New Rules, Proposed Rules, Guidance and Alerts -

PROPOSED RULES –

SEC Proposes Rule Changes for Proxy Advisory Firms –

On November 5, 2019, the SEC issued a release proposing amendments to the federal proxy rules that are intended to enhance the accuracy and transparency of information provided by proxy advisory firms to investors and investment advisers that vote proxies on behalf of their clients.

Rule 206(4)-6 under the Investment Advisers Act of 1940 requires registered investment advisers to adopt and implement policies and procedures reasonably designed to ensure that they vote proxies in the best interest of clients. Soon after Rule 206(4)-6 was adopted, the SEC staff issued two no-action letters— Egan-Jones Proxy Services (May 27, 2004) and Institutional Shareholder Services, Inc. (Sept. 15, 2004)—indicating that advisers could demonstrate proxies were voted in their clients’ best interest by voting proxies based on a recommendation of an independent third party, subject to certain conditions. In response, many advisers engaged an independent proxy advisory firm to provide voting advice and recommendations. These no action letters were rescinded by the SEC staff prior to a proxy roundtable held in November 2018, but the practical effects of this rescission were minimal because most advisers were able to continue to rely on SEC Staff Legal Bulletin No. 20, issued in 2014, which contained similar guidance. In August 2019, the SEC staff issued interpretive guidance regarding advisers’ proxy voting responsibility, including the view that a voting recommendation given by a proxy advisory firm generally constitutes a “solicitation” that is subject to the federal proxy rules.