On November 5th, the SEC proposed amendments to the rules concerning proxy solicitations and the exemptions from federal disclosure rules governing businesses dispensing proxy voting advice that should enhance the quality of disclosure about material conflicts of interest that are provided to clients. In addition, these proposed changes would provide for a period of review and feedback through which companies and other soliciting parties would be able to identify errors in their proxy voting advice. This review and feedback period would only be available to companies that file definitive proxy materials 25 days or more prior to the relevant meeting.
Monday, November 18. 2019
This proposal comes as part of the SEC’s ongoing effort to improve the proxy process and ensure shareholders have the ability to exercise their voting rights. It follows recent SEC guidance on the applicability of the federal proxy rules to proxy voting advice as well as the proxy voting responsibilities of investment advisers. These amendments are also the product of roundtables on the proxy process in 2018, the proxy advisory services in 2013, and the publication of these rules’ concept release on the US proxy system in 2010.
If adopted, the proposal would amend Exchange Act Rule 14a-2(b). This rule generally provides exemptions from the proxy rules’ filing and information requirements for certain kinds of solicitations, call for an enhanced disclosure of material conflicts of interest, a standardized approach that allows investors and others voting on their behalf to review proxy voting advice, and improved means for investors to be informed about differing perspectives on the advice. The proposals would also codify recent SEC guidance by amending the definition of “solicitation” in Exchange Act Rule 14a-1(1) to include proxy voting advice (with certain exceptions). Illustrative examples to Exchange Act Rule 14a-9, the proxy rules’ antifraud provision, are also included.
Specifically, the following is proposed:
Rule 14a-1(l). The proposed amendments would alter Exchange Act Rule 14a-1(l), which defines the terms “solicit” and “solicitation.” The amendments will specify the circumstances when a person who furnishes proxy voting advice will be deemed to be engaged in a solicitation subject to the proxy rules. The proposed amendment would also codify the SEC’s guidance that voting advice that is provided in response to an unprompted request would not constitute a solicitation.
Rules 14a-2(b)(1) and 14a-2(b)(3). The proposed amendments would also revise certain parts of Rule 14a-2(b). This rule provides exemptions from the information and filing requirements of the proxy rules. With the proposed amendments, proxy voting advice businesses relying on these exemptions would become subject to the following:
- They must include disclosure of material conflicts of interest in their proxy voting advice;
- Registrants and certain other soliciting persons must be provided an opportunity to review and provide feedback on proxy voting advice before it is issued; and
- Registrants and certain other soliciting persons may request that proxy voting advice businesses include a hyperlink or analogous electronic medium in their voting advice, which directs the recipient to a written statement that states the registrant’s or soliciting person’s views on the proxy voting advice.
The proposed amendments would also permit proxy voting advice businesses to mandate that registrants and other soliciting persons to enter into confidentiality agreements for materials exchanged during the review and feedback period. It would permit proxy voting advice businesses to rely on the exemptions where failure to comply with the new conditions was immaterial or unintentional.
Rule 14a-9. Rule 14a-9 would be modified to include examples of when the failure to disclose certain information in the proxy voting advice could, depending upon the particular facts and circumstances, be considered misleading within the meaning of the rule.
In total, the proposal should enhance the ability of investors to make informed investment decisions by improving the accuracy and transparency of the information that proxy voting advice businesses provide to investors and others who vote on the investors’ behalf.
The full text of the proposed amendments is available here. You can submit comments using the form available on the SEC’s website or by e-mailing firstname.lastname@example.org with the reference number (S7-22-19) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number S7-22-19.