[This post revises and updates my earlier post primarily to reflect the contents of the proposing release.]

At an open meeting last week, the SEC voted, three to two, to adopt new amendments to the rules regarding proxy advisory firms, such as ISS and Glass Lewis—which the SEC refers to as proxy voting advice businesses, or “PVABs”—terms that the commissioners seemed to think…hmmm… needed some work. The amendments to the PVAB rules reverse some of the key provisions governing proxy voting advice that were adopted in July 2020 (referred to as the 2020 Final Rules). Those rules had codified the SEC’s interpretation that made proxy voting advice subject to the proxy solicitation rules, but added to the exemptions from those solicitation rules two significant new conditions—one requiring disclosure of conflicts of interest and the second designed to facilitate effective engagement between PVABs and the companies that are the subjects of their advice. (See this PubCo post.) Under the new final amendments as adopted last week, proxy voting advice will still be considered a “solicitation” under the proxy rules and proxy advisory firms will still be subject to the requirement to disclose conflicts of interest; however, the new amendments rescind that second central condition designed to facilitate engagement—which some might characterize as a core element, if not the core element, of the 2020 amendments. The amendments also rescind a note to Rule 14a-9, also adopted as part of the 2020 Final Rules, which provided examples of situations in which the failure to disclose certain information in proxy voting advice may be considered misleading. According to the press release, institutional investors and other clients of proxy advisory firms had “continued to express concerns that these conditions could impose increased compliance costs on proxy voting advice businesses and impair the independence and timeliness of their proxy voting advice.” In his statement, SEC Chair Gary Gensler observed that many investors expressed concerns that “certain conditions in the 2020 rule might restrain independent proxy voting advice. Given those concerns, we have revisited certain conditions and determined that the risks they impose to the independence and timeliness of proxy voting advice are not justified by their informational benefits.”

The National Association of Manufacturers had a different take on the amendments and vowed to pursue litigation: “The SEC has offered no justification for abandoning a decade’s worth of bipartisan, consensus-driven policymaking. This move will undoubtedly harm the competitiveness of publicly traded manufacturers, and it will hurt Main Street investors. The SEC’s decision to change course without allowing the 2020 rule to take effect and be fairly evaluated epitomizes ‘arbitrary and capricious’ rulemaking. The NAM will be filing suit in the coming weeks to preserve the 2020 rule’s commonsense reforms and protect manufacturers from proxy advisory firms’ outsized influence.” [Update: Here is the complaint.] (You might recall that the NAM previously filed suit against the SEC for failure to enforce the 2020 rules on proxy advisory firms. See this PubCo post.) ISS, which is currently in litigation with the SEC over the 2020 proxy rules (see this PubCo post and this PubCo post), characterized that rule as “a solution in search of a problem,” and decried the SEC’s action last week for “failing to address the most critical defect; namely, the reclassification of proxy advice provided in a fiduciary capacity as proxy solicitation.” Oral arguments in its case are scheduled for late this month, ISS said.

The final PVAB amendments will become effective 60 days after publication in the Federal Register. Here are the press release, fact sheet and final rule


Whether and how to regulate PVABs has long been a contentious issue, with some arguing that their vote recommendations are plagued by conflicts of interest and often erroneous, while others see no problem so long as the institutional and other investors that are clients of these firms are satisfied with their services. Many companies, as well as business lobbies such as the Business Roundtable and the NAM, have repeatedly raised concerns about PVABs’ concentrated power and significant influence over corporate elections and other matters put to shareholder votes, which has led to questions about whether they should be subject to more regulation and accountability. (See, e.g.,  this PubCo postthis PubCo post and this PubCo post.) In particular, companies had expressed concerns that the analyses by PVABs were rife with factual errors, omissions and methodological weaknesses that “could materially affect the reliability of their voting recommendations and could affect voting outcomes, and that processes currently in place to mitigate these risks are insufficient.”  What’s more, some companies contended that they did not have adequate opportunities to review the advice, engage with the firm and correct the errors on a timely basis, impairing the accuracy, transparency and completeness of the information available to voters. Although some PVABs had taken steps to share information with companies (see this PubCo post), those opportunities were limited in some cases to larger companies, were later withdrawn, were not timely or were otherwise inadequate to address company concerns.

