Last November, the SEC issued a proposed interpretation and guidance on how it would apply the proxy rule exemptions to proxy advisors regarding their provision of proxy voting advice. The exemptions would still exist, but would require proxy advisors to meet certain new conditions. (see Exequity’s November 12, 2019 Client Alert, SEC Proposed Changes to Rues Impacting Proxy Advisors and Shareholder Proposals, for details).
ISS first sued the SEC to block the rule changes and the SEC agreed to what amounts to a stand-still arrangement on the lawsuit for 1 year. Now, the two largest proxy advisors, ISS and Glass Lewis, recently submitted comments letters to the SEC regarding the SEC’s proposals. Finally, the Council of Institutional Investors (CII) has also submitted a comment letter to the SEC on its proposal.
ISS’ comment letter is 89 pages and raises three main issues:
- Definitional—ISS argues that the SEC lacks the authority to regulate proxy voting advice as if it were a solicitation.
- Exemptive—ISS argues that the proposed amendment of exemptions would require a proxy advisor to give the subject of its voting advice the right to review and provide feedback, and if the subject company is not happy with the proxy advisors attempt to satisfy any deficiencies, could force the proxy advisor to include a hyperlink directing the recipient of the proxy advisor’s advice to the subject company’s views on such advice.
- Litigation risk—ISS argues that the proposed guidance would require proxy advisors to provide granular disclosure concerning their proxy voting advice, which ISS alleges has no legal basis and was not authorized by Congress.
Glass Lewis’ comments focused on its belief that the proposed interpretation and guidance would not further the SEC’s stated objectives. Glass Lewis also points out that it believes the rushed process to develop this SEC proposal failed to provide adequate time to consider the legal issues its novel approach would raise and to understand fully and analyze the consequences—economic and otherwise—of the untested, unprecedented regulatory regime it would introduce.
CII’s letter also indicates that it is not a fan of the proposal. CII’s letter focused on claims by certain corporate representatives that there are pervasive factual inaccuracies in proxy advisors’ reports, claims that it believes the SEC relied on in taking this action. CII believes that the claims of pervasive errors are unfounded and misleading and do not provide a basis for the SEC’s rulemaking.
The comment letters of CII, ISS and Glass Lewis are available at:
- CII: https://www.cii.org/files/issues_and_advocacy/correspondence/2020/20200204%20PAF%20error%20claims%20letter%20FINAL.pdf
- ISS: https://www.issgovernance.com/file/duediligence/31012020-ISS-Comments-Filing.pdf
- Glass Lewis: https://www.glasslewis.com/wp-content/uploads/2020/02/GL-Comment-Letter-Final.pdf