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Statement at the Open Meeting: Modernizing SEC Rules Governing Proxy Voting Advice

Nov. 5, 2019

I. Introduction – An Important Milestone

Thank you, Chairman Clayton. 

I have said before that proxy voting is fundamental to our capital markets.[1]  Improving proxy voting is a subject that I am passionate about, and one I have cared about deeply for the better part of my career.

Today marks an important day for having, and continuing, a real and valuable debate about topics involving investors and companies.  Much has been written and said about the shareholder-company dynamic for over a century in this country, and these debates likely will continue for at least another century as the market continues to evolve. 

But it is always important to keep these conversations productive.  Allowing long-standing debates to persist becomes polarizing—it gets easier for advocates on both sides to view themselves as good and opponents as evil.  To me, the truth is that generalizations and portraying things in a binary manner are great for movies, but hardly ever reflect reality or serious thinking. 

With regard to the matters we undertake today, it seems inevitable that some will argue our proposals are driven by issues and interests outside of the SEC’s mission.  But, I want to disabuse everyone of this notion.  The three tenets of our mission are: investor protection; maintaining fair, orderly, and efficient markets; and facilitating capital formation.  For decades, the Commission has grappled with policy questions relating to the regulation of proxy voting because Congress tasked us with this responsibility, and our mission requires it.  So let’s discuss a little bit of the history in this space and the serious thinking that went into today’s proposals. 

II. Regulation of Proxy Solicitation & Proxy Voting Advice Businesses

While state law governs the right of a shareholder to vote, it is the SEC that has regulated the process of voting by proxy since the agency’s inception.  In 1935, the agency adopted its first rules, regulating the solicitation of proxies.[2]  Exchange Act Section 14(a)[3] makes it unlawful for any person to “solicit” any proxy with respect to any security of a U.S. public company in contravention of rules set by the Commission. 

In the decades since adopting its solicitation rules, the SEC frequently revisited its definition of solicitation to address changing market practices and placed obligations on those it deemed to be soliciting proxies from shareholders.  The agency first revised these rules in 1938 (three years after first adopting them), two years later in 1940, then again in 1942, 1956, 1979, and then 1992.[4]  Today, it will have been twenty-seven years since we last amended the solicitation rules—longer than any previous stretch of time.

A. Time for an Update

Yet, these intervening decades have seen transformational change in our markets.  Today, institutional investors own far more equity in U.S. public companies than retail investors—some estimate as much as 80 percent of the market value of U.S. public companies.[5]  The last time the Commission amended these rules, they owned less than half this percentage.[6]  As a byproduct of this change, asset managers, rather than individual investors, now vote in corporate elections.

These changes have coincided with tremendous growth in the business of providing professional advice to asset managers on how to cast votes.  Today, proxy voting advice businesses are utilized by thousands of money managers[7]— likely representing the majority of those that vote in corporate elections, mergers, and transformative transactions.[8]  Serving as collective research providers,[9] these businesses produce analyses on hundreds of thousands of ballot proposals that many asset managers rely on when deciding how to cast votes.[10]

As other Commissions have done before us, we must consider these important changes in the marketplace and review our rules to assess whether they are operating as intended.  We recently took two important steps in this area, reaffirming the applicability of our existing rules.  Specifically, we confirmed that investment advisers must fulfill their fiduciary obligations when voting proxies for clients, even when relying on professional voting advice for help.[11]  We also confirmed a position that past Commissions had taken: an interpretation that proxy voting advice, provided by a proxy voting advice business, is generally a solicitation that falls within the activity that the Commission is charged with regulating for the protection of investors under the Exchange Act.[12]

B. Tough Issues

But the question of whether there should be new regulatory action to address proxy voting advice businesses’ role in proxy voting is one that the SEC, Congress, other countries and regulators,[13] as well as many others have grappled with for well over a decade.  The SEC has provided numerous opportunities for public comment on this question.[14]  Congress has held several hearings, asked for GAO reports, and even proposed legislation.[15]  Academics and other institutions have published numerous papers.[16]  And, of course, this has remained a hot topic in public debate.

Those favoring regulatory action argue that the prevalent use of professional voting advice in our marketplace raises serious concerns, including that proxy voting advice businesses have their own conflicts of interests that could bias their advice to clients, undermining their position as independent experts.[17]  Additionally, their use of one-size-fits-all methodologies carries implicit bias, favoring certain companies’ business models over others, and possibly exacerbating short-termism in our markets.[18]  Many have worried that their publication of voting advice containing errors has the ability to go unchecked, and the widespread use of their voting advice by asset managers has made the governance principles they propound de-facto standards, despite no regulatory oversight or public notice and comment process.[19]

Others have opposed any regulatory action, offering several counter-arguments: 1) proxy voting advice businesses are creations of an efficient market, formalizing voting principles demanded by their sophisticated client base[20]; 2) they are independent experts, so prevalent use of their advice operates as an appropriate check on the management of public companies[21]; and 3) alternatively, asset managers who subscribe to proxy voting advice businesses’ advice do not always follow their recommendations, so fears of their outsized influence are overstated.[22]  We have also heard vehement warnings that new regulation of proxy voting advice businesses could disrupt a highly streamlined and choreographed proxy season for asset managers, and introduce new costs that would be passed on to investors.[23]

These are serious debates that elicit strong feelings from all sides.  In such a heated atmosphere, it is very difficult to make policy.  Criticism for any action we take is inevitable, engendering a fear that can be incapacitating.  But, just because something is hard, does not mean we should shy away from it.  These debates have been raging for over twenty years, and they are not going away.  It is time for the Commission to move beyond brainstorming and put pen to paper.

