Proxy Rule

SEC Amends Proxy Rule and Issues Supplemental Guidance to Investment Advisers

September 30, 2020 | Steve Parker

In July 2020, the Securities and Exchange Commission issued supplemental guidance relating to the duties of investment advisers with respect to proxy voting. This follows guidance issued in 2019, which we have discussed before. The prior guidance was issued in connection with amended rules finalized at the same time which dealt with proxy solicitations under the federal securities laws. Those amendments were designed to grant companies that issue stock to obtain advisory firms’ recommendations on proxy issues in advance of the proxy submission deadline. As a result, the issuer has time to submit additional materials as part of the proxy solicitation.

As a result of the new rules, proxy voting services will be forced to share their voting recommendations with the issuers of the securities at or prior to the providing the recommendations to their institutional clients, and if issuers submit additional information in response, must also disclose such information to the clients. The proxy advisers must also disclose any conflicts of interest that might exist that could reasonably be expected to influence their recommendations.

The effective date of the amended rule is 60 days after publication. Proxy advisory firms must comply with the amendments by December 1, 2021. The supplemental guidance became effective on September 3, 2020. Continue reading ›

SEC Proxy Guidance Questioned by Investor Groups

December 26, 2019 | Steve Parker

Following SEC guidance regarding investment advisers’ proxy voting obligations issued in August of this year, and rule changes proposed by the SEC consistent with that guidance a few weeks later, investor organizations, including the Council of Institutional Investors (CII), and Institutional Shareholder Services (ISS), have taken actions to challenge the guidance and he rule proposals.

In August, the SEC voted 3 to 2 to issue the new guidance and to include potential rule amendments in its regulatory agenda. In general terms, the SEC’s interpretations are designed to make all proxy voting recommendations by a proxy adviser a “solicitation” under the federal proxy rules and subject to the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14a-9.

In a letter to the SEC in October, CII questioned the wisdom of the guidance and urged the SEC not to adopt proposed rule changes over concerns that both the guidance and the rules would weaken corporate oversight by investors and make it more difficult to replace or oppose existing management. CII claimed that both the guidance and the proposed rulemaking would increase costs, add regulatory burdens, increase litigation, and otherwise make it more expensive and difficult for investors to retain the benefits offered by proxy advisory firms. CII said in its letter that the guidance and proposed rule changes not driven by investor protection because there is no “call from the investment community” or regulatory intervention on the issue of proxy voting. Rather, CII contends that SEC made the announcement and proposals because of pressure from issuers who believe that proxy advisors are too often influential in successful corporate voting campaigns. The letter indicated that CII’s position was supported by the Comptroller for New York City and the CEO of the California Public Employee’s Retirement System, among other major institutional investors.

SEC Publishes New Guidance for SEC-Registered Advisers on Meeting Their Proxy Voting Obligations

September 10, 2019 | Parker MacIntyre

In what is turning out to be a busy summer at the SEC for issuing new rules and interpretations applicable to RIAs, the Commission has just released detailed guidance clarifying the proxy voting obligations of SEC-registered advisers. This latest release comes on the heels of the agency’s landmark package of releases issued on June 5^th, which, for RIAs, included rules implementing the new Form CRS (a/k/a Form ADV, Part 3) and a major interpretive release clarifying the fiduciary duty owed to clients by all advisers. This latest release aims to clarify an adviser’s obligations arising under Advisers Act Rule 206(4)-6 (“the Proxy Rule”) relating to voting proxies for clients, specifically in the context of using the services of a “proxy advisory firm.”

The Proxy Rule provides that it is a “fraudulent, deceptive, or manipulative act” for an SEC-registered adviser to “exercise voting authority with respect to client securities” unless the adviser adopts and implements written policies and procedures designed to ensure that such voting is done in the “best interest of clients.” The Proxy Rule also requires certain disclosures be made to clients regarding any voting done for them. Notably, the Proxy Rule does not require advisers to vote client securities. Indeed, many advisers choose to escape the coverage of the Proxy Rule by simply not—in any instance—voting client securities. However, for advisers exercising any voting authority over client securities—even one share—the Proxy Rule swings into effect. Accordingly, all such advisers opting to vote client securities will need to be in full compliance with the Proxy Rule—and should pay close attention to the SEC’s new guidance on this matter. Continue reading ›