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Proxy Voting Advice

Sept. 12, 2022

A Small Entity Compliance Guide [*]

Introduction

On July 13, 2022, the Securities and Exchange Commission (the “Commission”) adopted amendments to the Federal proxy rules governing proxy voting advice, as proposed in November 2021.  The amendments reflect the Commission’s reassessment of those rules in light of feedback from market participants, certain developments in the market for proxy voting advice, and comments received regarding the proposed amendments. 

Who is affected by the amendments?

The parties affected by the amendments include (i) proxy voting advice businesses (“PVABs”)[1] and (ii) registrants who are conducting solicitations and are the subject of proxy voting advice.  Although not directly subject to the amendments, clients of PVABs and the investors on whose behalf such clients vote proxies may be indirectly affected by the amendments, including to the extent that the amendments result in reduced fees for PVABs’ services. 

What do the amendments do?

The amendments are intended to avoid burdens on PVABs that may impede and impair the timeliness and independence of their proxy voting advice and avoid misperceptions regarding the application of Rule 14a-9[2] liability to proxy voting advice, while also preserving investors’ confidence in the integrity of such advice.  The amendments remove a condition to the availability of certain exemptions from the information and filing requirements of the Federal proxy rules for PVABs.  The adopting release also rescinds certain guidance that the Commission issued to investment advisers about their proxy voting obligations.  In addition, the amendments remove a note that provided examples of situations in which the failure to disclose certain information in proxy voting advice may be considered misleading within the meaning of Rule 14a-9.  Finally, the adopting release discusses the Commission’s views regarding the application of Rule 14a-9 to proxy voting advice, in particular with respect to statements of opinion.

What specific changes were made to the rules?

The amendments make changes to the Securities Exchange Act of 1934 rules, as follows:

  • Rescinding Rules 14a-2(b)(9)(ii), (iii), (iv), (v), and (vi).  Rule 14a-2(b)(9)(ii) set forth conditions (the “Rule 14a-2(b)(9)(ii) conditions”) to the availability of two exemptions (included in Rules 14a-2(b)(1) and (3)) that PVABs generally rely on to avoid the proxy rules’ information and filing requirements.  Specifically, the Rule 14a-2(b)(9)(ii) conditions required PVABs to adopt and publicly disclose written policies and procedures reasonably designed to ensure that: (1) registrants that are the subject of proxy voting advice had such advice made available to them at or prior to the time such advice is disseminated to PVABs’ clients; and (2) PVABs provided their clients with a mechanism by which such clients could reasonably be expected to become aware of any written statements of a registrant’s views about the proxy voting advice in a timely manner before the security holder meeting (or, if no meeting, before the votes, consents, or authorizations may be used to effect the proposed action).  Rules 14a-2(b)(9)(iii) through (vi) contained safe harbors and exclusions from the Rule 14a-2(b)(9)(ii) conditions; and
     
  • Amending Rule 14a-9 to delete paragraph (e) of the note to that rule (“Note (e)”).  Note (e) provided that the failure to disclose material information regarding proxy voting advice, such as a PVAB’s methodology, sources of information, or conflicts of interest, may, depending upon the particular facts and circumstances, be misleading within the meaning of Rule 14a-9.

Further, in the adopting release, the Commission also rescinded guidance that it issued to investment advisers in 2020 about their proxy voting obligations (the “Supplemental Proxy Voting Guidance”).[3]

What are the compliance dates for the amendments?

The amendments and the rescission of the Supplemental Proxy Voting Guidance are effective as of September 19, 2022. 

Other Resources

The adopting release can be found on the Commission’s website at https://www.sec.gov/rules/final/2022/34-95266.pdf.

Contacting the Commission’s Staff

The Commission’s Division of Corporation Finance is happy to assist small companies and other parties with questions regarding the amendments.  You may contact the Division for this purpose at (202) 551-3440 or at https://www.sec.gov/forms/corp_fin_interpretive.

The Commission’s Division of Investment Management’s Chief Counsel’s Office is also available to assist small entities and other parties with questions regarding the rescission of the Supplemental Proxy Voting Guidance.  You can contact the Office for this purpose at (202) 551-6825 or IMOCC@sec.gov.

Questions on other Commission regulatory matters involving smaller reporting companies may be directed to the Division of Corporation Finance’s Office of Small Business Policy at (202) 551-3460.

[*]  This guide, dated as of September 12, 2022, was prepared by the staff of the Commission as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended.  The guide summarizes and explains amendments adopted by the Commission but it is not a substitute for the amendments themselves.  Only the amendments can provide complete and definitive information regarding their requirements.

 

[1] PVABs, also commonly known as “proxy advisory firms,” are persons who furnish proxy voting advice covered by Rule 14a-1(l)(1)(iii)(A).  Rule 14a-1(l)(1)(iii)(A) provides that the terms “solicit” and “solicitation” include any proxy voting advice that makes a recommendation to a security holder as to its vote, consent, or authorization on a specific matter for which security holder approval is solicited, and that is furnished by a person that markets its expertise as a provider of such proxy voting advice, separately from other forms of investment advice, and sells such proxy voting advice for a fee.

[2] Rule 14a-9 contains the proxy rules’ prohibition on material misstatements in, or omissions of material fact from, solicitations.

[3] The Supplemental Proxy Voting Guidance can be found at the following link: https://www.govinfo.gov/content/pkg/FR-2020-09-03/pdf/2020-16338.pdf.

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