In response to these calls for action, in November 2019, the SEC proposed rule amendments designed to build on market processes then in place, providing a mechanism for enhanced engagement between PVABs and companies that involved advance review by companies of proxy voting advice. Many companies supported the proposal, arguing that companies do not otherwise have a timely and effective method for conveying their views about proxy voting advice prior to voting.  Nevertheless, the proposal drew fierce criticism from a number of quarters. Commenters complained that there was insufficient evidence of frequent errors or deficiencies on the part of PVABs to mandate this costly and time-consuming process. In addition, they contended that requiring advance review of proxy voting advice by companies would give those companies an unfair advantage by allowing them to influence the advice at a critical stage. Some also complained that the feedback framework was too rigid and not workable logistically and would impede PVABs’ ability to provide their advice on a timely basis. Moreover, they said, some PVABs had already implemented feedback systems, and companies already have available other “counter-speech” measures.  Some suggested that the requirement for a mandatory hyperlink was “compelled speech” in violation of the First Amendment. The Council of Institutional Investors expressed a concern that the requirement that proxy advisors share advance copies of their recommendations with issuers could interfere with the relationship between institutional investors and PVABs as their agents.  In CII’s understanding, PVABs are agents of institutional investors, not of issuers. And, according to CII, there was no reason to believe that institutional investors feel the need for prior review by issuers of the work product of their agents, the proxy advisors.  Rather, investors would prefer that PVABs be completely independent of companies. The SEC’s Investor Advisory Committee recommendation also disparaged the proposal as unlikely to reliably achieve the SEC’s own stated goals, ultimately advising the SEC to go back to the drawing board and republish a new proposal. (See this PubCo post.)

In July 2020, after making a number of adjustments that took many of the comments into account, the SEC adopted the 2020 Final Rules.  These rules were designed to provide investors who use proxy voting advice with “more transparent, accurate, and complete information on which to make their voting decisions, without imposing undue costs or delays that could adversely affect the timely provision of proxy voting advice.” The adopting release recognized—indeed underscored—the tremendous power and influence of PVABs: proxy voting advice “implicates interests beyond those of the clients who utilize it when voting.” In what way? First, there are millions of retail investors whose shares are held and voted on their behalf by institutional investors.  But perhaps more significantly, given the ability of institutional investors—the clients of PVABs—to “affect the outcome of the vote on a particular matter through their voting power, the proxy voting advice guiding the clients’ votes potentially affects the interests of all shareholders of the registrant, the registrant, and the proxy system in general.”

As noted above, in the 2020 Final Rules, the SEC revised the definition of “solicitation” in Rule 14a-1(l) to codify its “longstanding view that proxy voting advice generally constitutes a ‘solicitation’ under Section 14(a).” To the extent that proxy voting advice is a solicitation, in the absence of an exemption, PVABs would be subject to, among other things, the requirement to file and furnish definitive proxy statements.  However, the SEC had a different goal in mind. To that end, the SEC crafted two new conditions applicable to exemptions from the proxy solicitation rules—one requiring disclosure of conflicts of interest and the second, Rule 14a-2(b)(9)(ii), designed to facilitate effective engagement between PVABs and the companies that are the subjects of their advice. More specifically, Rule 14a-2(b)(9)(ii) required that PVABs (1) make their proxy voting advice available to the subject companies at or before the time that they make the advice available to their clients and (2) provide their clients with a mechanism by which they could reasonably be expected to become aware on a timely basis of any written responses to the proxy voting advice from the subject companies.  These exemptions were “fashioned both to elicit adequate disclosure and to enable proxy voting advice businesses’ clients to have reasonable and timely access to transparent, accurate, and complete information material to matters presented for a vote….”  In addition, the SEC provided two non-exclusive safe harbors designed to “give assurance to PVABs that they have satisfied the conditions of Rules 14a-2(b)(9)(ii)(A) and (B).” Compliance with the new conditions was not required prior to December 1, 2021. The 2020 Final Rules also modified Rule 14a-9, which prohibits false or misleading statements and material omissions, to add, in Note (e), examples of when material omissions in proxy voting advice could be considered misleading within the meaning of the rule.  More specifically, the amendments provided that “failure to disclose material information regarding proxy voting advice, ‘such as the [PVAB’s] methodology, sources of information, or conflicts of interest’ could, depending upon particular facts and circumstances, be misleading within the meaning of the rule.”  (See this PubCo post). 

