If you tuned into our annual Proxy Season Post-Mortem webcast on CompensationStandards.com a few weeks ago, you would have heard me give an update on the state of regulatory and other efforts targeting the proxy advisory firms. As has become tradition for that webcast, I built each of my webcast topics around a unifying theme, and this year I chose the Toy Story movie series in honor of the release of Toy Story 5 in June. When we got to the topic of proxy advisory firms, I noted:

Sticking with my Toy Story theme, I’m going to talk a little bit about the proxy advisory firms and what they’re going through at the moment. If you’ve watched Toy Story 4,000 times like I did because my kids were young when it first came out, you will certainly remember Sid Phillips, who is the neighbor of Andy. Andy is the owner of the toys, Woody and Buzz.

Sid had a penchant for torturing toys, including Woody when he got a hold of him. One can envision a world where young Sids like that would grow up to be politicians and regulators and state attorneys general who would turn their attention to proxy advisory firms instead of mounting doll heads on Erector set legs and things like that. That’s what we’re seeing with the proxy advisory firms as they are facing a multi-front attack, both at the federal and state levels.

As Meredith recently noted in the Proxy Season Blog, just last week courts in Kansas and Indiana granted preliminary injunctions preventing enforcement of laws seeking to regulate the activities of the proxy advisory firms in a manner similar to the Texas law that was enacted last year. The Kansas and Indiana laws would have gone into effect today.

This ValueEdge Advisors blog quotes the Kansas decision:

Plaintiffs contend that they are likely to succeed on the merits of their First Amendment claim because SB 375 discriminates based on viewpoint (facially and in purpose) and fails strict scrutiny. Defendant responds that the law does not impose any viewpoint discrimination, so strict scrutiny does not apply. Defendant further argues that SB 375 passes constitutional muster because it only regulates commercial speech by requiring certain limited disclosures [. . .]

Plaintiffs’ voting recommendations are not commercial speech. The voting recommendations are not advertisements….The recommendations are not referencing a product. The recommendations are not offering a product for sale. The recommendations are the product. Also, although ISS and Glass Lewis offer their services for compensation, that transaction has already occurred before the voting recommendations are made. And the compensation is not for the specific vote, but for the service of providing voting recommendations….The fact that Plaintiffs are compensated for providing voting recommendations does not transform the voting recommendations into commercial speech.

ISS issued statements following both orders.

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– Dave Lynn