With the stated goal of making it easier for investors to identify votes of interest and compare and analyze voting records, on September 29, 2021, the SEC released a proposed rule and amendments to Form N-PX (collectively, the "Proposal") that would increase proxy voting disclosures for certain registered investment companies and institutional investment managers.1 Specifically, the SEC proposed to (1) amend Form N-PX under the Investment Company Act of 1940, as amended (the "1940 Act"), to enhance the information mutual funds, ETFs, and other registered management investment companies (collectively, "Funds") must disclose about their proxy votes;2 and (2) require certain "institutional investment managers" required to file reports under section 13(f) of the Exchange Act ("Institutional Investment Managers") to report their executive compensation votes on Form N-PX (a.k.a. "say-on-pay" votes).3
A summary of some of the key elements of the Proposal are described below:
- Description and Categorization of Voting Matters. If adopted, the Proposal would require filers to disclose their proxy votes using the same language as in the issuer's form of proxy.4 Additionally, the Proposal would amend Form N-PX to require that filers categorize, from a provided list of categories and subcategories, the subject of each reported proxy voting matter.5 Some examples of the proposed categories include the following: board of directors, corporate governance, and shareholder rights and defenses.6
- Quantitative Disclosures and Securities Lending. In an effort to show how securities lending affects proxy voting (including when a Fund does not cast votes because it has loaned out its securities and not recalled them),7 the Proposal, if adopted, would require disclosure on Form N-PX of the number of shares that were voted or, if not known, the number of shares instructed to be cast, as well as the number of shares that were loaned and not recalled.8
- Structure and Availability of
Disclosures. The Proposal, if adopted, would also
include several changes which would affect the structure and
availability of Funds' proxy disclosures, including the
- Funds with multiple series would be required to provide Form N-PX disclosures separately by series.9
- Funds would be required to provide their proxy voting record on (or through) their website.10
- Form N-PX filers would be required to report information in a custom-made eXtensible Markup Language ("XML").11
- Institutional Investment Manager's Form N-PX Reporting Obligations. If adopted, the Proposal would require that "institutional investment managers" (i.e., persons, other than natural persons, investing in or buying and selling securities for their own account, and any person exercising investment discretion with respect to the account of any other person12) who are required to file reports under section 13(f) of the Exchange Act ("Institutional Investment Managers") file an abridged version of Form N-PX to disclose their say-on-pay votes with respect to any security for which they exercise voting power.13
We note that, consistent with the SEC's focus on ESG impacts within the investment industry,14 several of the identified categories into which Funds would have to classify their proxy votes relate to ESG matters (such as environment or climate; human rights or capital/workforce; and diversity, equity and inclusion). Given the level of attention in the Proposal to ESG matters, transparency with regards to how Funds cast their votes on ESG matters in particular and the ability to compare Funds' voting records on these matters was clearly an important goal of the Proposal. We do question whether the Proposal, in its current form, would achieve those aims, though, given the subjective nature of the categorization process and the potential for inconsistencies in how Funds would categorize particular votes.
While the Proposal is pending, we suggest that Funds and Institutional Investment Managers review their policies, procedures, and practices and consider how the Proposal, if adopted, would affect current practices.
1 SEC Proposes to Enhance Proxy Voting Disclosure by Investment Funds and Require Disclosure of "Say-on-Pay" Votes for Institutional Investment Managers, available at https://www.sec.gov/news/press-release/2021-202. The SEC has also released a fact sheet that summarizes key elements of the Proposal. SEC Fact Sheet, Proposed Amendments to Form N-PX, available at https://www.sec.gov/files/npx-fact-sheet.pdf (hereinafter, "Proposal Fact Sheet").
2 SEC Proposed Rule, Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Intuitional Investment Managers, SEC Release No. 34-93169, available at https://www.sec.gov/rules/proposed/2021/34-93169.pdf (hereinafter, "SEC Proposed Rule").
4 Id. at 34.
5 Id. at 36.
6 Id. at 36-38.
7 Id. at 49; Proposal Fact Sheet, supra note 1, at 2.
8 SEC Proposed Rule, supra note 2, at 41.
9 Id. at 54.
10 Id. at 13.
11 Id. at 75-76.
1215 U.S.C. § 78(m)(f)(6)(A).
13 See SEC Proposed Rule, supra note 2, at 17-19.
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