SEC Working Towards Completing Proxy Advisory Firm Rules

May 08, 2020

Amid heavy opposition from proxy advisors and several activist investors, the Securities and Exchange Commission is considering refinements in finalizing proposed rules pertaining to proxy advisory firms and the proxy voting process.  

ISS/Glass Lewis opposition:  According to a recent report in the Financial Times, major hedge funds have continued to join ISS and Glass Lewis in the fight to stop the proposed rules, first published in November 2019.  The pushback against the SEC centers on the ability of companies to review reports and provide feedback, which the groups have branded as infringing on the impartiality of advice between two private parties.   

The SEC may have “abandoned” the pre-publication review in favor of a “speed bump” system according to the FT, where automatic broker voting would be disabled in a situation where a proxy advisory firm’s vote recommendation conflicts with management’s vote recommendation.  As reported, it is not clear whether the removal of the required review period includes both review of the draft and review of the final report.  In the proposed rules, the final report review also would have required proxy advisors to include a company statement.  

The review requirements in the proposed rule were the primary concern of rule opponents.  A speech from SEC Commissioner Elad Roisman in early March to the Council of Institutional Investors appears to have set the stage for the changes, which might include a “simultaneous review” period and the above referenced “speed bump.”    

Changes not certain—SEC work continues:  As the FT’s report—as well as our Center On Executive Compensation’s intelligence—indicates, the Commission continues to actively review public comments and consider the rule's potential impacts, and the rules remain subject to change.  The Center is working to ensure the agency understands the importance of having a company review period prior to the publication of the results.