SEC Modifies Proxy Advice Rules, Rescinds Guidance for Investment Advisers
July 20, 2022
On July 13, 2022, the SEC adopted rule amendments that reverse certain of the changes adopted in 2020 to the federal proxy rules for proxy voting advice. At the same time, the SEC rescinded supplemental proxy voting guidance to investment advisers on their use of proxy advisory firms, which the SEC also adopted in 2020. The IAA has long advocated for the continued independence of proxy advice and the ability of investment advisers to access that advice when they vote proxies on behalf of their clients. The SEC’s recent actions affirm that proxy advice should be independent and remove the obstacles for advisers that resulted from the 2020 rules and guidance.
The IAA strongly opposed the SEC’s issuing of the guidance without its having provided stakeholders notice and an opportunity for comment and we urged the SEC to rescind the guidance along with any amendments to the 2020 rules. We argued that the guidance introduced additional time pressure and expenses for advisers into an already compressed and costly process. Consistent with our advocacy, the SEC also modified the proxy advice rules to remove certain conditions that, in our view, would have made it more difficult for advisers to obtain the important services that proxy advisory firms provide to assist advisers in voting proxies in the best interest of their clients.
The IAA had raised substantial concerns when the SEC proposed changes to the proxy rules in November 2019 and, while we appreciated that the SEC addressed several of our comments upon adoption, we continued to have – and raised with the SEC – concerns about these rules. The final rules include amendments that the IAA supported in our comment letter.
Specifically, we supported the amendments that remove certain conditions to the availability of exemptions from the information and filing requirements for proxy advisory firms. We also supported removal of a note added to the proxy rules that provided examples of situations in which the failure to disclose certain information in proxy voting advice may be considered misleading within the meaning of the antifraud provision of the proxy rules. In our view, both elements in the rules would have made it more difficult and more expensive for advisers to vote proxies on behalf of their clients.
The final amendments do not reverse the 2020 rules completely. Proxy voting advice generally remains a “solicitation” subject to the proxy rules and proxy advisory firms generally would still be subject to the conflicts of interest disclosure requirements adopted in 2020. The IAA did not comment on either of these issues.
While we supported the proposed amendments, our primary concern was with the SEC’s guidance for advisers. In addition to the 2020 guidance discussed above, the SEC issued guidance for advisers in 2019. Both sets of guidance were issued without the benefit of notice and comment. While we also asked the SEC to rescind its 2019 guidance, it was more important, in our view, to withdraw the more onerous 2020 guidance, which the SEC did.
The issue of how to treat proxy advice is far from settled, however, even with new final rules now in place, and the SEC faces ongoing and potentially new litigation from parties on both sides of the debate. We continue to believe that, instead of focusing on the services of proxy advisory firms, the SEC should address proxy “plumbing” or infrastructure, which all stakeholders agree is badly needed.