Then in June, Chair Gensler directed the staff to consider whether to recommend further regulatory action regarding proxy voting advice.  In that regard, Corp Fin issued a Statement indicating that “it will not recommend enforcement action to the Commission based on the 2019 Interpretation and Guidance or the 2020 Rule Amendments during the period in which the Commission is considering further regulatory action in this area.” (See this PubCo post.)

In November last year, the SEC voted, three to two, to propose amendments to the proxy rules that would reverse some of the key provisions governing proxy voting advice that were adopted in the 2020 Final Rules.  Specifically, the proposed amendments would rescind Rule 14a-2(b)(9)(ii), the condition designed to facilitate engagement between PVABs and subject companies, as well as the related safe harbors and exclusions set forth in Rules 14a-2(b)(9)(iii) through (vi). The proposed amendments would also rescind Note (e) to Rule 14a-9, as well as 2020 Supplemental Proxy Voting Guidance to investment advisors.

At the time, the SEC observed that, since adoption of the 2020 Final Rules, “institutional investors and other clients of PVABs have continued to express strong concerns about the rules’ impact on their ability to receive independent proxy voting advice in a timely manner.” In addition, the SEC noted that “PVABs continued to develop industry-wide best practices and improve their own business practices to address the concerns that were the impetus” for the 2020 amendments.  As a result, the SEC decided that it was “appropriate to reassess the 2020 Final Rules, solicit further public comment and, where appropriate, recalibrate the rules to preserve the independence of proxy voting advice and ensure that PVABs can deliver advice in a timely manner without ultimately passing on higher costs to their clients.” The proposed amendments were “intended to be tailored adjustments in response to concerns and developments related to particular aspects of the 2020 Final Rules,” with the  goal of avoiding “burdens on PVABs that may impede and impair the timeliness and independence of their proxy voting advice and subject them to undue litigation risks and compliance costs, while simultaneously preserving investors’ confidence in the integrity of such advice.” 

Final Amendments

At the open meeting last week, the SEC adopted these amendments as proposed.  To frame the amendments, the SEC started by emphasizing what did not change; the new amendments did not effect a “wholesale reversal” of the 2020 Final Rules. Rather, there are important aspects of those rules that were not changed: proxy voting advice will remain a solicitation subject to the proxy rules and, to rely on the exemption for PVABs in Rules 14a-2(b)(1) and (3), PVABs will still need to comply with the requirement to provide conflicts-of-interest disclosure. In addition, while Note (e) to Rule 14a-9 is eliminated, “material misstatements of fact in, and omissions of material fact from, proxy voting advice would remain subject to liability under that rule.”

With respect to the provisions it was reversing, however, the SEC presented the changes as an evolution in its thinking:  the SEC’s “thinking has evolved with respect to the Rule 14a-2(b)(9)(ii) conditions and Note (e) to Rule 14a-9, informed, in part, by the concerns expressed by PVABs’ clients and other investors that were among the primary intended beneficiaries of the 2020 Final Rules.” That new thinking suggested “a different and improved policy balance. We believe this new policy balance better alleviates the costs and risks to PVABs, as compared to the 2020 Final Rules, and better addresses PVAB clients’ and other investors’ concerns about receiving timely and independent advice from PVABs. In particular, we are no longer persuaded that the potential benefits of those conditions sufficiently justify the risks they pose to the cost, timeliness, and independence of proxy voting advice and believe that the final amendments strike a better policy balance.” That new perspective was supported by the continued opposition to the engagement condition by institutional investors and other PVAB clients, as well as some of the voluntary practices adopted by some PVABs, which may also “advance the goals underlying the Rule 14a-2(b)(9)(ii) conditions.” In addition, back in 2020, the SEC believed that Note (e) to Rule 14a-9 would “clarify the application of the rule to proxy voting advice while balancing concerns regarding heightened legal uncertainty and litigation risk for PVABs.” The SEC’s new thinking suggested that “rather than reducing legal uncertainty and confusion, the addition of Note (e) has unnecessarily exacerbated it by creating a risk of confusion regarding the application of Rule 14a-9 to proxy voting advice.”

