On September 29, 2021, the Securities and Exchange Commission (SEC) proposed new proxy voting disclosure requirements (the Proposal) for registered investment companies (funds)1 and for institutional investment managers (managers) subject to reporting under Section 13(f) of the Securities Exchange Act of 1934 (the Exchange Act).2 Under the Proposal, funds would, among other things, be required to categorize their voting records by standardized proposal types on Form N-PX, disclose the number of shares that were voted (or, if not known, the number of shares that were instructed to be voted) as well as the number of shares held by the funds that were loaned out on the record date and not recalled for voting, and post voting-related information on their websites. Similarly, managers would be required to disclose on Form N-PX their voting records regarding executive compensation and "golden parachute" arrangements. The new requirements for managers would implement the provisions of Section 14A of the Exchange Act adopted by Congress in 2010 under the DoddFrank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).
The Proposal was the first proposed rulemaking issued by the SEC under Chairman Gary Gensler and highlights the Chairman's focus on the shareholder proxy process as well as on completing outstanding implementation requirements under the Dodd-Frank Act. The Commissioners voted 4-1 in favor of the Proposal, with Commissioner Hester Peirce dissenting.3
The SEC's focus on proxy voting and shareholder governance rights continued throughout the fall with two other rule makings. In November 2021, the SEC adopted final rules requiring parties in a contested election to use universal proxy cards that include all director nominees presented for election at a shareholder meeting. Under the new rules, shareholders must be provided with the ability to vote by proxy for their preferred combination of board candidates, as they do when voting in person.4 The universal proxy rules became effective January 31, 2022. The SEC also proposed amendments to the current proxy rules governing proxy voting advice for the stated purpose of enhancing proxy advisory firms' ability to deliver independent proxy voting advice to their clients in a timely manner.5 If adopted as proposed, these rules would rescind portions of rules adopted by the SEC during the prior administration in 2020. Viewed in tandem, the Proposal and the proxy voting rules and proposals evidence a strong theme by the current SEC of strengthening the role of shareholders in corporate governance.
Download >> SEC Proposes Proxy Voting And Say-on-Pay Voting Disclosure Requirements For Funds And Institutional Investment Managers
Footnotes
1 The proposed requirements would apply to mutual funds and exchange-traded funds organized as openend management investment companies, closed-end management investment companies as well as insurance company separate accounts organized as management investment companies that offer variable annuity contracts (which register on Form N-3). The Proposal would not apply to unit investment trusts, face amount certificate companies or small business investment companies registered on Form N-2.
2 Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers, 1940 Act Release No. 34389 (Sep. 29, 2021), 86 FR 57478 (Oct. 15, 2021) (the Proposing Release).
3 Notably, Commissioner Peirce issued a statement regarding the Proposal, stating that she supported the SEC's proposing rules to implement statutorily required "say-on-pay" voting disclosures, but that she is concerned that the current and proposed Form N-PX disclosure requirements benefit activists rather than investors. As a result, she asked for comment as to whether the SEC should propose the complete withdrawal of all non-statutorily mandated voting disclosures, allow for presumptive confidentiality of votes, and emphasize that the SEC takes no position as to whether or not funds should vote. See Commissioner Hester M. Peirce, "Statement on Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers," Sept. 29. 2021.
4 Universal Proxy, Securities Exchange Act Release No. 93596 (Nov. 17, 2021) 86 FR 68330 (Dec. 1, 2021).
5 Proxy Voting Advice, Securities Exchange Act Release No. 93595 (Nov. 17, 2021), 86 FR 67383 (Nov. 26, 2021).
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