Archived Content

New SEC Guidance Concerning Proxy Advisory Firms a Good First Step

WashingtonBusiness Roundtable today welcomed the new guidance for proxy advisory firms and their investment adviser clients provided by the staff of the U.S. Securities and Exchange Commission (SEC).

“America’s business leaders are pleased that the SEC took this important first step to address problems identified with proxy advisory firms,” said Alexander M. (Sandy) Cutler, Chairman and CEO of Eaton and Chair of Business Roundtable’s Corporate Governance Committee. “These firms exert significant influence in the proxy voting process and should be subject to appropriate oversight.”

The new guidance issued by the SEC staff yesterday makes clear that, in order to qualify for the exemption from certain proxy rules, proxy advisory firms must proactively and specifically disclose to investors “significant” or “material” interests the proxy advisory firm has “in the matter that is the subject of the voting recommendation.” Further, this guidance properly emphasizes that among the fiduciary duties of investment advisers is the obligation to proactively, and at least annually, monitor the policies and practices of third party proxy advisory firms they use to facilitate proxy voting and proxy voting decision-making. Equally important, this guidance stresses that institutional investors have a duty to “ascertain that the proxy advisory firm has the capacity and competency to adequately analyze proxy issues.”

Business Roundtable has long advocated for increased SEC supervision of proxy advisory firms. The Roundtable also supports efforts to ensure that investment advisers are exercising appropriate oversight over the proxy advisory firms they retain, consistent with their fiduciary duties as registered investment advisers.  

In testimony before the House of Representatives and in communications to the SEC, Business Roundtable proposed reforms that would improve transparency and accountability by requiring:

  • Proxy advisory firms to register under the Investment Advisers Act of 1940 (Advisers Act), under a tailored regulatory framework that reflects the unique role they play in the proxy voting process;

  • Conflict of interest disclosure by proxy advisory firms that describe specific conflicts and not just reliance on generalized statements about conflicts of interest;

  • Proxy advisory firms to provide more transparency involving their internal controls, policies, procedures, guidelines and methodologies;

  • Proxy advisory firms to provide public companies with copies of their draft reports, in advance of dissemination to their clients, to permit correction of inaccurate information;

  • Proxy advisory firms to publicly disclose the final report about a public company 90 days after a shareholder meeting has occurred; and

  • That new SEC rules or guidance emphasize the responsibility of each registered investment adviser to exercise appropriate oversight over its proxy voting process, to ensure that its voting decisions with respect to client securities are in the best interests of its clients.

Cutler added that the SEC’s guidance is a positive first step in implementing these reforms, but the Roundtable believes more needs to be done, including requiring all proxy advisory firms to register with the SEC under the Advisers Act and seeing that the SEC takes steps to see that investment advisers and proxy advisory firms adhere to the rules and this new guidance.