Our more eagle-eyed readers may have seen that the SEC’s Investor Advisory Committee met again earlier this week, meeting for a series of discussion panels tackling several key issues facing the capital markets.
Nestled among them was a panel addressing non-GAAP financial disclosures and another that examined the issue of pass-through voting and engagement with beneficial owners.
The practice of pass-through voting refers to the process of investors having more of a say in how asset managers vote on the proxies of the companies that make up their holdings. In other words, it’s giving fund investors the right to vote (indirectly) on those shareholder proposals, driven by the rapid uptake of ETFs and a growing desire for shareholder democracy.
As SEC commissioner Hester Pierce set up the day’s discussion: ‘Does pass-through voting, which effectively hands the fund’s votes to a subset of fund investors who choose to express their preferences, respect the reality of the fund’s ownership?’
On the panel – consisting of Jill Fisch of University of Pennsylvania Carey Law School, John Galloway of Vanguard, Will Goodwin of Tumelo, Katie Sevcik of EQ Shareowner Services, and Paul Washington of the Society of Corporate Governance – it was enough to identify some of the major points of friction standing in the way of widespread pass-through voting acceptance.
Identifying and communicating with upstream investors is one of those problems; educating retail investors about the wide range of choices or issues open to them is another; and the broader implications for loaned shares is yet another.
Fisch also remarked that the voting instruction forms sent by brokers sometimes inadequately describe proposals, making it even harder for retail investors to understand exactly what they are voting on. For example, while a voting instruction form may just state that one of the contended issues was a ‘racial equality audit’ or ‘health and safety governance’, there may be no further detail given as to what exactly has been put forward to the proxy.
So what’s the way forward? Well, perhaps unsurprisingly in matters relating to the SEC, there was no clear next step identified. The panelists did agree on their list of ‘must-have’ criteria on the system as it evolves, namely: stimulating a strong turnout, developing an informed voting base, that the system is cost-effective and efficient, that voting outcomes are accurate and that there is a guarantee of a fully democratic process for beneficial owners.
So, what happens next remains to be seen. Do you have any ‘must-have’ elements of whatever regulatory framework might come next? Let us know at [email protected].
Laurie Havelock
Laurie has been with IR Impact for over a decade, becoming editor in 2023 after roles as a reporter and research editor. He moderates events and serves as MC for global awards. Previously, he was acting business editor at the i newspaper and deputy...
