A divided Securities and Exchange Commission voted late last month to approve the issuance of two releases, which contain, respectively: (1) an interpretation and related guidance under the SEC’s existing proxy rules regarding the applicability of these rules to the provision of proxy voting advice by proxy advisory firms to their largely institutional shareholder client base; and (2) guidance to investment advisers on the nature and scope of their proxy voting responsibilities as fiduciaries under the Investment Advisers Act of 1940, as amended, focusing on situations where advisers hire proxy advisory firms to furnish “substantive” voting-related services. According to the SEC, the guidance in the two releases – which will not become effective until publication in the Federal Register — represents just the first phase of a broader multi-step proxy reform initiative that is expected to result in a Commission vote this year on whether to propose amendments to the key proxy solicitation exemptive provisions on which proxy advisory firms typically rely (set forth in Rule 14a-2(b) under the Securities Exchange Act of 1934, as amended). Also on the SEC’s near-term rulemaking agenda are proposed amendments to the shareholder proposal rule (Exchange Act Rule 14a-8) that reportedly would seek public comment on raising eligibility standards for shareholder proponents seeking access to company proxy statements and forms of proxy to submit their proposals to a shareholder vote.
Although it is too soon to tell precisely how the SEC’s latest interpretation and guidance might impact the rapidly approaching 2020 proxy season, we anticipate that proxy advisory firms and investment advisers alike take the SEC’s advice and re-examine their respective policies and procedures this fall in light of the relevant guidance. Whether or not such re-examination will result in significant changes in the conduct of either or both of these important players in the U.S. proxy process ultimately may depend on whether and how the SEC decides to proceed on the formal rulemaking front.