Statement on Enhanced Reporting of Proxy Votes
Nov. 2, 2022
Commission rules often focus on corporate transparency and helping investors understand how their money – their ownership stake of U.S. companies – is used. Today’s rule does just that. When the Commission adopted Form N-PX in 2003, it stated that investors in mutual funds have a “fundamental right” to know how proxy votes are being cast on their behalf. Today’s amendments build on that foundation in a number of ways:
First, the information reported on Form N-PX will be easier to analyze, digest, and access. For example, proxy votes will be broken into specific, standardized categories. Votes will be listed using the same language, and in the same order, as the issuer’s form of proxy. The Form N-PX will be filed using a structured data language that will make it easier for reporting persons to prepare and submit the information accurately, increase the utility of the information submitted, and ultimately, be more readable by the end user. And, proxy voting records will be publicly available on fund websites.
Second, pursuant to the 2010 Dodd-Frank mandate, the final rule requires that certain large institutional investment managers report their proxy votes on matters of executive compensation (“say-on-pay” votes). This covers proxy votes relating to the approval of executive officer compensation, the frequency of executive compensation approval votes, and the approval of so-called “golden parachute” compensation in connection with mergers or acquisitions.
Additionally, the rule will clarify that the reported proxy disclosures should reflect a fund’s securities lending activities – or, shares that were loaned out but not recalled for voting purposes. This closes what is a wide gap in the current disclosure regime, which can lead to an incomplete picture of proxy voting practices.
With the passage of today’s amendments, investors will have better insight into fund governance of portfolio companies, which can improve shareholder value. Additionally, investors can further distinguish voting practices or share lending practices among different funds, or verify fund claims of active stewardship. The amendments will further act as a deterrent to fund advisers who might be motivated to vote corporate proxies based on their own economic or personal interests, rather than those of their investors.
I started today’s statement by noting transparency as an impetus behind today’s rule. Well, transparency goes hand-in-hand with accountability. When investors have better information about fund proxy voting records – including information about the governance and stewardship provided by funds to their portfolio companies – those investors can better allocate their hard-earned capital in line with their goals and preferences.
Although it may be repetitive by now, I want to once again thank the teams in the Division of Investment Management, the Division of Economic and Risk Analysis, the Office of the General Counsel and in the Chair’s and my fellow Commissioners’ offices. Your hard work and acumen have led to another rule that gives shareholders important information about their investments and generally strengthens corporate democracy. Much like the Philadelphia Phillies’ batters in the World Series last night, the staff keeps hitting it out of the park. And, thank you to the many who provided comments on the rule proposal. The feedback we received was instrumental to my consideration of the final rule.
 Final Rule, Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies, Release Nos. 33-8188, 34-47304, IC-25922 (Apr. 14, 2003) (“2003 Adopting Release”) (“[W]e continue to believe that requiring funds to disclose their complete proxy voting records will benefit investors by improving transparency and enabling fund shareholders to monitor their funds’ involvement in the governance activities of portfolio companies. . . . [R]egardless of whether all, or a majority of, investors are interested in proxy vote disclosure, we believe that fund shareholders who are interested in this information have a fundamental right to know how the fund has exercised its proxy votes on their behalf.”).
 See generally Final Rule, Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers, Release Nos. 33-11131, 34-96206; IC-34745 (Nov. 2, 2022) (“Adopting Release”). As noted in the proposal underlying today’s rule, current Form N-PX reports can be of formidable length, with larger fund filings exceeding 1,000 pages. The organization and language used by different funds can be disparate and inconsistent. As a result, it can be difficult and time-consuming to understand or compare funds’ voting records. See Proposed Rule, Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers, Release Nos. 34-93169, IC-34389 (Sept. 29, 2021) at 10-12.
 SeeEdwin Hu, Joshua Mitts & Haley Sylvester,The Index Fund Dilemma: An Empirical Study of the Lending-Voting Tradeoff (N.Y.U. L. & Econ. Research Paper No. 20-52, 2020) (“[W]e document a substantial increase in the degree to which large institutions lend shares rather than cast votes in corporate elections.”).
 See, e.g., Mitts, Joshua, The Price of Your Vote: Proxy Choice and Securities Lending (Oct. 11, 2021) (noting certain tradeoffs made by investors when funds and managers engage in securities lending and calling “to enhance the transparency of the securities lending market more generally”).
 See generally Adopting Release at Sections IV.C.1.a and IV.C.2.
 Go Nats!