Amendments to Rule 14a-2(b)(9).  As proposed, the final amendments delete Rule 14a-2(b)(9)(ii) and the related safe harbors and exclusions of paragraphs (iii), (iv), (v), and (vi). Commenters expressed views both in support of and opposed to the amendments, many of which echoed the arguments voiced throughout this debate.  For example, commenters supporting the amendments, including institutional investors and related organizations, reiterated their concerns that the “Rule 14a-2(b)(9)(ii) conditions would impair the independence of proxy voting advice, impede the timeliness of proxy voting advice, and increase PVABs’ compliance costs.”  Other supporters expressed skepticism that the condition would really improve the accuracy of information provided to investors and contended that companies have other ways to express their views on proxy voting advice, such as through supplemental proxy materials.  Others questioned whether this aspect of the 2020 Final Rules was really needed, pointing to the lack of investor support and the absence of data providing “credible evidence of a market failure,” including the “low prevalence of errors in proxy voting advice historically.” Commenters also expressed concern that the condition would “inappropriately privilege the views of registrants’ management,” while other questioned the legal basis for the condition.

Some of the comments submitted by persons who opposed rescission of Rule 14a-2(b)(9)(ii) were process-based, according to the SEC, comparing the process for adoption of  these new amendments—which they contended were not justified by sufficient evidence, data, or changes in the market—with the lengthy process undertaken with respect to the 2020 Final Rules. They also argued that the SEC “lacked a reasonable basis” for the changes proposed in 2021 because the SEC did not wait to gather evidence regarding the impact of the 2020 Final Rules. Others complained about the short comment period.

Other commenters had substantive concerns about the potential negative impact on proxy voting advice. They worried that rescinding Rule 14a-2(b)(9)(ii) “would decrease the transparency and accuracy of proxy voting advice and confidence in the proxy process generally,” and decrease the amount of information available to investors. Some commenters also addressed the power often attributed to PVABs to influence the vote, arguing that, without the engagement condition, companies would “struggle to address PVABs’ advice in a timely manner before a shareholder meeting.”  Some also identified issues regarding errors in proxy voting advice, citing a 2021 study that identified 50 supplemental proxy filings made in 2021 “to dispute the data or analysis in a PVAB’s proxy voting advice,” and asserted that the rule provided a better process for companies to respond to proxy advice. Other commenters cited anecdotal evidence of “inaccurate or misleading proxy voting advice and described the burdens associated with responding to and correcting such advice in a timely manner.” Some commenters criticized as inadequate PVABs’ current practices, calling out ISS in particular for having discontinued its practice of providing S&P 500 companies with the opportunity to review and provide feedback on draft proxy voting advice (although that opportunity was still provided outside the U.S.), leading to more uncorrected errors in its advice.

Although, in considering whether to adopt the proposed amendments, the SEC continued to agree with the principle that drove adoption of the 2020 Final Rules—that “more complete and robust information and discussion leads to more informed investor decision-making”—it now weighed competing concerns differently: “upon further analysis in light of the continued concerns expressed by investors and others, we now conclude that the potential informational benefits to investors of the Rule 14a-2(b)(9)(ii) conditions do not sufficiently justify the risks they pose to the cost, timeliness, and independence of proxy voting advice on which many investors rely. Investor protection has always been the touchstone of the Commission’s rulemaking efforts with respect to PVABs.”  To that end, the SEC’s decision was “significantly informed by the concerns expressed by investors and other PVAB clients regarding the Rule 14a-2(b)(9)(ii) conditions.” The SEC concluded that “the risks to investors support rescinding the Rule 14a-2(b)(9)(ii) conditions, particularly in light of the limited reliance interests at stake and the existence of other mechanisms in the proxy system that promote informed shareholder voting.”

