Firms that advise institutional investors and other market participants on how to vote during shareholder meetings will be subjected to stricter regulation following the SEC’s vote on 22 July.
The newly amended rules will require proxy advisors to show their voting recommendations to public companies either before or at the same time as sending them to their clients. Additionally, they will be required to inform their clients of the public companies’ responses to their advice. In order to allow for this exchange of information, proxy advisors can ask public companies to file their proxy statements at least 40 days in advance of shareholder meetings.
Finally, the new rules will require proxy advisors to disclose any potential conflicts of interest alongside their voting recommendations.
Publicly traded companies have complained about the influence of proxy advisors over shareholder votes, with some asset managers using software to automatically match their ballots to advisors’ voting recommendations in shareholder meetings. In a comment letter to the SEC, Exxon Mobil’s vice president for investor relations described proxy advisors as “effectively our largest shareholders, despite having no direct stake in Exxon Mobil’s success.”
“The final rules require proxy voting advice businesses to hold themselves to a standard appropriate for the power they exercise,” said SEC Commissioner Hester Peirce in support of the rule.
Proxy firms have criticised the ruling as a gift to large companies resulting from a decade-long campaign lobbying for stricter regulation of the advice that they issue.
“While the rules adopted today may appear less draconian than originally envisioned, they nevertheless serve as a blow to institutional investors seeking to judiciously monitor portfolio companies,” commented Gary Retelny, CEO of Institutional Shareholder Services.
SEC officials have announced that the new regulations will take effect for the 2022 proxy season and thereafter.