SEC cuts key provisions of proxy advisor regulations and proposes amendments to Rule 14a-8: will they create regulatory whiplash?
At an open meeting yesterday morning, the SEC welcomed new Commissioner Mark Uyeda and bid farewell to Commissioner Allison Herren Lee. The SEC also voted 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”—and to propose new amendments to three of the exclusions in Rule 14a-8, the shareholder proposal rule. The amendments to the PVAB rules reverse some of the key provisions governing proxy voting advice that were adopted in July 2020. 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.” With regard to the shareholder proposal rule, according to the press release, the proposed amendments were designed to “promote more consistency and predictability in application.” In his statement, Gensler indicated that the proposed amendments would “improve the shareholder proposal process” by providing “greater certainty as to the circumstances in which companies are able to exclude shareholder proposals from their proxy statements.” Both of the SEC’s actions received three-to-two votes—about the only consensus reached in the meeting was that the term “proxy voting advice businesses” and its acronym “PVABs” were clumsy choices. Interestingly, in the case of both of these actions taken by the SEC, amendments to these same rules were adopted in 2020. From the Democratic commissioners’ perspective, these new amendments were intended to clarify and strike a better balance in response to public comments and staff experience, while from the perspective of the Republican commissioners, the amendments ensured only “regulatory whiplash” from the “regulatory seesaw.”