Risk & Compliance

SEC Approves Final Rules on Proxy Advisors

The measures will "harm the governance process and suppress the free and full exercise of shareholder voting rights," a dissenting commissioner says.
Matthew HellerJuly 23, 2020

The U.S. Securities and Exchange Commission has voted to adopt new rules that require proxy advisors to provide companies with access to their voting advice at the same time as shareholders.

The SEC’s 3-1 vote on Wednesday followed a years-long battle between corporate lobbyists and governance activists over the regulation of firms that advise investors on how they should vote in corporate elections.

The new rules — which also tighten the disclosure requirements of proxy advisors — are designed to ensure shareholders have “reasonable and timely access to more transparent, accurate and complete information on which to make voting decisions,” the SEC said in a news release.

But the dissenting commissioner, Allison Herren Lee, blasted the measures as “unwarranted, unwanted, and unworkable.”

“At the proposing stage for these rules, I observed that they would harm the governance process and suppress the free and full exercise of shareholder voting rights,” she said in a statement. “Unfortunately, that is still the case with today’s final rules.”

As Reuters reports, corporate groups “had lobbied hard to rein in proxy advisers, which they say have too much power over the shareholder voting process and often make mistakes in their company reports.”

“They also say proxy advisers are sometimes conflicted because they frequently provide other services to the companies on which they issue voting recommendations,” Reuters said.

The SEC proposed in November that proxy advisors give companies five days to vet their reports. Under the final rules, voting advice must be made available to issuers “at or prior to the time when such advice is disseminated to the proxy voting advice business’s clients.”

“The final rules will still make it harder and more costly for shareholders to cast their votes, and to do so in reliance on independent advice,” Herren Lee said. “That means it will be harder for shareholders to make their voices heard — and harder for them to hold management accountable.”

But Tom Quaadman of the U.S. Chamber of Commerce said the SEC had “acted to protect investors, promote transparency, end conflicts of interest and boost U.S. competitiveness through oversight of proxy advisory firms.”