Several trade associations provided recommendations on SEC proposals to update shareholder and proxy advisory rules.
As previously covered, the SEC proposed amendments designed to improve the accuracy and transparency of information provided by proxy advisory firms. The proposals (i) specify that proxy voting advice generally constitutes a solicitation, (ii) codify the Commission's current view that a solicitation does not occur when an individual provides voting advice in response to an unprompted request, (iii) enact new conditions for proxy voting advice businesses seeking to rely on exemptions from certain information and filing requirements and (iv) provide examples of when a failure to disclose is considered "misleading," pursuant to SEA Rule 14a-9. Additionally, the SEC proposed (see previous coverage) amending the procedural requirements and resubmission thresholds of the shareholder proposal rule.
Selected commentary on the proposals follows.
The Investment Company Institute ("ICI")
The ICI recommended several changes to the proposal aimed at balancing the interests of companies and shareholders. Specifically, the ICI stated that it was opposed to the proposed proxy advice provisions that would allow companies to review and comment on proxy advisory firms' draft advice prior to its distribution to clients (i.e., fund complexes). Instead, the ICI urged the simultaneous release of the proxy reports to clients and companies.
Regarding the shareholder proposal, which it supports, the ICI recommended that the SEC balance shareholder and company interests by (i) revising the "momentum" exclusion, which would allow companies to exclude resubmitted proposals that "experience a specified loss of shareholder support" in order to better protect shareholder interests and (ii) creating a new vote-counting methodology for shareholder proposals resubmitted to closed-end funds that are curated to specific characteristics of the funds and their respective shareholders.
The Managed Funds Association and Alternative Investment Management Association (the "Associations")
The Associations urged the SEC to avoid making any changes concerning proxy voting advice that would create unnecessary delays, costs or legal ambiguities. Specifically, the Associations recommended that the proposals be amended to narrow the scope of the review and feedback process by (i) revising the proposed review and feedback process to allow comment only on factual information within proxy advice and (ii) clarifying legal ambiguities regarding Securities Exchange Act Rule 14a-9 for proxy advisory firms.
The Securities Transfer Association, Inc. ("STA")
The STA called for a resolution to the "sub-optimal proxy process," stating that problematic over-voting still occurs. The STA identified two priorities as "essential to successful proxy reform." They are:
- implementing a "strict reconciliation of voting entitlement" for entities that solicit proxies or voting instructions from investors, which would involve (i) broker-dealers and banks reconciling the record date of their positions prior to sending requests for voting instructions to clients and (ii) adjusting client positions to ensure that the correct number of voting instruction forms are sent; and
- encouraging investors to make their positions in a company public (thus becoming non-objecting beneficial owners, or "NOBOs") and allow issuers to use NOBO information, such as email addresses, to distribute proxy reports directly to investors.
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