At an open meeting today, the SEC voted 3-2 to publish interpretive guidance on proxy voting and proxy advisory firms. The actual guidance should be published in Federal Register soon. We have blogged a few times before on the ongoing efforts among some in Congress and the SEC to limit the outsized role, as they see it, of the proxy advisory firms (see, SEC Withdraws Support for Proxy Advisory Firms and New Proposed Legislation Targets Proxy Advisory Firms). This issue seems to boil to the surface at least once each year.
Of primary interest to executive compensation and governance professionals, was Item 2 on the Agenda, in which the SEC voted to publish "an interpretation and related guidance regarding the applicability of certain rules, which the Commission has promulgated under Section 14 of the Securities Exchange Act of 1934, to proxy voting advice." As summarized in the Press Release, under the interpretation, proxy voting advice provided by proxy advisory firms generally will constitute a "solicitation" subject to the federal proxy rules. The SEC's guidance does not affect the ability of proxy advisory firms to continue to rely on certain exemptions in Rule 14a-2(b). However, solicitations that are exempt from the proxy rules' filing requirements are subject to Exchange Act Rule 14a-9, which prohibits any solicitation from containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact.
We will have to await publication of the guidance to see the specifics, including "examples of information that proxy advisors should consider disclosing that is specific to the types of information we see provided in proxy advisor reports."
Commissioners Jackson and Lee dissented from the vote, arguing that these "examples" will be viewed as mandates, and will increase the costs and time pressures applicable to the proxy advisory firms, increase issuer involvement in the process, and reduce competition in the space already dominated by just two advisory firms.
I will write again when the guidance is published in the Federal Register or otherwise made available.
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