October 21, 2021

The Drama Never Ends: NAM Sues SEC on Proxy Advice Rules

During the “SEC All-Stars” panel at last week’s Proxy Disclosure Conference, I spoke on the topic of proxy plumbing. I commented on how the SEC issued the proxy plumbing concept release eleven years ago as of yesterday, and just when the Commission started to make progress in addressing some of the proxy plumbing topics from that concept release, we appear to be taking one step forward and two steps back. While I noted that usually people do not get too excited when you start talking about any topic with the word “plumbing” in it, the SEC’s recent efforts on proxy plumbing has seen more drama than an episode of “Keeping Up With the Kardashians.”

Well, that drama continues, with the National Association of Manufacturers announcing that it has sued the SEC for its approach of not enforcing the recently adopted proxy voting advice rules while the Staff is reviewing potential changes to those rules.

Back in July 2020, the SEC adopted the final rules governing proxy voting advice provided by proxy advisory firms such as ISS and Glass Lewis. The proxy advisory firms would be required to comply with most of the new requirements beginning December 1, 2021. Obviously a lot has changed at the SEC since July 2020, and earlier this year Chair Gensler directed the Staff to reconsider the rules and guidance. Corp Fin put out statement saying that it will not recommend enforcement action to the SEC based on the interpretive guidance and the rule amendments during the period in which the SEC is considering further regulatory action in this area. In addition, in the event that new regulatory action leaves the 2020 exemption conditions in place with the current compliance date, the Staff will not recommend any enforcement action based on those conditions for a reasonable period of time after any resumption by ISS of its litigation challenging the rules and guidance. The SEC’s June 2021 Reg Flex Agenda indicates that proposed amendments to the rules are expected by Spring 2022.

The National Association of Manufacturers, citing numerous concerns with proxy advisory firms, is challenging the SEC’s approach to the rule changes that were duly adopted through a notice and comment rulemaking process. The complaint states:

The SEC’s suspension of the Proxy Advice Rule is flatly unlawful. The SEC may not decide that it no longer stands by a regulation it earlier lawfully promulgated, and—absent any rulemaking process—simply suspend its application. To the contrary, the procedural provisions of the Administrative Procedure Act (APA) exist precisely to bring regularity to agency action.

NAM asks the court to set aside the SEC’s “suspension of the compliance date” for the rule. Stay tuned for the next episode of “Keeping Up With the Proxy Voting Advice Rules.”

– Dave Lynn