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SEC Proposes to Enhance Accuracy and Transparency in Proxy Voting Advice

The SEC proposed amendments designed to improve the accuracy and transparency of information provided by proxy advisory firms. (See also SEC Proposes Amendments to Modernize Shareholder Proposal Rule.)

According to the SEC, the proposal would:

  • specify that proxy voting advice generally constitutes a solicitation;

  • codify the Commission's current view that it is not solicitation when an individual provides voting advice in response to an unprompted request;

  • enact new conditions for proxy voting advice businesses seeking to rely on exemptions from information and filing requirements, including (i) providing certain conflict of interest disclosures, (ii) allowing registrants and other soliciting persons to review proxy voting advice before it is released, and (iii) adhering to requests to provide the registrants' and/or other soliciting persons' views on the proxy voting advice; and

  • provide examples of when a failure to disclose is considered "misleading," pursuant to SEA Rule 14a-9.

SEC Commissioner Elad L. Roisman praised the proposal for helping "Main Street investors" by:

  • enhancing conflict of interest disclosures;

  • reducing potential errors in proxy voting advice; and

  • ensuring that the recipients of proxy voting advice are able to consider opinions from issuers or other soliciting people on the advice in a timely manner.

SEC Chair Jay Clayton asserted that the proposal adheres to the "key principle of our securities law" by helping investors receive material information that would affect voting decisions. Mr. Clayton also reminded registrants that they must file their proxy materials more than 25 days before the annual or special meeting to engage in the review process.

Chair Robert Jackson dissented from the requirement that a proxy advisor submit a draft of their advice for review by an issuer's management, and to include management's views in the proxy advisor's report. He argued that the additional costs imposed on the proxy advisor of incorporating management's comments into their advice is an unfair burden on the proxy advisor (and, thus, on the shareholder(s) who submitted a proxy that may be opposed by an issuer's management).

SEC Commissioner Allison Herren Lee supported the stated goal of proposal, but identified the following "critical underpinnings" absent from the proposal: (i) data showing an error rate in proxy advice and (ii) evidence that an increase in involvement from issuers would improve proxy voting advice.

Comments on the proposal must be submitted within 60 days of its publication in the Federal Register.

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