In anticipation of an SEC Staff Roundtable on the proxy process, the SEC Division of Investment Management staff withdrew two no-action letters from 2004 regarding the Proxy Voting Rule.
The SEC staff noted that, due to developments since 2004, the Egan-Jones Proxy Services (May 27, 2004) and Institutional Shareholder Services, Inc. (September 15, 2004) no action letters should be withdrawn. The SEC staff asserted that removing these letters will help facilitate roundtable discussions on the proxy process. The roundtable is expected to take place in November, 2018.
As previously covered, the roundtable will give staff an opportunity to interact with market participants and discuss topics, which include the voting process, retail shareholder participation and the role of proxy advisory firms.
Commentary / Dorothy Mehta
The withdrawn no-action letters effectively provided protection to an investment adviser that received, and potentially acted upon, proxy advice provided by a third party (e.g., Egan Jones or Institutional Shareholder Services) that might be subject to a conflict of interest by reason of its receipt of compensation from the issuer for services that were not directly related to the proxy contest. In light of the withdrawal of these letters, investment advisers should consider whether there is further information that they should demand from any proxy advisory firm as to potential conflicts of interest, and as to whether there are circumstances when it may not be appropriate to rely upon a proxy advisory firm.
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