December 17, 2018
Jay Clayton, Chairman
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-0609
Re: File Number S7-22-19
Dear Chairman Clayton:
I appreciate that the Securities and Exchange Commission (SEC) is undertaking to modernize the rules governing the proxy advisory process. Changes are necessary to reflect the current reality of connected and informed investors.
During the SEC’s monthly open meeting in August of this year, Commissioner Elad Roisman said in relation to proxy voting obligations that, “Updating our guidance and providing additional interpretive clarity to address the realities of today’s markets is appropriate and many would say overdue.” I have to say I agree. With the amount of information and education investors have access to today, there’s no longer a place for the cloak and dagger methods that proxy firms have gotten away with for years.
Proxy advisory firms offer a valuable service to fund managers and, by extension, individual and private investors who have put their money into investment vehicles but who have their own lives to run while those investments work for them. Proxy firms, however, have gained greater influence in the direction of these varied retirement funds over the decades and it is time to check them.
For one thing, proxy advisors are not accountable to the retail investors whose funds they are influencing. And much of the motivation behind proxy recommendations is questionable at best and often outright counterproductive to the growth of a fund. A case in point is the tendency of proxy advisory firms to use specialty reports in justifying a voting recommendation when those reports serve the larger body of investors not at all. Proxy voting to benefit a small sector of large cap companies yields lower returns for the rest of the investors, whether those investments are pension funds or individual accounts.
As the SEC continues its work to improve and modernize the rules involved in this fairly opaque section of finance, I hope the use of specialty reports by the proxy firms will not be given a free pass as a non-issue. It is an issue. There must be a greater disclosure of the specialty issues at play in a proxy firm’s recommendations, and these should never be allowed to drive recommendations and voting.
Sincerely,
Ken Kleve
COO, Maestrosoft
Bellevue, WA