July 29, 2022

Proxy Advisors: Chamber & BRT Sue SEC to Stop Reversal of 2020 Rule

Earlier this month, the SEC delighted proxy advisors and many investors by adopting amendments that – among other things – reversed two of the “new” conditions governing proxy voting advice that were adopted just two years ago and never made it into effect. The new 2022 amendments and the rescission of related guidance are slated to become effective this September 19th and apply during the upcoming proxy season.

Yesterday, the US Chamber of Commerce, the Business Roundtable and the Tennessee Chamber of Commerce & Industry announced that they had joined together as plaintiffs to file this complaint (in Tennessee district court) that accuses the SEC of not following proper procedures or providing adequate justification for the rollback under the Administrative Procedure Act. Here’s the relief they’re seeking:

– A declaratory judgment that the Amended Rule at issue in this lawsuit is arbitrary, capricious, or otherwise contrary to law within the meaning of the Administrative Procedure Act, see 5 U.S.C. § 706(A);

– An order vacating and setting aside the Amended Rule in its entirety pursuant to the Administrative Procedure Act, see 5 U.S.C. § 706(2);

– An order issuing all process necessary and appropriate to delay the effective date and implementation of the Amended Rule pending the conclusion of this case;

– An order setting aside Defendants’ suspension of the compliance date for the 2020 Rule;

– An order awarding Plaintiffs their reasonable costs, including attorneys’ fees, incurred in bringing this action; and

– Any other relief as the Court deems just and equitable.

The 2020 rules were the result of a long effort on the corporate side to bring more lead-time, transparency and accuracy to proxy advisor recommendations. The newly adopted amendments – while not a total surprise – confirm that predicting votes & correcting inaccuracies will remain very difficult for many corporate secretaries. Maybe even more difficult than when this rulemaking saga began, since ISS stopped providing draft reports to the S&P 500 in the wake of the 2020 rules.

For those keeping track at home, this is at least the third lawsuit relating to the rules – and boy has there been a lot of drama along the way. ISS sued the SEC in 2019 over guidance that foreshadowed the 2020 proposal – which was then stayed and then back on. Then, NAM sued the SEC when the SEC suspended the compliance date. The CII also jumped in along the way.

Update: An eagle-eyed member alerted me that NAM also filed another complaint last week, in Texas. So, this Chamber/BRT complaint is at least the FOURTH lawsuit these rules have drawn.

Liz Dunshee