Proxy Voting-Reaffirming and Modernizing the Core Principles of Fiduciary Duty and Transparency to Provide for Better Alignment of Interest Between Main Street Investors and the Market Professionals Who Invest and Vote on Their Behalf (SEC Chair Jay Clayton)Paying More For Less: Higher Costs for Shareholders, Less Accountability for Management (SEC Commissioner Allison Herren Lee)Open Meeting to Adopt Amendments to the Proxy Solicitation Rules (SEC Commissioner Elad L. Roisman)Statement at Open Meeting on Exemptions from the Proxy Rules for Proxy Voting Advice and Supplement to Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers (SEC Commissioner Hester Peirce)
The Securities and Exchange Commission today voted to adopt amendments to its rules governing proxy solicitations designed to ensure that clients of proxy voting advice businesses have reasonable and timely access to more transparent, accurate and complete information on which to make voting decisions. The amendments aim to facilitate the ability of those who use proxy voting advice-investors and others who vote on investors' behalf-to make informed voting decisions without imposing undue costs or delays that could adversely affect the timely provision of proxy voting advice."The majority of our Main Street investors participate in our public markets through ownership of mutual funds and ETFs managed by professional market participants," said Chairman Jay Clayton. "Today's actions ensure that those who take on the responsibility of investing and voting on behalf of our Main Street investors have the accurate and decision useful information necessary to make an informed voting decision for the benefit of those investors."The amendments condition the availability of two exemptions from certain of the federal proxy rules often used by proxy voting advice businesses on compliance with tailored and comprehensive conflicts of interest disclosure requirements. The exemptions are also conditioned on two principles-based requirements designed to ensure 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 an efficient and timely means of becoming aware of any written responses by registrants to proxy voting advice. These conditions reflect certain observed market practices and are intended to ensure that proxy voting advice clients have access to information that is more transparent, accurate and complete.In addition, the amendments codify the Commission's longstanding view that proxy voting advice generally constitutes a solicitation under the proxy rules, and make clear that the failure to disclose material information about proxy voting advice may constitute a potential violation of the antifraud provision of the proxy rules.
My second point follows from that staff commitment to ensuring that, as markets evolve, we continue to work for the benefit of our long-term retail investors. Today's recommendations are of significant importance to these Main Street investors. The majority of our Main Street investors participate in our public markets through intermediaries, most commonly through ownership of mutual funds and exchange-traded funds. Institutional investors, including the funds that hold retail investments, own approximately 72 percent of the domestic stock market value.Proxy voting, in the interests of those retail investors, is important to fund performance and retail investor welfare. Many of the institutions that manage retail investor money retain proxy voting advice businesses for services relating to both the substance of voting decisions and the process of voting, including automated voting. These business are uniquely situated to influence proxy voting decisions. One of these proxy voting advice businesses states that it executes approximately 10.2 million ballots annually on behalf of clients owning 4.2 trillion shares. Another proxy voting advice business states that it provides services to more than 1,300 clients that collectively manage more than $35 trillion in assets.To the extent that investment professionals rely on the advice of these businesses when voting the shares of Main Street investors, it is important that (1) they do so in a manner consistent with their fiduciary obligations, and (2) that they have access to transparent, accurate and materially complete information on which to make their voting decisions. By affirming and modernizing the implementation of these principles, today's recommendations will help ensure that the interests of Main Street investors and the obligations of those who vote on their behalf will not only be better aligned, but better decisions will be made.
[T]he release still wholly fails to explain how amplifying the views of issuers will improve the substance of proxy voting recommendations. The final rules will still add significant complexity and cost into a system that just isn't broken, as we still have not produced any objective evidence of a problem with proxy advisory firms' voting recommendations. No lawsuits, no enforcement cases, no exam findings, and no objective evidence of material error-in nature or number. Nothing.
The amendments we are considering to the Federal proxy rules will make important changes aimed at fostering transparency and accountability in the proxy voting process. First, the rulemaking will codify the Commission's previous interpretation that proxy voting advice produced by proxy voting advice businesses generally constitutes a solicitation.This supports the Commission's long-standing view, and highlights the importance of periodically revisiting our rules to account for changes in our markets.Second, the rulemaking will require proxy voting advice businesses to provide substantive and consistent disclosure of material conflicts of interest to their clients.The transparency afforded by these amendments should make it easier for such clients who are investment advisers to conduct due diligence and oversight of these voting advice providers and to gauge the objectivity and reliability of their voting advice.Third, the rulemaking will require proxy voting advice businesses to establish policies and procedures reasonably designed to (1) allow all registrants who are the subject of their voting advice to be able to access that advice prior to or at the same time as the advice is disseminated to clients, and (2) provide a mechanism for clients to access any response that the registrant provides to the voting advice, in a timely manner before those clients vote.Finally, the rulemaking will add a new example to Rule 14a-9 to explain that the failure to disclose material information regarding proxy voting advice, "such as the proxy voting advice business's methodology, sources of information, or conflicts of interest" could, depending on the particular facts and circumstances, be misleading within the meaning of the rule.While this amendment to Rule 14a-9 does not create a new or additional source of liability, I believe it will serve as a helpful addition to our proxy rules in light of these new conditions to the exemptions to solicitation, recognizing the unique information provided by proxy voting advice businesses that could run afoul of our antifraud rule.
I am pleased that we are adopting principles-based requirements, a regulatory approach that has proven effective in other contexts within our securities laws. The final rules achieve the Commission's objective of ensuring that investors and their advisers who rely upon proxy voting advice are provided with more transparent, accurate, and complete information. The rules achieve this goal without imposing unduly burdensome requirements on proxy voting advice businesses given the significant time constraints of the proxy voting process. We were able to strike that appropriate balance because of the constructive feedback and engagement from commenters. Indeed, careful consideration of the comments made it clear that the objectives of the proposal could be achieved by a less prescriptive and more principles-based approach.The final rules require proxy voting advice businesses to hold themselves to a standard appropriate for the power they exercise. Specifically, they must disclose material conflicts of interest to facilitate an assessment of the objectivity and independence of the proxy voting advice. This common sense measure should add transparency, while preserving proxy voting advice business's flexibility to exercise judgment informed by their experience and expertise.