What to Make of the SEC’s Proxy Advice Vote
The Security and Exchange Commission voted on Proxy Adviser Rules. The rule will take effect for the 2022 proxy season.
We have not yet read all 246 pages of SEC rulemaking, so we may have more to say. For now, top-line thoughts from CFA Institute are noted here.
- Process. We still have significant concerns over the proposed rules — and new Commission-level guidance — that differ vastly from the original proposal and public comments. Further public consultation is important when the proposed rules go against the vast majority of public comments and the data show minor error rates with proxy advice. A cogent justification for this intervention into proxy voting and corporate governance process is missing.
- Intimidation of Proxy Advisers. We are pleased to see the SEC back away from mandating preclearance of independent proxy analyst opinions with the issuer. We also support greater transparency about proxy adviser conflicts of interest. We nevertheless are concerned about the Commission using implied legal threats and pointed admonitions about regulatory duties to accomplish what they could not mandate. We believe this is contrary to good public policy. Although not a mandate, specifically implying that proxy advice businesses could lose safe harbor protections and face fraud liability if they don’t invite issuers to vet and rebut the advice constitutes a serious infringement of analyst independence.
- Intimidation of Registered Investment Advisers (RIAs). Our greatest concern is the Commission’s move to effectively shift liability and responsibility to the RIA professionals for the accuracy of proxy opinions and advice. Again, through implied liability threats and pointed references to breaches of fiduciary duty, an RIA is “encouraged” to second guess any proxy advice, not automatically vote in accordance with their own proxy voting guidelines, and give stronger weight to any new information the issuer might provide. In effect, it doesn’t matter if the RIA or manager has detailed and elaborate voting policies or uses many sources of advice and research on proxy voting decisions; the issuer gets the last word and the RIA better wait for that or they risk violating fiduciary duties.
- Independence of the Proxy Process. CFA Institute fully supports an open and transparent proxy voting process. Both accurate proxy analysis and issuer views are critical to that process. Issuers can easily express disagreements with independent proxy advisers, and provide their own clarifications and objections as needed, through their many channels. They should not be allowed to rig the proxy process through voting delays, threats of fiduciary violations, or maneuvers to suppress independent analysis.
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