February 18, 2020
This is a supplement to the comment we filed on January 31, 2020, which noted that we would be responding to some of the other comments.
Our first response is to the comment filed by the Committee for Justice, in and of itself and as another example of the CEO-funded dark money fake front groups acting as a choir of sock puppets, perpetuating the corporate insider spin and fake news idea -- completely unsubstantiated and rebutted by the data -- that major financial institutions made up of sophisticated professionals vote proxies based on carelessness or conflicts. If the commenters or the Commission has any evidence otherwise, we urge that these matters be investigated and the offending institutions be fined. That would still be no reason to go after the independent publishers of proxy analysis and recommendations.
We note that, like the typo that helped identify the "fishy" comment letters purporting to be from individuals, these sock puppet comments have a tell -- the use of terms like "robo-votes" and the citation of "studies" from other organizations funded by the same people, like the Manhattan Institute and Spectrem, but presented as independent validation of the claims. It is appalling that a group whining about unsubstantiated claims of conflicts of interest and lack of transparency would itself be guilty of such obvious conflicts and deception itself. We strongly urge the Commission to ask the Chamber of Commerce directly to provide the specifics on its ties to any of the comments in this record. Their desperation is evident in pulling in the Committee for Justice, which has previously been involved in judicial selection issues and has no past connection to securities or corporate governance issues.
Their comment continues the Chambers pattern of accusations contrary to the data and recommendations contrary to the law. It is especially appalling that a group describing itself as committed to a Constitutional interpretation of limited government is here hypocritically promoting a nanny state notion that a voluntary financial transaction between two highly sophisticated financial professionals must be subject to government restrictions. And it has another classic sign of the sock puppet — citing other sock puppets funded by the same sources without revealing the relationship. Perpetuating the completely discredited claims of robo-voting and outsourcing, definitively disproved by the data, they are unsurprisingly still unable to come up with an example. There are so many sock puppets embedded in this comment that it is more like a sock version of a Russian Matryoshka doll.
The Chamber of Commerce via the Committee for Justice tries to perpetuate the false claim that proxy advisors are unregulated. Of the three major firms, one is regulated as an investment advisor, one is regulated as an NRSRO, both extremely restrictive regulatory structures, in addition to other existing legal restrictions that apply to any commercial enterprise.
It is telling that the comment cites the useless study from Spectrem (without revealing that it is also funded by the same corporations and executives). There is a reason they provide no actual details, because Spectrem's findings did not support the proposed rule. The study asked investors loaded questions with no statistical validity that are also completely irrelevant to this issue. Do investors want their investment managers to vote in their financial interest? Of course the answer is yes Fortunately, that is what they already do, as they must for legal and commercial reasons. This comment, like the other sock puppets funded by the Chamber of Commerce and its members, has no evidence that they do otherwise. If they do, we urge the Chamber to disclose it so the SEC can bring actions against the offenders.
The Committee's comment follows a distorted, deceptive, and outright false set of claims with a recommendation. Their idea? Impose the strictest standard ever developed by our legal system, the fiduciary standard, on proxy advisors.
The fiduciary standard of course already applies to the institutional investors who actually cast proxy votes. It is as a part of the respect for this standard that leads some of them to get proxy analysis and recommendations from the sole source of independent research to make sure they do not succumb to their own conflicts of interest from doing business with portfolio companies. And we will reiterate for the zillionth time that proxy advisors publish reports no one has to buy and recommendations no one has to follow and all but the most routine proxy votes are advisory/symbolic only so even a 100 percent vote is not binding on the company.
Just like all of the other comments in support of the rule, the Committee for Justice fails to provide a single example to support their claim that there is a problem. Given that 98 percent of CEO pay plans received a majority vote in favor from shareholders, even though ISS recommended a vote against 13 percent, for example, and that 70 percent of ISS clients who delegate voting authority do so under their own proxy voting policies and not those developed by ISS, it would be impossible to do so.
There has never been a fiduciary standard applied to a publication. This is probably the reason the Committee for Justice comment cites no precedents. This would not be the time to try to create one.
We will continue to monitor the comments and may have additional responses later.