C. Finding a Path Forward for Everyone

I am proud of the staff’s thoughtful approach to finding a potential solution.  This was no easy task, involving extensive study, deliberation, and engagement with many stakeholders.  But, I believe the staff has crafted a thorough policy proposal, tailored to address the concerns many have persistently raised about proxy voting advice businesses, while protecting these firms from undue influence and minimizing changes to the highly choreographed proxy voting season.  In the end, it is clear to me—and should be clear to anyone taking the time to read the proposal—that our staff has endeavored to draw the contours of a policy solution that is meant to work for everyone. 

The proposal reflects some common sense principles.  First, the same activity should be regulated consistently across our markets.  While the Commission has stated that voting advice from proxy voting advice businesses is generally a solicitation under our rules, we have allowed these firms to rely on a patchwork of exemptions to our solicitation requirements and largely ignored the effects of this inconsistency on investors.  Investors deserve a more consistent and purposeful approach.  The staff’s recommendation clarifies that, regardless of which exemption to the solicitation rules a proxy voting advice business may rely upon in providing its voting advice to clients, its obligations are the same.

The next principle is unassailable.  Material conflicts of interest of a proxy voting advice business should be readily ascertainable to those utilizing their advice.  The staff’s recommendation proposes a list of the types of conflicts that proxy voting advice businesses must disclose to their clients and requests comment on whether this list is complete.  I look forward to hearing from investors and clients of these businesses as to the types of conflicts they consider material and the type of disclosure they would find most useful in considering how to weigh the objectivity and reliability of the voting advice. 

The final principle is to learn from and improve upon current market practices.  The staff’s recommendation that issuers have an opportunity to engage with proxy voting advice businesses and respond to their final voting advice is not new.  For several years, one proxy voting advice business, ISS, has granted such an opportunity to the largest companies in our markets.[24]  More recently, another proxy voting advice business, Glass Lewis, has instituted programs to obtain feedback from issuers on the data underlying their reports and the reports themselves.[25]  Drawing from the apparent success of these market practices, the staff’s proposal aims to expand a consistent opportunity to engage and provide feedback to all U.S. public issuers and parties conducting solicitations.  I believe such a measure could substantially improve the mix of information available to the clients of proxy voting advice businesses.  In one place, they would have access to the voting advice and the issuer’s or soliciting person’s perspective for ready consideration.  To the extent an issuer or other soliciting party believes the firm’s voting advice contains errors or methodological biases, it would have an opportunity to note that in a way that proxy voting advice business clients can more easily access than they can today.

III. Conclusion

Beyond these principles, our staff has crafted a detailed policy framework that would (i) improve proxy voting advice businesses’ disclosures of material conflicts of interests, (ii) establish effective measures to reduce the likelihood of factual errors or methodological weaknesses in proxy voting advice, and (iii) ensure that those who receive proxy voting advice have an efficient and timely way to obtain and consider any response an issuer or other soliciting person may have to such advice.  In sum, these proposed amendments would help asset managers, who vote on behalf of many Main Street investors, receive more accurate, transparent, and complete information when they make their voting decisions. 

This effort involved much line-drawing along the way.  Inherent in any such exercise is debate about where the line is drawn.  Some will likely say that we should have taken a heavier hand in overseeing proxy voting advice businesses.  Others will oppose these measures as too drastic.  But this proposal is a first step toward receiving actionable feedback that can help us move toward a sensible modernization of our rules. 

I hope that many of those who have provided us with feedback on general propositions over the last two decades will take the time to review the tenets of this proposal and let us know where we should recalibrate.  I look forward to hearing from you.


[1] See, e.g., Commissioner Elad L. Roisman, “Statement at the Open Meeting on Commission Guidance and Interpretation Regarding Proxy Voting and Proxy Voting Advice” (Aug. 21, 2019),; Commissioner Elad L. Roisman, “Keynote Remarks: ICI Mutual Funds and Investment Management Conference” (Mar. 18, 2019),

[2] See Exchange Act Rel. No. 378 (Sept. 24, 1935).

[3] 15 U.S.C. § 78n(a). 

[4] See Exchange Act Rel. No. 1823 (Aug. 11, 1938); Exchange Act Rel. No. 2376 (Jan. 12,1940); Exchange Act Rel. No. 3347 (Dec. 18, 1942); Exchange Act Rel. No. 5276 (Jan. 17.1956); Exchange Act. Rel No. 16356 (Nov. 21, 1979); Exchange Act Rel. No. 31326 (Oct. 22, 1992).

