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Late last week, Dave shared that the Fifth Circuit Court of Appeals, in National Association of Manufacturers v. SEC, held that the SEC’s 2022 decision to rescind certain 2020 amendments to the proxy rules was arbitrary and capricious. This Gibson Dunn article does a great job describing the background and history in this over decade long saga.

Both the article and the opinion highlight the effort that went into the 2019 proposed rules (including all the study and collaboration done by the SEC Staff over two administrations leading up to the adoption of the 2020 amendments) and the changes made from the proposal when the rules were ultimately adopted to address independence and timeliness concerns raised during the comment period. Ultimately, the Fifth Circuit took issue with the fact that the SEC, when rescinding the rule, cited those same independence and timeliness concerns that the changes to the final rules were intended to address — and in doing so, rejected its earlier factual findings without explanation.

Dave explained that the decision only vacated and remanded the rescission of the “notice and awareness” provision. This is the provision that public companies most celebrated and appreciated — it required proxy advisor advice to be sent to companies at or before the time it was sent to clients and required proxy advisors to make their clients aware of company responses. But these provisions were included in the amended rules as “conditions” that the proxy advisory firms had to meet in order to rely on exemptions from the proxy solicitation rules. An exemption was required because the 2020 amendments also changed the definition of “solicitation” to include proxy voting advice for a fee (codifying prior interpretation).

The thing that makes this particularly wonky is that a federal district court ruled in February of this year in another lawsuit in favor of ISS — finding the SEC “acted contrary to law and in excess of statutory authority” when it amended the definition of “solicitation” to include proxy voting advice for a fee. The SEC and NAM (also a party in that proceeding) have filed notices of appeal of that decision with the DC Circuit. So, here we are with one court saying the 2022 rescission was wrong and another one saying the rescission didn’t go far enough.

Phew! I can’t pretend to know where this will land — and consequently what this will mean for public companies during the 2025 proxy season — but you’re going to want to follow this to be prepared. This is exactly the type of evolving issue that we’ll make sure you hear the latest and greatest on during our fall Proxy Disclosure & Executive Compensation Conferences — not to mention that attendees have the opportunity to hear from Rachel Hedrick, Vice President of U.S. Executive Compensation Research at ISS, and Krishna Shah, Director of North America Executive Compensation at Glass Lewis, for a preview of hot topics that may affect disclosures and voting outcomes in 2025.

– Meredith Ervine