In remarks on Wednesday at the 2025 Institute for Corporate Counsel, Commissioner Uyeda addressed such hot topics as a potential shift away from quarterly reporting, shareholder proposals and mandatory arbitration, so it might seem strange that I’m focusing this blog on his commentary on robo-voting (when institutional investors purportedly automatically follow proxy advisor voting recommendations without independent review). But whether you think robo-voting remains prevalent and a major problem, or you think the concern has been overblown, Commissioner Uyeda’s commentary — suggesting that, “depending on the facts and circumstances, funds and asset managers using [proxy voting advisory businesses (PVAB)] for voting decisions may have formed a group for purposes of Section 13(d)(3) or Section 13(g)(3) of the Securities Exchange Act” — will probably interest you. Here’s an excerpt:

Indeed, the Commission itself raised this issue in 2020 when it stated that “[u]se of a proxy voting advice business by investors as a vehicle for the purpose of coordinating their voting decisions regarding an issuers’ securities” would raise issues under the SEC’s beneficial ownership rules. Of course, a group is not formed simply because a shareholder independently determined how it wants to vote on an issue, announced its voting decision, or advised others on how it intended to vote.

The key is that the vote is based on an independent decision by the shareholder itself. If, in lieu of such independent decision-making, funds and asset managers automatically vote shares solely based on PVAB recommendation regarding shareholder proposals that have the purpose or effect of influencing control over the company and the aggregated voting power of such persons exceeds 5% beneficial ownership, such persons may have formed a group and need to file a Schedule 13D even if they beneficially own less than 5% on an individual basis.

To the extent that funds and asset managers are engaging in “robo-voting” based on PVAB recommendations, such practices should be reviewed to determine whether they comply with the Exchange Act and SEC rules. The evaluation of whether a group has been formed should take into account the business realities of the arrangements, particularly if robo-voting results in coordination of voting practices where owners of the same securities vote in tandem with each other with the effect of influencing control of an issuer. The substance of such arrangements has implications under Section 13(d) of the Exchange Act and we should not shy away from scrutinizing such consequences.

It seems (to me at least) that robo-voting has gone down in recent years, but it also seems hard to discern causation (meaning, where an investor truly automatically votes in line with a benchmark recommendation) from correlation (where there’s a high degree of alignment of votes with benchmark recommendations despite the shareholder making independent decisions). For example, we’ve blogged about how, for a substantial portion of fund families, 99% of their votes align with a proxy advisor’s benchmark recommendation. But we’ve also shared that large institutional investors largely don’t automatically vote in accordance with proxy advisor benchmark policy recommendations. This is a suggestion by Commissioner Uyeda that the SEC scrutinize these practices, so we’ll have to wait to see where this goes.

– Meredith Ervine