Interestingly, the SEC viewed the 50 examples of supplemental proxy filings in 2021, not as evidence of the need for Rule 14a-2(b)(9)(ii), but rather as evidence of the effectiveness of preexisting mechanisms, obviating the need for the rule.  In addition, voluntary practices by PVABs advance some of the same goals. The existence of market-based incentives for PVABs to provide the types of opportunities and access to information that would have been required under the rule just reinforced the SEC’s “determination that those conditions should be rescinded, especially when balanced against the risks that those conditions present to the cost, timeliness, and independence of proxy voting advice.”

Amendment to Rule 14a-9.   As noted above, in 2020, the SEC codified an earlier interpretive release (see this PubCo post) stating that PVABs’ proxy voting advice generally would constitute a solicitation subject to the proxy rules. Consequently, that advice would be subject to Rule 14a-9, which prohibits any proxy solicitation from containing false or misleading statements with respect to any material fact or omitting to state any material fact necessary to make the statements not false or misleading.  The 2020 Final Rules modified Rule 14a-9 to include in Note (e) examples of when material omissions in proxy voting advice could be considered misleading within the meaning of the rule.  More specifically, the 2020 Final Rules provided that “failure to disclose material information regarding proxy voting advice, ‘such as the proxy voting advice business’s methodology, sources of information, or conflicts of interest’ could, depending upon particular facts and circumstances, be misleading within the meaning of the rule.” The amendments were designed to “clarify the potential implications of Rule 14a-9 for proxy voting advice specifically.”

In 2021, the SEC proposed to delete Note (e).  The change was intended to address concerns by PVABs and investors that Note (e) had created uncertainty regarding the application of Rule 14a-9 to proxy voting advice. In addition, there was apparently a “misperception” that Note (e) changed “the law governing Rule 14a-9’s application and scope, including its application to statements of opinion,” and the SEC sought “to reduce any resulting uncertainty.” Commenters expressed a variety of views both opposed and in favor of deletion of Note (e).

Although the SEC has determined to delete Note (e) as proposed, the SEC emphasized that the “amendment is not intended to, and does not, affect the scope of Rule 14a-9 or its application to proxy voting advice….Thus, to the extent that a PVAB’s proxy voting advice constitutes a ‘solicitation’ under Rule 14a-1(l)(1)(iii)(A), it is subject to liability under Rule 14a-9 to the same extent that any other solicitation is, or would have been, prior to the 2020 Final Rules.” 

While Note (e) was intended as a clarification, it turned out that, instead of clarifying, according to PVABs, their clients and other investors, “Note (e) has in fact heightened legal uncertainty, particularly with respect to PVABs’ statements of opinion, and [this] uncertainty unnecessarily increases the litigation risk to PVABs and threatens the independence of their advice.” The SEC concluded that Note (e) created a risk of confusion that, contrary to the SEC’s intent, proxy voting advice posed heightened concerns and that the examples in Note (e) effectively imposed an affirmative obligation on PVABs to disclose the information in the examples. The SEC stressed that deleting Note (e) would not weaken the application of Rule 14a-9 to proxy voting advice or otherwise reduce antifraud protection for investors.

