The SEC voted this week (3-2 on party lines) to undo the most needed reforms in Center-backed proxy advisory firm regulations
adopted in 2020.
The Commission’s new amendment, despite impassioned dissent from Commissioners Elad Roisman and Hester Peirce, will:
- Rescind Rule 14a-2(b)(9)(ii) that proxy advisory firms share their recommendations with corporate executives at the same time as shareholders.
- Remove liability consequences for proxy advisors if they fail to disclose material information regarding proxy voting advice. The rules will still prohibit material misstatement of facts.
In their dissent comments, Commissioners Roisman and Peirce expressed many concerns that the Center has expressed in the past and will echo in our comments, such as:
- The 2020 rules have not even taken effect yet, and there is no new substantive information warranting an amendment to the previously adopted proxy voting advice rules, for which the rulemaking process was extensive.
- Rescinding the requirement to share recommendations with companies is not in the interests of transparency and accuracy, and combined with ISS’s refusal to continue issuing draft reports for S&P 500 companies, will lead to LESS engagement and more errors.
- Removing liability consequences is “puzzling” and may lead to proxy advisors being able to make false and misleading statements without liability.
Once the proposed rule hits the Federal Register, we will have 30 days to submit comments, including the focus items above. Although it may seem like a forgone conclusion, we still have an opportunity to influence the process, as any comments submitted must be addressed in the final rule.
At the same meeting, the SEC also passed (4-1) a rule mandating universal proxy cards in contested director elections. This means that investors can choose between dissident director and incumbent candidates on the same ballot.
