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The Securities and Exchange Commission will vote on a proposal Wednesday to rescind rules that had required proxy advisory firms to inform companies of how they are advising shareholders to vote in corporate elections.
Revising a rule that was voted on in 2020 and only took effect 7 months ago is an unusual move for the agency, and Republicans on the commission vocally opposed it because, they argue, the change is being made not because new information has come to light, but due to a change in the partisan makeup of the commission.
The modification will be welcomed by proxy advice firms like Institutional Shareholder Services and Glass Lewis and by asset managers and pension funds who have argued the rules increase costs and lead to service delays without doing anything to protect investors.
In a Wednesday statement, SEC Chairman Gary Gensler, a Democrat, defended the rule change as necessary to ensure that investors are able to “receive independent and timely advice,” and noting that the revision keeps in place rules that require proxy firms to disclose conflicts of interest.
“We have…continued to hear from many investors that certain conditions in the 2020 rule might restrain independent proxy voting advice,” Gensler said. “Given those concerns, we have revisited certain conditions and determined that the risks they impose to the independence and timeliness of proxy voting advice are not justified by their informational benefits.”
Corporate insiders have long chafed at advice given by these proxy firms, though they do often side with management in many votes.
In February, ISS urged Apple Inc.
AAPL,
shareholders to vote against the nearly $100 million pay package grated to CEO Tim Cook in 2021, a move that led venture capitalist Michael Moritz to criticize proxy advisory opinions as “about as credible as those rendered by [credit rating agencies] before the 2008 subprime crisis,” in a Financial Times op-ed.
In 2015, JPMorgan Chase & Co.
JPM,
CEO Jamie Dimon called stockholders “lazy” and “irresponsible” for relying on proxy firms advice on executive pay.
Also on Wednesday, the SEC was set to adopt a rule that would make it more difficult for companies to exclude shareholder proposals from votes at annual meetings, which observers say could open the door for more stockholder activism on issues like the treatment of workers, climate change risk and others with broad social impact.
“I believe these proposed amendments would provide a clearer framework for the
application of this rule, which market participants have sought,” Gensler said. “They also would help shareholders exercise their rights to submit proposals for consideration by their fellow shareholders.”
