Further to our report in yesterday’s Society Alert, at its open meeting today, the SEC proposed amendments to the proxy advisory rules adopted in 2020, which reflected more than a decade’s worth of Society engagement on this critical issue.
The proposed amendments rescind Rule 14a-2(b)(9)(ii), which requires proxy advisors to make their advice available to companies concurrently or before the they make the advice available to their clients and provide their investor clients with a means by which they can reasonably be expected to become aware of written statements made by companies (if any) regarding the proxy advisors’ voting advice. The proposal also rescinds Note (e) to Rule 14a-9, which prohibits false or misleading statements. Note (e) affirms that the failure to disclose material information regarding proxy voting advice could be misleading and provides examples of material misstatements or omissions related to proxy voting advice.
In their strong dissents, SEC Commissioners Elad Roisman and Hester Peirce take aim at the purported justifications for the rescission of rules that have not yet taken effect in the context of no new substantive information other than investor concerns of the type that were expressed and vetted during the prior extended rulemaking process. Specifically, the proposed rule identifies investor and other proxy advisor client concerns about the potential adverse impact of the current rules on the ability of proxy advisors to provide independent proxy voting advice in a timely manner and the potential to subject them to undue litigation risks and compliance costs. Their dissents also express due process concerns that signal a politically motivated rulemaking.
As previously reported, the Society submitted a comment letter in 2018 in conjunction with the SEC’s Roundtable on the Proxy Process and submitted another comment letter supporting the rulemaking in 2020. ISS sued the SEC following its issuance of the 2019 guidance alleging – among other things – that it had exceeded its authority, should have complied with the APA notice and comment procedures, and acted arbitrarily and capriciously. ISS resumed the litigation in August 2020 following the SEC’s adoption of the rule. Last month, the National Association of Manufacturers filed suit against the SEC in the US District Court for the Western District of Texas over its failure to enforce the rule.
Comments are due 30 days after publication in the Federal Register.
See also the SEC’s release and Fact Sheet; these supporting statements from SEC Commissioner Allison Herren Lee and Caroline Crenshaw; and additional resources on our Proxy Advisors page.