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Jul 14, 2022

SEC scraps rules giving companies more power in proxy process

US regulator also proposes to update rules around exclusion of shareholder proposals

The SEC has voted to undo Trump-era rules that handed companies more involvement in the creation of proxy advice. 

Under the changes, proxy advisory firms will no longer need to make available to companies any research about them or share with investors any written responses by companies to voting advice. The rules had been adopted in 2020.

The ruling, while expected, is a blow to corporate groups that have long campaigned for ways to address perceived issues with proxy voting advice, such as accuracy and conflicts of interest.

The US regulator also voted to delete a 2020 change to liability requirements for proxy advice, which provides examples of material misstatements or omissions, as it ‘created a risk of confusion regarding the application of this provision’.

‘I am pleased to support these amendments because they address issues concerning the timeliness and independence of proxy voting advice, which would help to protect investors and facilitate shareholder democracy,’ says SEC chair Gary Gensler in a statement. 

‘It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice.’

In a separate action, the SEC has also proposed changes to Rule 14a-8 that may make it harder for companies to exclude shareholder proposals under certain circumstances. 

The update would see new language adopted for three exemptions: substantial implementation, duplication and resubmission. 

‘I believe these proposed amendments would provide a clearer framework for the application of this rule, which market participants have sought,’ says Gensler. ‘They also would help shareholders exercise their rights to submit proposals for consideration by their fellow shareholders.’

Opposing views 

Tom Quaadman, executive vice president at the US Chamber of Commerce, a business lobby group, has criticized both announcements from the SEC, accusing the regulator of pursuing a ‘politically motivated agenda’.

‘Today’s actions undermine the regulatory progress made at the SEC in recent years to encourage companies to go, and stay, public ­– companies which ultimately create more opportunities for main street investors and everyday Americans and help grow our economy,’ he says. 

‘The chamber will consider all available options including the courts to stop these unwarranted and clearly political steps backward.’

The Council of Institutional Investors (CII), meanwhile, has issued a statement welcoming the elimination of ‘onerous provisions’ in the 2020 proxy advice rule, saying they could have ‘harmed the independence, cost and timeliness’ of recommendations.

The lobby group, however, says the SEC should go further and review the 2020 determination that proxy advice counts as proxy solicitation under federal securities laws. 

‘Classifying proxy advice as solicitation potentially subjects proxy advisory firms to burdensome filing rules and challenges their independence and free speech rights in conducting the financial analysis that informs their proxy voting advice,’ says the CII.