This past Thursday, the Investor Advisory Committee (IAC) of the Securities and Exchange Commission (SEC) reviewed and discussed the written proposal from the Investor-as-Owner Subcommittee (Subcommittee) for a recommendation to the Commission on modifying and improving the structure of the proxy process, commonly referred to as “proxy plumbing.” The discussion was a continuation of the discussion the IAC previously held at its September 2018 public meeting. That meeting preceded the SEC Roundtable on the Proxy Process in November 2018, which we previously discussed.
At the July 25, 2019 meeting, the Subcommittee made the following four recommendations on proxy plumbing:
- The SEC should require end-to-end vote confirmations to end-users of the proxy system, potentially commencing with a pilot involving the largest companies;
- The SEC should require all involved in the system to cooperate in reconciling vote-related information, on a regular schedule, including outside specific votes, to provide a basis for continuously uncovering and remediating flaws in the basic “plumbing” of the system;
- The SEC should conduct studies on (a) investor views on anonymity and (b) share lending, and
- The SEC should adopt its proposed “universal proxy” rule, with the modest changes that would be needed to address objections that have been raised to that proposal.
Committee members’ feedback on the Subcommittee’s recommendations seemed generally favorable, though no indication was given on the likelihood of the SEC implementing any of the recommendations.
The IAC elected to postpone voting on whether to make any recommendations to the Commission. The IAC reasoned that, given the complexity of the topic, members needed additional time to digest the information. The IAC hopes to hold the vote at another public meeting before September 2019.
Although the Commissioners were not in attendance during the proxy process presentation and discussion in the afternoon, two Commissioners made express reference to the proxy process agenda item in their respective opening remarks before the morning session. Chair Clayton noted that the proxy process is an important topic and added his hope that “we will keep in mind that the interest of the long-term Main Street Investor (MSI) should be a key priority as we consider any changes to the system.” Clayton raised a number of questions for the IAC to be mindful of such as why MSIs with direct holdings are voting less often. The newest Commissioner, Allison Lee, stated that she was “very pleased to see renewed attention regarding universal proxy ballots and ensuring that shareholders have equal rights when voting for board candidates.”