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SEC Chairman Speaks on Amendments to Proxy Solicitation Rules

Good morning.  This is an open meeting of the U.S. Securities and Exchange Commission, under the Government in the Sunshine Act.  Today we have two items on the agenda, both continuations of our ongoing work to modernize and enhance the accuracy, transparency and effectiveness of our proxy voting system.[1]

I want to make two general observations.  First, today’s recommendations are the fruits of a rigorous and well-functioning rulemaking process where final rules reflect and benefit from the input of a wide array of market participants with a myriad of interests and perspectives.  The proposing release that the Commission issued for public comment last November was informed by, among other things, SEC initiatives that spanned almost a decade—from the Commission’s 2010 Concept Release on the U.S. Proxy System to the more recent 2018 roundtable that brought together, and engendered robust discussion from, investors, issuers, investment advisors, proxy voting advice businesses and other market participants.[2]  A review of the 2010 Concept Release, the 2018 roundtable and the comments received in response to our November proposing release demonstrates longstanding concerns regarding, and the need for Commission action with respect to, the use of proxy voting advice by investment advisers and other market participants.

In response to requests for comments in our November proposing release, we received substantial additional feedback and suggestions for improving the proposed rule.  I thank all of those who submitted thoughtful comments—your feedback has contributed meaningfully to, and is reflected in, the recommendations before the Commission today.  Here, I also want to thank our staff.  Over that period from 2010 to today, the Commission has been chaired by four different people and we have had 12 different Commissioners.  Throughout that period, the staff has been dedicated to improving our proxy voting system to reflect the significant developments in the marketplace.  Time and again, it is clear to me that our staff’s overriding focus is to get it right for our investors and our markets.  Today is a shining example of that commitment.

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.[3]  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.[4]  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.[5]  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.

As I noted, the two recommendations before us are the result of the collaborative work of dozens and dozens of staff from across the SEC.  In particular, I would like to thank and recognize the following members of the staff who substantially contributed to these efforts:

  • From the Division of Corporation Finance:  Bill Hinman, Michele Anderson, Ted Yu, Luna Bloom, Dan Greenspan, Valian Afshar, Kayla Roberts, Lisa Kohl, Joshua Shainess, Angie Kim, Sonia Barros, Charles Kwon, Maryse Mills-Apenteng and Jeffrey Gabor.
  • From the Division of Investment Management:  Dalia Blass, Paul Cellupica, David Bartels, Holly Hunter-Ceci, Sarah ten Siethoff, Melissa Gainor, Jenny Songer and Tara Varghese.
  • From the Division of Economic and Risk Analysis:  S.P. Kothari, Narahari Phatak, Vlad Ivanov, Lauren Moore, James McLoughlin, Wei Liu and Andy Kim.
  • From the Office of General Counsel:  Bob Stebbins, Laura Jarsulic, Bryant Morris, Dorothy McCuaig, Tracey Hardin, Dan Matro, Jacob Loshin, Lori Price, Natalie Shioji and Cathy Ahn.

I also would like to thank Commissioner Roisman for his leadership in and steadfast attention to these initiatives.

Now I will turn it over to Bill Hinman, our Director of the Division of Corporation Finance, S.P. Kothari, our Chief Economist and Director of the Division of Economic and Risk Analysis, and Dalia Blass, our Director of the Division of Investment Management, for the staff’s presentations of the two recommendations.  Following the staff’s presentations, and in recognition of Commissioner Roisman’s efforts on the two items that we will consider today, I will turn it over to him for his opening remarks.  Then, I will ask Commissioner Peirce and Commissioner Lee for any remarks, and then I’ll provide some closing thoughts.

So, without further ado, Bill [Hinman], I turn it over to you.

ENDNOTES

[1] Efforts to address “proxy plumbing” and “universal proxy” remain on our short-term agenda.

[2] See Concept Release on the U.S. Proxy System, Release No. 34-62495 (Jul. 14, 2010) [75 FR 42982 (July 22, 2010)]; Proxy Advisory Services Roundtable (Dec. 5, 2013), available at https://www.sec.gov/news/otherwebcasts/2013/proxy-advisory-services-roundtable-120513.shtml; Roundtable on the Proxy Process (Nov. 15, 2018), available at https://www.sec.gov/files/proxy-round-table-transcript-111518.pdfSee also, Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Release No. IA-5325 (Aug. 21, 2019) [84 FR 47420, 42421 (Sept. 10, 2019)]; Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, Release No. 34-86721 (Aug. 21, 2019) [84 FR 47416 (Sept. 10, 2019)].

[3] A. De La Cruz et al., OECD, Owners of the World’s Listed Companies 22 (2019), available at https://www.oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.pdf.

[4] See About ISS, https://www.issgovernance.com/about/about-iss/ (last visited May 22, 2020).

[5] See Glass Lewis Company Overview, available at https://www.glasslewis.com/company-overview/ (last visited Apr. 26, 2020).

These remarks were delivered on July 22, 2020, by Jay Clayton, chairman of the U.S. Securities and Exchange Commission, at an open meeting of the SEC.