The SEC also took the opportunity to reiterate its views of the limited circumstances in which a PVAB’s statement of opinion may subject it to liability under Rule 14a-9:  the SEC recognized “that the formulation of proxy voting advice often requires subjective determinations and the exercise of professional judgment, and we do not interpret Rule 14a-9 to subject PVABs to liability for such determinations simply because a registrant holds a differing view.”  Under Omnicare and Virginia Bankshares, “Rule 14a-9 liability does not extend to mere differences of opinion….Rule 14a-9 prohibits misstatements or omissions of ‘material fact.’” According to the SEC, “neither mere disagreement with a PVAB’s analysis, methodology, or opinions, nor a bare assertion that a PVAB failed to reveal the basis for its conclusions, would suffice to state a claim under Rule 14a-9.” Under Omnicare, the SEC stated, a “PVAB may be subject to liability under Rule 14a-9 for a statement of opinion that “]’falsely describe[s]’ its view as to the voting decision that it believes the client should make. Second, a statement of opinion may contain ‘embedded statements of fact’ which, if untrue, may be a source of liability under Rule 14a-9.” Third, a PVAB’s statement of opinion may “give rise to liability if it “omits material facts about the [PVAB’s] inquiry into or knowledge concerning [the] statement” and “those facts conflict with what a reasonable investor would take from the statement itself.” Accordingly, “a PVAB would not face liability under Rule 14a-9 for exercising its discretion to rely on a particular analysis, methodology, or set of information—while relying less heavily on or not adopting alternative analyses, methodologies, or sets of information, including those advanced by a registrant or other party— when formulating its voting recommendations. Similarly, a PVAB would not face liability under Rule 14a-9, for example, simply because it did not accept a registrant’s suggested revisions to its proxy voting advice concerning such discretionary matters. Instead, a PVAB’s potential liability under Rule 14a-9 turns on whether its proxy voting advice contains a material misstatement or omission of fact.”

Rescission of 2020 Supplemental Proxy Voting Guidance.  In September 2019, the SEC issued Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, addressing how fiduciary duty and rule 206(4)-6 under the Investment Advisers Act of 1940 relate to an investment adviser’s proxy voting on behalf of clients (see this PubCo  post).  The September guidance discussed the extent to which an investment adviser can “outsource” to proxy advisory firms and still fulfill its fiduciary duty to its clients by conducting reasonable due diligence, addressing conflicts and providing full disclosure. In 2020, the SEC issued supplemental guidance intended to assist investment advisers in assessing how to consider the additional information that may become more available as a result of the 2020 Final Rules. In particular, the supplemental guidance advised how investment advisers should consider company responses to proxy advisor recommendations resulting from the new amendments, including where the investment adviser uses a proxy advisor’s robo-voting system.  The 2021 proposing release requested comment on whether the SEC should rescind or revise the Supplemental Proxy Voting Guidance because it was prompted, in part, by the adoption of the Rule 14a-2(b)(9)(ii).  In light of comments received advocating that any rescission of the 2020 Final Rules should also include the Supplemental Proxy Voting Guidance, the SEC has determined to rescind the 2020 guidance to investment advisers regarding their proxy voting obligations.

Commissioners’ views

In her dissenting statement, Commissioner Hester Peirce suggested that the staff could have put their time to better use than redoing a freshly adopted rule in the absence of any change in the facts suggesting that a revision was warranted. Why would the SEC amend these rules without any information about the impact and cost of the 2020 amendments?  Commenters, she said were “baffled by the ‘regulatory whiplash.’” As she characterized them, the 2020 amendments “recognized the ability of proxy advisors to move client voting decisions and markets. The rules introduced some procedural protections around the provision of proxy advice, including ‘engagement policies,’ which were intended to ensure that proxy advisor’s clients receive transparent, accurate, and complete information on which to make their voting decisions.”

The rationale given for the new amendments, she said, was that “proxy advisors have engaged in a self-improvement campaign and miraculously have acquired the ‘market-based incentives’ that were missing when the Commission adopted its 2020 Rules.” But commenters on the proposal responded that, among other things, proxy advisors “have limited incentives to engage with public companies, particularly smaller ones, to correct errors,” and the SEC “should not assume that proxy advisors’ current voluntary engagement practices, even if they are good, will continue.” While some commenters supported the new proposal, she said, they did not provide any new information to justify the change from the 2020 rules. Notwithstanding the weight of comments opposed to the changes, she argued, the SEC is instead “gutting the rules so that little of what we adopted less than two years ago remains. Sadly, the one piece of the existing rules I would have liked to change—the term Proxy Voting Advice Business, or ‘PVAB’—remains unscathed in the rewrite.”  She concluded by questioning the SEC’s credibility as an independent agency if its regulations ”so drastically swerve from one year to the next? If we keep making U-turns like this one, people might start to wonder whether the GPS we are using is calibrated to respond to political rather than market signals.”

