SEC Proposes Rule Amendments on Proxy Voting, Proxy Advisors

The SEC in a 3-2 vote proposed amendments to its rules governing proxy advisors. The SEC wrote that its proposal “aims to enhance the accuracy and transparency of the information that proxy voting advice businesses provide to investors and others who vote on investors’ behalf, and thereby facilitate their ability to make informed voting decisions.” The proposal would require increased disclosures from proxy advisory firms on their process and conflicts of interest and allow businesses to review and revise proxy advice before it is issued. Business groups, including the Chamber of Commerce and Business Roundtable, welcomed the SEC proposals according to a report in Pensions & Investments. Proxy advisory firm ISS sued the SEC last week regarding guidance and interpretation the SEC released in August 2019, claiming among other things that the action exceeded the SEC’s statutory authority. ISS’s chief executive wrote in an opinion column for the Financial Times that the provisions in the SEC’s August release and the proposed rulemaking will disrupt the system for proxy voting and tilt the scales in favor of company management.

The SEC also proposedamendments to modernize the rule that governs the process for shareholder proposals to be included in a company’s proxy statement. Among key provisions:

• The SEC maintained the $2,000 minimum ownership threshold. However, the proposed amendments require that, in order to take advantage of that ownership threshold, a proponent must have held the shares for at least three years in order to demonstrate long-term investment in the company.
• The “one proposal” rule now clarifies that a single person may not submit multiple proposals at the same shareholder’s meeting on behalf of different shareholders.
• The proposal would update the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings.

Commissioners Allison Herren Lee and Robert Jackson opposed the proposals, with Jackson saying the rule changes would limit shareholders’ ability to hold corporate insiders accountable. The proposals will have a 60-day public comment period following publication in the Federal Register.