SEC Guidance Will Impact Roles of Proxy Advisers and Investment Advisers in Proxy Context
Aug 30 2019
Last week, the U.S. Securities and Exchange Commission (“SEC”) approved interpretative guidance [1] relating to (i) the application of proxy rules to proxy advisory firms [2] and (ii) the fiduciary role of investment advisers within the proxy process. [3] The guidance focuses on the need for improved transparency and structure within the proxy industry. Proxy and investment advisers are directed to review and update their policies and procedures prior to the 2020 proxy season. The SEC guidance should provide public companies increased insight into proxy adviser processes as well as new leverage in challenging perceived deficiencies in proxy adviser voting recommendations.
Key Takeaways
Advisers Should Review Policies and Procedures Now
The SEC cautioned that both proxy advisory firms and investment advisers should review the efficacy of their procedures and practices prior to the 2020 proxy season. Proxy advisers should confirm that procedural safeguards exist to protect against the use of inaccurate and untimely information in forming voting recommendations and that potential conflicts of interest are disclosed. These advisers should also make sure that their voting guidelines and recommendations follow client guidance and intent. Likewise, investment advisers should confirm that their policies and procedures protect their clients’ interests and include appropriate monitoring of proxy advisers.
Possible Proxy Adviser Regulation
The SEC also noted that the SEC’s Staff is considering amendments to the proxy solicitation exemptions relied on by proxy advisers (e.g., Exchange Act Rule 14a-2(b)) to increase transparency and information accuracy within the proxy process. The perceived need for additional regulation was echoed in comments from several Commissioners at the SEC’s Open Meeting held August 21, 2019. [4]
Split SEC
SEC Commissioners are split on the issue of proxy adviser regulation. The majority believes oversight (through both guidance and regulation) protects stockholders. The minority is concerned that additional regulation would hinder new companies from entering the already small proxy advisory industry and limit proxy adviser independence. This split highlights the continued tension between protecting individual stockholders and allowing institutional stockholders to vote in an efficient and informed manner.
Highlights from Proxy Adviser Release
Highlights from Investment Adviser Release
Contact Information
Womble Bond Dickinson regularly advises publicly-traded companies on proxy related matters, including the impact of proxy adviser guidance. If you need assistance or have any questions regarding the issued discussed in this alert, please contact Janet Lowder at (704) 331-4964 or Janet.Lowder@wbd-us.com, or you may contact the Womble Bond Dickinson attorney with whom you usually work or one of our Public Company Advisors Team attorneys for more information.
[1] See “ SEC Clarifies Investment Advisers’ Proxy Voting Responsibilities and Application of Proxy Rules to Voting Advice ” (Aug. 21, 2019), available at https://www.sec.gov/news/press-release/2019-158 .
[2] See “ Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice ,” SEC Release No. 34-86721 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/34-86721.pdf .
[3] See “ Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers ,” SEC Release Nos. IA-5325 and IC-33605 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/ia-5325.pdf .
[4] Statements were released by each SEC Commissioner in connection with the SEC’s Opening Meeting held August 21, 2019. These statements may be accessed through the following link, https://www.sec.gov/news/statements .
[5] See definition of solicitation found in 17 CFR § 240.14a-1(l).