Yesterday, the Securities and Exchange Commission (SEC or Commission) announced that the agenda for the Open Meeting, next Wednesday, August 21, 2019 at 10:00 a.m. E.T., will include consideration by the Division of Corporation Finance on whether to publish an interpretation and related guidance regarding the utilization of proxy advice in the proxy voting process.
In addition, the Division of Investment Management will consider whether to publish guidance on the proxy voting responsibilities of investment advisers under Rule 206(4)-6 of the Investment Advisers Act of 1940. These regulatory responsibilities include advisers’ adopting policies and procedures that are reasonably designed to ensure that the advisers vote client securities in the best interests of their clients and disclosing how advisers resolve conflicts of interest.
While no further details on the subject matters are provided in the meeting notice and agenda, the spotlight on proxy advisors has been steadily growing for years. Institutional investors utilize research and voting recommendations provided by proxy advisors to inform the investors’ proxy voting decisions on management proposals as well as shareholder-sponsored proposals for publicly held corporations. As demand for these and other proxy advisory services has escalated, so has the concern about their level of influence on vote outcomes and corporate governance practices in the U.S. markets in general. Studies have shown that proxy advisory firm recommendations do have an influence, but there is disagreement about the degree. Critics raise a number of other questions including the potential impact of conflicts of interest (e.g., while offering services to investors, the advisory firms concurrently provide services to the corporations on strengthening their corporate governance policies and practices), accuracy and transparency. Some lawmakers and others have advocated for more regulatory oversight of proxy advisory firms.
Given the significant amount of attention drawn by proxy advisory firm activity, the general market sentiment is that the SEC is likely to issue some form of guidance in the near future, particularly in light of the U.K. regulations that took effect two months ago concerning proxy advisory firms.