In her statement, then-Commissioner Allison Herren Lee stressed that, given the role of proxy advisors in providing research to institutional assets managers and other shareholders, it was important that the SEC’s regulation of proxy advisors “not impede the provision of timely and independent proxy voting advice or otherwise create unnecessary burdens on the exercise of shareholder voting.” Lee observed that, over many years of information gathering by the SEC, there was “an absence of any credible evidence suggesting pervasive, or even moderate, errors in proxy voting advice. In fact, the Commission’s analysis has shown that the supposed error rate for proxy voting advice is vanishing to none. Not only was there no clear basis for a rule that increased the involvement of conflicted parties in proxy voting advice, but investors (the supposed beneficiaries of the new rules) stated emphatically that this aspect of the new rules would interfere with, rather than promote, efficient proxy voting by introducing unnecessary cost and delay and increasing the risk of impaired independence.” (With regard to possible impairment of independence, note that Lee characterized the rescinded engagement provisions as “mechanisms to enhance management’s influence over proxy voting advice.”)  In her view, this rulemaking was responsive to those investor concerns.  Moreover, it was not unusual, she argued, for the SEC to adjust its rules, even a short time after adoption. 

Commissioner Caroline Crenshaw contended that it is “essential for the Commission to re-assess from time to time whether corporate democracy is in balance,” and the new proxy voting advice rules were the result of just such an assessment.  In her view, the  rulemaking was “responsive to feedback from the intended beneficiaries of a rule promulgated in 2020, who have stated, clearly, that changes made at that time would impede both the independence and timeliness of proxy voting advice. The data and evidence gathered by the Commission over the years also indicates that risks posed by the 2020 rule in terms of costs, timeliness, and a sacrifice of independence, quite simply, exceed the benefits of that rule.” She also recognized that “the 2020 changes sought to ensure the accuracy of proxy voting advice. That goal is a good one. But the Commission’s own data show that the amendments implemented to achieve that goal were, in fact, unnecessary. The rate of factual errors in proxy voting advice was vanishingly small, less than two percent. The rule as adopted introduced real and costly risks to address a problem that was marginal, at best. As a result, the Commission is taking important and measured steps today to continue to assess and promote an appropriate balance in corporate democracy and shareholder voting.”

Like Peirce, new Commissioner Mark Uyeda was perplexed about the reasons for the amendments in the absence of changes in the facts. In his dissenting statement, he expressed concern that “this regulatory seesaw does not reflect administrative ‘best practices’ that promote long term reliance and confidence by market participants in the stability of important areas of securities regulation.” He began by tracing the development of PVABs to guidance from the Labor Department in the 1980s advising that asset managers “had a fiduciary obligation to vote every proxy,” and the continued belief by asset managers that voting every proxy remains the safest course (although not a position taken by the SEC). Consequently, “proxy voting by asset managers has been largely transformed into a compliance process,” with the engagement of proxy advisors to provide voting advice as a result. However, he expressed concerns about that advice.  While on the staff of the Senate Banking Committee, he heard small and mid-size companies complain “that proxy voting advisory firms often make recommendations based off a checklist implemented by relatively inexperienced workers who do not fully understand complex corporate matters subject to proxy votes, and who cannot adequately focus on the circumstances of a specific company because ‘there are so many of them and so little time.’” 

In addition, in his view, the deletion of Note (e) failed to provide regulatory clarity, especially given that the language of the note was included in the preamble of the adopting release. He also chided the SEC for the short duration of the comment period, which he viewed as insufficient, especially in light of the multitude of other proposals and the timing during holiday season. He also noted favorably statements in the release that practices voluntarily adopted by some PVABs may be less likely to adversely affect the independence, cost and timeliness of proxy voting advice and that market-based incentives may cause PVABs to maintain these practices.  Perhaps the SEC should consider that alternative in the future? 

Posted by Cydney Posner