On July 13, 2022, the Securities and Exchange Commission (SEC) voted to rescind several amendments to its rules governing proxy voting advice (the Final Amendments). The vote reversed some of the key provisions governing proxy voting advice that were adopted in July 2020 (the 2020 Rules) under then-Chairman Jay Clayton.

The 2020 Rules codified the SEC’s interpretation that proxy voting advice constitutes a “solicitation” under the proxy rules, and added new conditions to the exemptions from those solicitation rules. Under the new Final Amendments, proxy voting advice will remain a solicitation subject to the proxy rules.[1] However, the Final Amendments rescind other provisions impacting proxy advisory firms:

Shareholder Engagement Provision

The Final Amendments reverse several conditions imposed by the 2020 Rules that required proxy advisory firms to provide additional information to their clients and to companies that are the subject of their advice. Under the 2020 Rules, proxy advisory firms were required to make their proxy voting advice available to subject companies at or before the time that they provide that advice to their clients.[2] The 2020 Amendments also mandated that proxy advisory firms provide their clients with a mechanism to access any written responses to the proxy voting advice received by the subject companies. The Final Amendments eliminate this rule. The SEC explained that this decision was made due to the “limited reliance interests at stake,” combined with the existence of other mechanisms in the proxy system that promote “informed shareholder voting.”[3]

False or Misleading Statements

The Final Amendments also eliminate a provision describing the potential applicability of Rule 14a-9 to proxy advisory firms. The 2020 Rules modified Rule 14a-9 by adding examples in Note (e) which attempted to clarify when proxy voting advice could be considered misleading in violation of the rule. The 2020 Rules provided, in part, that failing to disclose “material information regarding proxy voting advice” could be misleading within the meaning of the rule. The Final Amendments eliminate Note (e), although the SEC has stressed that deleting this particular Note does not impact the potential application of Rule 14a-9 to proxy voting advice in general. This decision addresses the concerns raised by investors and proxy advisory firms that the 2020 Rules had created a misperception that Note (e) broadened the applicability and scope of Rule 14a-9.

Supplemental Proxy Voting Guidance

Finally, the Final Amendments rescind supplemental guidance issued by the SEC that was designed, in part, to help investment advisers assess how to consider registrant responses to proxy voting advice. The SEC rescinded this guidance in its July vote, explaining that the Commission’s 2019 Proxy Voting Guidance already provides the information needed to assist investment advisers in carrying out their obligations under Rule 206(4)-6 under the Investment Advisers Act of 1940, without the need for separate guidance. 

These amendments will become effective 60 days after publication in the Federal Register. Importantly, however, these rules are subject to further alteration depending on the outcome of several lawsuits. ISS’s view is that the rules should be rescinded in their entirety, and the proxy advisor’s lawsuit challenging the adoption of the original 2020 Rules is currently pending in federal court. Additionally, the US Chamber of Commerce, joined by the Business Roundtable and Tennessee Chamber of Commerce & Industry, recently sued the SEC over the Commission’s vote to rescind the 2020 Rules. These lawsuits demonstrate the uncertainty of the proxy voting advice rules, and the variety of legal challenges that may hamper implementation of the Commission’s Final Amendments to the 2020 Rules.

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