[5] Compare Charles McGrath, 80% of equity market cap held by institutions, Pensions & Investments (Apr. 25, 2017),, with Broadridge & PwC, 2019 Proxy Season Review, ProxyPulse 1 (2019), (estimating that institutions own 70% of public company shares) (“Broadridge PwC 2019 Report”). 

[6] See generally Janette Rutterford & Leslie Hannah, The Rise of Institutional Investors, Financial Market History: Reflections on the Past of Investors Today (David Chambers & Elroy Dimson eds., 2017) (stating that institutions held 37% of shares in the U.S. equity market in 1980).

[7] As of 2019, ISS reported that it had approximately 2,000 institutional clients.  The ISS Advantage, Institutional Shareholder Services, available at  Glass Lewis reported that, as of 2019, it had “1,300+ clients, including the majority of the world’s largest pension plans, mutual funds and asset managers, who collectively manage more than $35 trillion in assets.”  Company Overview, Glass Lewis, available at

[8] This assumption is based on the fact that institutions own the majority of the market value of U.S. public companies (see supra note 5) and the fact that institutional investors historically vote more often than retail shareholders.  See Broadridge PwC 2019 Report, supra note 5 at 5 (noting institutional investors have significantly higher voter participation rates than retail investors, casting votes representing 90 percent of all the shares they held in 2019, compared to only 28 percent for retail investors during the same period). 

[9] Letter from Kenneth A. Bertsch, Executive Director, Council of Institutional Investors (Oct. 15, 2019) (“CII October 2019 Letter”).

[10] See, e.g., Letter from Karen Carraher, Executive Director & Patti Brammer, Corporate Governance Officer, Ohio Public Employees Retirement System (Dec. 13, 2018),  (“[OPERS] depends heavily on the research reports we receive from our proxy advisory firm. These reports are critical to the internal analyses we perform before any vote is submitted.”).

[11] See Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Release No IA-5325 (Aug. 21, 2019).

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

[13] See, e.g., Directive 2017/828 of the European Parliament and of the Council of 17 May 2017, amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement,; United Kingdom’s Financial Conduct Authority, Policy Statement PS19/13 (May 2019).

[14] See, e.g., Roundtable on the Proxy Process (Nov. 15, 2018), comments available at; Proxy Voting Roundtable (Feb. 19, 2015), comments available at; Roundtable on Proxy Advisory Services (Dec. 5, 2013), comments available at; Concept Release on the U.S. Proxy System, Release No. 34-62495 (Jul. 14, 2010), comments available at; Roundtable Discussions Regarding Proxy Process (May 24, 2007),

[15] See, e.g., “Proxy Process and Rules: Examining Current Practices and Potential Changes,” Hearing Before the Senate Committee on Banking, Housing, and Urban Affairs (Dec. 6, 2018); The Corporate Governance Fairness Act, S. 3614, 115th Cong. (2017-18); Corporate Governance Reform and Transparency Act of 2017, H.R.4015, 115th Cong. (2017-18); “Examining the Market Power and Impact of Proxy Advisory Firms,” Hearing Before the House Financial Services Committee, Subcommittee on Capital Markets and Government Sponsored Enterprises (June 5, 2013).

[16] For an extensive list of such papers, please see the Economic Analysis of this proposal in Section III.A.1 of the release.

[17] See, e.g., Letter from Darla Stuckey, President and CEO, Society for Corporate Governance (Nov. 9, 2018); Letter from Henry D. Eickelberg, Chief Operating Officer, Center on Executive Compensation (March 7, 2019); Letter from James L. Martin, 60 Plus Association (Oct. 5, 2018); Letter from Nasdaq et. al (Feb 4. 2019) (“Nasdaq et. al Letter”).

[18] See, e.g., Letter from Neil Hansen, Vice President, Investor Relations and Corporate Secretary, Exxon Mobil Corporation (June 26, 2019) (“Exxon Letter”) (addressing perceived methodological limitations of proxy advisory firms’ evaluation of executive compensation structures).

[19] See, e.g., Nasdaq et. al Letter.

[20] See, e.g., Letter from Nell Minow, Vice Chair, Value Edge Advisors (Nov. 30, 2018).

[21] See, e.g., id; CII October 2019 Letter.

[22] See, e.g., Audra Boone, Stuart L. Gillan, and Mitch Towner, “The Role of Proxy Advisors and Large Passive Funds in Shareholder Voting: Lions or Lambs?” (Sept. 20, 2019).

[23] See, e.g., Letter from Gail C. Bernstein, General Counsel, Investment Adviser Association (Dec. 31, 2018); CII October 2019 Letter.

[24] See Letter from Gary Retelny, President and CEO of Institutional Shareholder Services, Inc. (Nov. 7, 2018).

[25] Glass Lewis refers to this as its Issuer Data Report  service.  See Issuer Data Report, Glass Lewis, (last visited Nov. 4, 2019).  In addition, Glass Lewis implemented a pilot program for the 2019 proxy season, known as its Report Feedback Statement service, which offers U.S. public companies and shareholder proponents the opportunity to express differences of opinion they may have with Glass Lewis’ research.  See Report Feedback Statement – Frequently Asked Questions, Glass Lewis (May 2019), available at

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