Tag: proxy advisory firms
SEC’s Investor Advisory Committee discusses proxy plumbing
At a meeting last week of the SEC’s Investor Advisory Committee, the primary focus of the discussion was the panoply of problems associated with the infrastructure supporting the proxy voting system, so-called “proxy plumbing.” Shareholder voting is viewed as fundamental to keeping boards and managements accountable, and the current system of proxy plumbing has been criticized as inefficient, opaque and, all too often, inaccurate. In 2010, the SEC issued a concept release soliciting public comment on whether the SEC should propose revisions to its proxy rules to address these issues, but to no avail. Perhaps the task was too daunting. However, at the end of his brief appearance at the committee meeting, SEC Chair Jay Clayton observed that it was clear that there was room for improvement in the voting system—enough room for improvement that the SEC should do something. SEC Commissioner Robert Jackson was decidedly more emphatic. In a statement posted on the SEC website on Friday, he characterized as “urgent” the need “to fix the basic mechanics of modern corporate democracy.” He indicated that “there is broad agreement that the Byzantine system that makes it impossible to know whether investors’ votes are being counted must be fixed. Over the last decade, while voting technology has made enormous leaps forward, retail investor participation in corporate elections has declined: today, fewer than one in three investors have their vote counted in those contests. The Commission has known this for years—we issued an impressively thorough concept release on the subject in 2010—and it is time to act. Investors should not have to wait any longer for their votes to be counted in corporate elections.” But the question remains: will the SEC undertake the comprehensive analysis and overhaul that appears to be required or settle for grabbing only the low-hanging fruit?
SEC staff withdraws two no-action letters related to proxy advisory firms
You may recall that, in July, SEC Chair Jay Clayton announced that the SEC will be holding a Roundtable to discuss the proxy process, currently expected to be held in November. (See this PubCo post.) Among the potential topics identified was the role of proxy advisory firms and the question of whether investment advisers and others rely excessively on proxy advisory firms for information aggregation and voting recommendations. In anticipation of that roundtable, the staff of the Division of Investment Management has today issued a statement announcing that, in light of subsequent developments, the staff has withdrawn two frequently disparaged no-action letters, Egan-Jones Proxy Services (May 27, 2004) and Institutional Shareholder Services, Inc. (Sept. 15, 2004), which provided staff guidance about investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms.
Is it time to regulate proxy advisory firms?
The idea of regulating proxy advisory firms has been in the ether for quite some time, but it’s an idea that never quite comes to fruition. However, there seems to be a lot of chatter about this topic now, raising the question: is now the time? According to this paper, The Big Thumb on the Scale: An Overview of the Proxy Advisory Industry, from Stanford’s Rock Center for Corporate Governance, while proxy advisory firms influence institutional voting decisions and corporate governance choices to a material extent, it “is not clear that the recommendations of these firms are correct and generally lead to better outcomes for companies and their shareholders.” In that light, the paper suggests that some type of regulation of proxy advisory firms might be warranted to increase their transparency and improve the reliability of their recommendations.
SEC to hold another proxy roundtable
SEC Chair Jay Clayton announced earlier this week that the SEC will be holding a roundtable to discuss the proxy process, date TBD. Potential topics include the voting process, retail shareholder participation, shareholder proposals, proxy advisory firms and technology and innovation. In 2010, the SEC issued a concept release soliciting public comment on whether the SEC should propose revisions to its proxy rules to address the infrastructure supporting the proxy system, so-called “proxy plumbing.” Back then, the SEC had decided that it was time to do some maintenance on the creaky old plumbing system. However, as then Commissioner Elisse Walter, quoting Kurt Vonnegut, commented at the 2010 open meeting to vote on the concept release: “It’s a flaw in the human character that everyone wants to build, but nobody wants to do maintenance.” That statement was more prophetic than she probably anticipated when she made it: nothing came of the concept release. Whether more results from this current effort remains to be seen.
Shareholder vote on auditors puts the heat on the board
As discussed in this PubCo post, both ISS and Glass Lewis recommended voting against a proposal to ratify the appointment of GE’s auditor, KPMG, at the 2018 GE annual shareholders meeting, a pretty unusual event in itself. The shareholders meeting was held yesterday, and, in an even more rare occurrence, as reported by the WSJ, 35% of the shareholders did not vote to retain KPMG. Not exactly token opposition. According to Audit Analytics (reported here), that vote level “represents one of the highest levels of shareholder opposition to an auditor at any company in recent years.” What‘s a company to do? KPMG signed on to audit GE’s books 109 years ago—as CNN Money points out, that was back when William Howard Taft was president of the United States.
Auditors in the crosshairs (re-posted)
It’s certainly a rare event, but both ISS and Glass Lewis have recommended voting against a proposal to ratify the appointment of GE’s auditor, KPMG, at the GE annual shareholders meeting. Most often, the issue of auditor ratification is not very controversial—in fact, it’s usually so tame that it’s one of the few matters at annual shareholders meetings considered “routine” (for purposes of allowing brokers to vote without instructions from the beneficial owners of the shares). Are we witnessing the beginning of a new trend?
Equilar reports on advances in board gender diversity
Happy International Women’s Day!
According to the latest Equilar Gender Diversity Index (GDI), based on the current rate of growth, board gender parity for companies in the Russell 3000 is now expected to be achieved by 2048, an advance from the estimate published in the inaugural 2017 GDI, which did not project parity until 2055. At that point, women held only 15.1% of board seats for the Russell 3000, compared to 16.5% as of the end of 2017. Should we cheer?
Highlights of the 2017 PLI Securities Regulation Institute
Summarized below are some of the highlights of the 2017 PLI Securities Regulation Institute panel discussions with the SEC staff (Michele Anderson, Wesley Bricker, Karen Garnett, William Hinman, Mark Kronforst, Shelley Parratt, Ted Yu), as well as a number of former staffers and other commentators. Topics included the Congressional and SEC agendas, fresh insights into the shareholder proposal guidance, as well as expectations regarding cybersecurity, conflict minerals, pay ratio disclosure, waivers and many other topics.
Treasury report recommends actions to increase access to capital
The Treasury Department recently issued a new report, A Financial System That Creates Economic Opportunities—Capital Markets, that, in its recommendations, not surprisingly, echoed in many respects the House’s Financial CHOICE Act of 2017. Having passed the House, the CHOICE Act has since foundered in the Senate (see this PubCo post). The recommendations in the Treasury report addressed approaches to improving the attractiveness of primarily the public markets, focusing in particular on ways to increase the number of public companies by limiting the regulatory burden. According to this Bloomberg article, SEC Chair Jay Clayton “called the report ‘a valuable framework for discussion’ among market participants ‘that will most certainly benefit the American people….We appreciate Treasury’s willingness to seek the SEC’s input during the drafting process, and we look forward to working alongside other financial regulators and Congress as we pursue our three part mission to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.’”
Considerations regarding the defensive health of newly public companies
As discussed in this December 2016 Cooley Alert, this proxy season, the policies of ISS and Glass Lewis provide that they will recommend voting against the re-election of directors of “newly public” companies that, prior to or in connection with their IPOs, adopted bylaw or charter provisions that these proxy advisory […]
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