July 14, 2022
SEC Adopts Amendments to Proxy Voting Advice Rules
At an open meeting yesterday, the SEC adopted rule amendments reversing certain changes to the proxy rules that were adopted just two years ago to address concerns with proxy voting advice from proxy advisory firms. The Commission’s announcement of the rule changes notes:
The final amendments rescind two rules applicable to proxy voting advice businesses that the Commission adopted in 2020. Specifically, the final amendments rescind conditions to the availability of two exemptions from the proxy rules’ information and filing requirements on which proxy voting advice businesses often rely. Those conditions require that: (1) registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner; and (2) clients of proxy voting advice businesses are provided with a means of becoming aware of any written responses by registrants to proxy voting advice. Institutional investors and other clients of proxy voting advice businesses have continued to express concerns that these conditions could impose increased compliance costs on proxy voting advice businesses and impair the independence and timeliness of their proxy voting advice.
The final amendments also delete the 2020 changes made to the proxy rules’ liability provision. Although the 2020 changes were intended to clarify the application of this liability provision to proxy voting advice, they instead created a risk of confusion regarding the application of this provision to proxy voting advice, undermining the goal of the 2020 changes. The final amendments address the confusion while affirming that proxy voting advice generally is subject to liability under the proxy rules.
The SEC also rescinded guidance that the Commission issued in 2020 to investment advisers regarding their proxy voting obligations.
The adopting release points out that this rulemaking did not represent a wholesale reversal of the 2020 rulemaking, noting:
- Proxy voting advice generally remains a solicitation subject to the proxy rules, including liability under Rule 14a-9 for material misstatements or omissions of fact;
- In order to rely on the exemptions from the proxy rules’ information and filing requirements set forth in Rules 14a-2(b)(1) and (3), proxy advisory firms will still have to satisfy Rule 14a2(b)(9)’s conflicts of interest disclosure requirements; and
- The deletion of Note (e) does not affect the scope of Rule 14a-9 or its application to proxy voting advice.
The Commission notes that final amendments reflect the fact that “our thinking has evolved with respect to the Rule 14a-2(b)(9)(ii) conditions and Note (e) to Rule 14a-9, informed, in part, by the concerns expressed by PVABs’ clients and other investors that were among the primary intended beneficiaries of the 2020 Final Rules.”
Commissioners Peirce and Uyeda did not support the amendments.
– Dave Lynn