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Statement at Open Meeting on Proposed Amendments to Improve Accuracy and Transparency of Proxy Voting Advice

Nov. 5, 2019

Good morning.  Thank you to the Chairman, Commissioner Roisman, the staff in the Divisions of Corporation Finance and Economic and Risk Analysis, and other staff throughout the building for today’s effort to address weaknesses in the existing proxy process.  I am looking forward to hearing the views of commenters in response to today’s proposal.

Both in this proposal and the next one we will consider nuanced and technical areas of our regulations, and there are several competing—and important—interests that must be balanced.  In taking the lead on this set of issues, Commissioner Roisman has put his considerable talent into forging what I believe to be a workable solution for all parties. 

Proxy voting advice businesses play a valuable role in the proxy process.  Today’s proposal recognizes that fact with proposed transparency and accountability measures.  Firms that provide proxy voting advice offer valuable help to investors and their advisers, who are faced with many voting decisions.  Today’s proposed amendments should help to ensure that proxy voting advice businesses disclose conflicts of interest which might color their recommendations.  The proposals also respond to concerns that issuers have raised with us about their difficulty in timely flagging and responding to factual errors contained in proxy voting recommendations.  The proposals seek to ensure that all registrants, not just the biggest firms, have the opportunity to identify these factual inaccuracies in time for them to be corrected. 

These changes are only part of the solution, however.  Earlier this year we issued guidance clarifying fiduciaries’ duties when voting shareholder proxies.[1]  We affirmed that “an investment adviser is not required to accept the authority to vote client securities,” and that, whatever the agreement between adviser and client, “the relationship in all cases remains that of a fiduciary to the client.”[2]  Much of the mischief in this area has arisen from the misperception—perpetuated in part by the SEC—that the fiduciary duty included an obligation to vote each and every proxy.  Advisers, particularly small ones, overwhelmed with the number of proxies to be voted each season, reasonably sought third party assistance in wading through the workload.  Indeed, this agency, through staff no-action letters, encouraged them to do just that.  

Hiring assistance in researching and analyzing proxies of course does not relieve the adviser of its fiduciary duty; the adviser must still weigh the advice and vote according to its clients’ interests, which might be inconsistent with its own.  Yet our staff guidance seemed to encourage carefree outsourcing of the voting function without much thought about how those third-party voting advisors were coming up with their recommendations.  Our guidance earlier this year, in addition to reassuring advisers that they could scope their responsibilities, was meant to remind them of their duty to do some basic due diligence on third-parties they look to for voting advice.[3]

Today’s proposal continues the same theme.  Recognizing that proxy voting advice falls under the proxy solicitation umbrella,[4] we are proposing to set forth a way for proxy voting advice businesses to provide their services without being subject to all of the obligations to which proxy solicitors are typically subject.  The objective of today’s proposal is to make sure that these businesses can continue to play an important role in the proxy voting process while protecting the integrity of that process.  I look forward to the public feedback we will undoubtedly get on these proposals. 


[1] See Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Release No. IA-5325 (Aug. 21, 2019) [82 FR 47420 (Sep. 10, 2019)].

[2] Id.

[3] See generally id.

[4] See Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, Release No. 34-86721 (Aug. 21, 2019) [84 FR 47416 (Sep. 10, 2019)].

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