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SEC Issues Guidance on Proxy Voting

The SEC in a 3-2 vote issued guidance to investment advisers on fulfilling their proxy voting responsibilities and an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” under the federal proxy rules. The guidance presented in a Q&A format generally discusses the ability of investment advisers to establish a variety of different voting arrangements with their clients and matters they should consider when they use a proxy advisory firm. Commissioners Allison Lee and Robert Jackson dissented with Jackson stating that the guidance may further alter the competitive landscape in favor of large firms. “I worry that today’s guidance may make it more costly to run a proxy-advisory firm, encouraging even more concentration—rather than new entrants who can give investors more choices about how to vote.” Jackson also suggested that while larger institutional investors may easily comply with the guidance’s steps to ensure that their use of proxy voting advice complies with their fiduciary duties, smaller firms may be less able to bear the costs of doing so, thus possibly increasing the influence of large institutions. The SEC also provided an interpretation and related guidance establishing that proxy voting advice constitutes a “solicitation” under the federal proxy rules, subjecting proxy advisory firms to certain disclosure requirements and antifraud provisions. According to the Wall Street Journal, the SEC’s guidance is a victory for public companies and their trade groups who have been campaigning against proxy advisory firms’ influence over corporate decision-making. The WSJ report quoted an executive of proxy advisor ISS who expressed concern that the guidance may impair ISS’s ability to help clients discharge their fiduciary duties.

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