete information;"
  • That where an investment adviser has assumed voting authority, it is not required to vote on every matter presented to stockholders, for example when refraining is in the best interest of the investment fund such as when the cost to the client of voting the proxy exceeds the expected benefit to the investment fund (though the investment adviser should carefully consider its duty of care when making such a determination).
  • That when using proxy advisory firms, while "this third-party input into such an investment adviser's voting decision may mitigate the investment adviser's potential conflict of interest, it does not relieve that investment adviser of (1) its obligation to make voting determinations in the client's best interest, or (2) its obligation to provide full and fair disclosure of the conflicts of interest and obtain informed consent from its clients;"
  • A variety of arrangements that investment advisers and their clients (investments funds) may have with respect to voting;
  • That when investment advisers have voting authority for a variety of funds, they need to consider whether the interests of the various funds differ and whether or not they should be applying uniform voting policies across those funds ("For example, a growth fund that targets companies with high growth prospects may have a different perspective on certain matters submitted to shareholders than an income or dividend fund that seeks to generate an income stream for shareholders in the form of dividends or interest payments");
  • That investment advisers that retain proxy advisory firms a different perspective on certain matters submitted to shareholders than an income or dividend fund that seeks to generate an income stream for shareholders in the form of dividends or interest payments, for example:
    • assessing "pre-populated" votes shown on the proxy advisory firm's electronic voting platform before such votes are cast (such as through periodic sampling of the proxy advisory firm's pre-populated votes);
    • consider policies and procedures that provide for consideration of additional information (other than the recommendation of a proxy advisory firm) that may become available regarding a particular proposal, such as an issuer's or a shareholder proponent's subsequently filed additional definitive proxy materials; and
    • with respect to matters where the investment adviser's voting policies and procedures do not address how it should vote on a particular matter, or where the matter is highly contested or controversial, the investment adviser could consider whether a higher degree of analysis may be necessary or appropriate to assess whether any votes it casts on behalf of its investment fund client are cast in the client's best interest;
  • That investment advisers must review and document the adequacy of their procedures with respect to voting in the best interests of their investment fund clients;
  • That when determining to work with a proxy advisory firm, the investment adviser should consider:
    • Whether the proxy advisory firm has the capacity and competency to adequately analyze the matters for which the investment adviser is responsible for voting, including the adequacy and quality of the proxy advisory firm's staffing, personnel, and/or technology;
    • Whether the proxy advisory firm has an effective process for seeking timely input from issuers and proxy advisory firm clients with respect to, for example, its proxy voting policies, methodologies, and peer group constructions, including for "say-on-pay" votes (e.g., if peer group comparisons are a component of the substantive evaluation, the investment adviser should consider how the proxy advisory firm (1) incorporates appropriate input in formulating its methodologies and construction of issuer peer groups, and (2) takes into account the unique characteristics regarding the issuer, to the extent available, such as the issuer's size, its governance structure; its industry and any particular practices unique to that industry, its history, and its financial performance);
    • Whether a proxy advisory firm has adequately disclosed to the investment adviser its methodologies in formulating voting recommendations, such that the investment adviser can understand the factors underlying the proxy advisory firm's voting recommendations;
    • The nature of any third-party information sources that the proxy advisory firm uses as a basis for its voting recommendations, and what steps the investment adviser should take to develop a reasonable understanding of when and how the proxy advisory firm would expect to engage with issuers and third parties; and
    • Whether the proxy advisory firm's policies and procedures regarding how it identifies and addresses conflicts of interest are appropriate, such as:
      • Whether they address actual and potential conflicts of interest, including (1) conflicts relating to the provision of proxy voting recommendations and proxy voting services generally (such as the provision of recommendations and services to issuers as well as proponents of shareholder proposals regarding matters that may be the subject of a vote), (2) conflicts relating to activities other than providing proxy voting recommendations and proxy voting services, and (3) conflicts presented by certain affiliations, such as whether a third party with significant influence over the proxy advisory firm [e.g., as a shareholder, lender, or significant source of business] has taken a position on a particular voting issue or voting issues more generally;
      • Whether they disclose details on for example, whether the issuer has received consulting services from the proxy advisory firm, and if so, the amount of compensation paid to the firm (if any), and whether a proponent of a shareholder proposal or an affiliate of the proponent is or has been a client of the proxy advisory firm; and
      • Whether they utilize technology in delivering conflicts disclosures that are readily accessible (for example, usage of online Portals or other tools to make conflicts disclosure transparent and accessible); and
  • That an investment adviser should assess the extent to which a proxy advisory firm's advice is subject to potential factual errors, potential incompleteness, or potential methodological weaknesses, including whether they engage with issuers to ensure complete and accurate information, correct any identified material deficiencies in their analysis, disclose the sources of information used in formulating recommendations and consider factors unique to the issuer or proposal when making recommendations.

The guidance and interpretation will be effective upon publication in the Federal Register.


Although the SEC did not directly address its intentions for future rulemaking in its press release or its guidance, the flavor of things to come may be hinted at in the various examples of matters that proxy advisory firms should consider disclosing and the matters that investment advisers should be considering when working with proxy advisory firms. It is possible that this may also be a signal to legislators in Congress who have proposed bills regarding regulation of proxy advisory firms that the SEC is itself addressing the concern.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Jan 2020, Conference, California, United States

One of the most visible and highly-regarded securities and corporate law conferences in the country, the Securities Regulation Institute reaches prominent attorneys from both firm and in-house practices.

4 Feb 2020, Conference, New York, United States

Legaltech is the largest and most important legal technology event of the year. Legaltech® provides an in-depth look at what the technological world has in store for you and your practice AND offers an expansive exhibit floor with the most extensive gathering of innovative products designed to meet your current and future technology needs.

Robert Brownstone, chair of Fenwick's Electronic Information Management practice will be speaking during multiple sessions on February 6.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions