Center On Executive Compensation Urges SEC to Finalize Proxy Advisory Firm Rule Updates

February 07, 2020

The Association’s Center On Executive Compensation filed comments urging the Securities and Exchange Commission to implement proposed changes to the proxy rules that would mandate conflict of interest disclosures and standardized periods for companies to review both draft and final proxy advisory firm recommendation reports.

"By allowing the review of the draft and final report, as well as the ability to include a hyperlink in the final report, the Commission’s proposed changes ensure investors will have a full picture of the information from which they can then make an informed, proposal-specific voting decision and avoid the pitfalls of automatic submissions," the Center noted in the letter.

The “immediate and nearly irrecoverable” impact the proxy report has on voting results lends to the need for the review periods, the Center further explained, citing evidence from Subscribers that a very high percentage of proxy votes are cast within 24 to 48 hours of the publication of the proxy report.

The Center noted importance of establishing solicitation framework, 14a-9 liability:  As a foundational point to the letter, the Center applauded the SEC’s move to canonize the fact that proxy advisory firm reports are proxy solicitations subject to the federal solicitation rules as well as the 14a-9 liability rules for false or misleading statements made in a solicitation.

Investor groups, hedge fund moguls weigh in against proposed changes:  Not surprisingly, investors opposed the proposed changes to proxy advisory firm rules during the run-up to the comment submission deadline, with hedge fund moguls like Third Point’s Daniel Loeb criticizing the SEC’s rules, stating it would lead to an “onslaught of litigation” against the proxy firms by corporations.

Further engagement planned to push for final rulemaking:  With the comment submission period now over, the Center and other business groups will shift engagement to the SEC and on the Hill to assist in getting the SEC to finalize the proposals as soon as possible.