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SEC Commissioners Respond to Chairman’s Call for Review of Proxy-Voting Advice Rules

Today [June 1], Chair Gensler announced that he has directed the SEC staff to consider whether to recommend that the Commission revisit its recent regulatory actions taken with respect to proxy voting advice businesses and its longstanding interpretation of proxy solicitation.[1] Additionally, the staff announced that it will not recommend an enforcement action against a proxy voting advice business that fails to comply with the Commission’s existing requirements for proxy voting advice.[2]

As background, last July, the Commission adopted requirements that proxy voting advice businesses, in order to rely on exemptions from the information and filing requirements of the proxy rules, must: (1) provide clients with tailored and comprehensive disclosure about their conflicts of interest; and (2) establish policies and procedures designed to ensure companies that are the subject of their voting advice are able to see and respond to such advice in a timely manner.[3] The Commission also underscored its view that proxy voting advice generally constitutes a solicitation under the proxy rules, so the failure to disclose material information about proxy voting advice may constitute a potential violation of the antifraud provision of the proxy rules.[4]

We are open to seeing what, if any, changes to our rules the staff recommends and to working with our colleagues to consider such recommendations. We find it difficult, however, to imagine what has changed in the roughly ten months since the Commission last considered this issue that would call into question such recently adopted requirements. Indeed, the compliance date for the exemption conditions is still months away, which makes it challenging, if not impossible, for us to know how these requirements will work in practice.[5] How can we evaluate the appropriateness of further changes without considering such new data or experience? We find it even harder to understand how the Commission would justify a departure from its longstanding legal interpretation about proxy solicitation.

While it is true that certain groups expressed displeasure with various policy outcomes over the course of the rulemaking (a circumstance that occurs in every rulemaking), the Commission’s process in adopting these amendments was beyond reproach.[6] During the years-long rulemaking process, the Commission considered all policy arguments, including those in opposition to the proposed amendments. The rule’s adopting release discusses the Commission’s analysis of these points in the context of the rule’s entire administrative record.[7] The rule we adopted reflected the broad range of input we received on the proposal.

We hope that today’s actions and whatever future actions the Commission takes with respect to these rules will not deprive users of proxy voting advice of information they need to properly consider such advice or lead them to make decisions based on misinformation.

ENDNOTES

[1] Chair Gary Gensler, “Statement on the application of the proxy rules to proxy voting advice” (June 1, 2021), https://www.sec.gov/news/public-statement/gensler-proxy-2021-06-01.

[2] Securities and Exchange Commission, Division of Corporation Finance, “Statement on Compliance with the Commission’s 2019 Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice and Amended Rules 14a-1(1), 14a-2(b), 14a-9” (June 1, 2021), https://www.sec.gov/news/public-statement/corp-fin-proxy-rules-2021-06-01.

[3] Exemptions from the Proxy Rules for Proxy Voting Advice, Rel. No. 34-89372 (July 22, 2020) (“Adopting Release”), https://www.sec.gov/rules/final/2020/34-89372.pdf.

[4] This view was previously expressed in Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, Rel. No. 34-86721 (Aug. 21, 2019), https://www.sec.gov/rules/interp/2019/34-86721.pdf.

[5] See Adopting Release, supra note 3 at 135.

[6] For all SEC rulemakings, the Commission adheres to the Administrative Procedure Act. This years-long process generally requires publishing a rule proposal for public review and comment, reviewing and considering all comments received, and then explaining the determination to adopt or modify a proposal in the form of a final rule, in light of those comments.

[7] See Adopting Release, supra note 3.

This statement was issued on June 1, 2021, by Hester M. Peirce and Elad L. Roisman, commissioners of the U.S. Securities and Exchange Commission.

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