Contentious Comment Period Ends for SEC’s Proposed Rule on Proxy Voting Advisors

On November 5, 2019, the SEC announced proposed amendments to its proxy solicitation rules to require additional disclosure about “material conflicts of interest that proxy voting advice businesses provide their clients” in an attempt to “help ensure that proxy voting advice used by investors and others who vote on investors’ behalf is accurate, transparent, and materially complete.”

The proposed amendments would:

• amend Exchange Act Rule 14a-1(l), which defines the terms “solicit” and “solicitation” to specify when a person who provides proxy voting advice would be deemed to have engaged in a solicitation^[1] and clarify that voting advice provided in response to an unprompted request would not constitute a solicitation;
• revise Rule 14a-2(b), which currently provides exemptions from the information and filing requirements of the proxy rules, to require proxy voting advice businesses relying on those exemptions to be subject to additional conditions:
  • (i) these businesses must include disclosure of material conflicts of interest in their proxy voting advice,
  • (ii) registrants and some other soliciting persons must be given an opportunity to review and provide feedback on such proxy voting advice before it is issued, and
  • (iii) registrants and some other soliciting persons may request that proxy voting advice businesses include hyperlinks in their voting advice, directing the recipient of the advice to a written statement that sets forth the registrant’s or soliciting person’s views on the proxy voting advice; and
• modify Rule 14a-9 to include examples of when the failure to disclose certain information in the proxy voting advice could be considered misleading within the meaning of the rule.

Following the publication of the proposed amendments, several proxy advice firms filed suit against the SEC, arguing that the SEC’s position is inconsistent with Congress’ intent when it adopted the Securities Exchange Act of 1934.

The comment period was completed in early January 2020, but the SEC continued receiving comment letters through the end of February. In total, the SEC received approximately 771 comments from individuals, companies, and stakeholders that discussed the impact of the proposed amendments. We will continue to follow developments and post updates to the Capital Markets & Securities Law Watch.

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^[1] The proposed amendment would “make clear that the terms ‘solicit’ and ‘solicitation’ include any proxy voting advice that makes a recommendation to a shareholder as to its vote, consent, or authorization on a specific matter for which shareholder approval is solicited, and that is furnished by a person who markets its expertise as a provider of such advice, separately from other forms of investment advice, and sells such advice for a fee.”