SEC Commissioner Elad Roisman's Keynote Remarks today on proxy plumbing issues at the ICI Mutual Funds and Investment Management Conference included a mention of reevaluating the shareholder proposal submission/resubmission thresholds, and a robust discussion on the role of proxy advisory firms in relation to asset managers' use of their services in the proxy voting process.
Among the key areas of questioning and potential concern he expressed on proxy advisor services:
- Voting Guidelines - Asset managers' wholesale adoption of proxy advisor voting policies or guidelines (if/as applicable), some of which appear to undermine existing legal rights or set standards unrelated to legal requirements and company-specific attributes
- Robo-Voting or Pre-Populating? - Asset managers' implementation of proxy advisor guidelines in the voting process in a manner that relies fully or to a great extent on proxy advisor discretion/decision-making
- Accuracy & Completeness - Whether & how asset managers learn about and address material factual errors in proxy advisors' reports, and how they receive and account for input from issuers before they vote
- Conflicts of Interest - How asset managers diligence and account for proxy advisor conflicts of interest in evaluating the proxy advisors' voting recommendations
Commissioner Roisman, who had previously been designated by Chair Clayton to take the lead on the proxy plumbing issues (reported on here), expressed his belief that the time is right for the SEC to consider guidance on asset managers' use of proxy advisors, and to reconsider proxy advisors' reliance on the proxy solicitation exemptions available under Exchange Act Rules 14a-2(b)(1) and 14a-2(b)(3).
In her earlier remarks at the same conference, Division of Investment Management Director Dalia Blass signaled that updated & clarified Proxy Process Roundtable-informed guidance on investment advisors' use of proxy advisors is likely forthcoming later this year:
In 2019, we will be exploring ways to update current guidance to clarify how investment advisers should fulfill their fiduciary duties in this area. Our focus will include questions such as:
- how to promote voting practices that are in the best interests of advisory clients, including voting on an issuer-specific basis when appropriate;
- whether advisers are expected to vote every proxy;
- how advisers should evaluate recommendations of proxy advisers, particularly where the issuer disagrees with the factual assumptions of the recommendation; and
- how advisers should address conflicts of interest that a proxy adviser may have.
I anticipate developments on this project around the end of proxy season this year.
Director Blass specifically referenced Chair Clayton's recent remarks noting the need for greater role clarity, process transparency, and other long sought-after reforms in the proxy advisor arena, which we previously summarized here.
Access additional information & resources on our Proxy Advisors and Proxy Plumbing pages.
Stay tuned!