SEC Rule Amendments Make Proxy Voting Advice More Transparent

by | Sep 23, 2020 | Tax and Accounting Desk

Over the summer, the Securities and Exchange Commission (SEC) voted to adopt amendments to the rules governing proxy solicitations. These amendments are 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 will also provide those who use proxy voting advice the ability to make informed voting decisions without imposing undue costs or delays that would adversely affect the timely provision of the proxy voting advice.

These amendments also serve to codify the SEC’s longstanding view that proxy voting advice generally constitutes a solicitation under the proxy rules. As such, it was important to make clear that the failure to disclose material information about proxy voting advice may constitute a potential violation of the anti-fraud provision of the proxy rules.

Proxy voting advice is used by investors and others who vote on investors’ behalf to make informed voting decisions at shareholder meetings. The majority of investors who use such proxy voting advice businesses are large institutional investors that serve “Main Street Investors,” such as mutual funds, pension funds and endowments. Since these investors handle large numbers of different investments, proxy voting advisors are critical for making informed voting decisions at shareholder meetings.

The SEC’s amendments place conditions on the availability of two exemptions that are used by proxy voting advice businesses with respect to compliance with tailored and comprehensive conflicts of interest disclosure requirements. In order to utilize the exemptions, proxy voting advice businesses must do the following:

  • They must provide specified conflicts of interest disclosure in their proxy voting advice or in an electronic medium used to deliver the proxy voting advice, and
  • They must have adopted and publicly disclosed written policies and procedures reasonably designed to ensure that:
    • Registrants that are the subject of proxy voting advice have such advice made available to them at or prior to the time when such advice is disseminated to the proxy voting advice business’s clients, and
    • The proxy voting advice business provides its clients with a mechanism by which they can reasonably be expected to become aware of any written statements regarding its proxy voting advice by registrants who are the subject of such advice, in a timely manner before the security holder meeting.

These conditions are designed to reflect observed market practices and they are intended to ensure that proxy voting advice clients have access to information that is more transparent, accurate and complete. The amendments also modify SEC Rule 14-9a to include examples of when the failure to disclose certain material information in proxy voting advice could be considered misleading within the meaning of the rule.

In addition to the amendments, the SEC has supplemented prior guidance issued to investment advisors regarding proxy voting responsibilities. The supplemental guidance is designed to assist investment advisors in assessing how to consider issuer responses to recommendations made by proxy advisory firms that may become more readily available to investment advisors as a result of these new amendments.

The supplemental guidance follows a question and answer format, similar to the prior guidance, and provides examples to help facilitate compliance.

The new amendments will become effective 60 days after publication in the Federal Register.

The full press release can be accessed on the SEC website: www.sec.gov.

For more information and a deeper dive on the SEC space, the SEC team are ready to co-create and co-develop solutions with your company: www.PKFTexas.com/SECDesk.

Stay Connected