On November 17th, the SEC voted to propose amendments to its rules governing proxy voting advice. The proposed updates are designed to address the concerns of investors and other parties that the existing rules may subject proxy advisory firms to both unnecessary litigation risks and compliance costs, which may hinder the timeliness and independence of proxy voting advice.
Proxy advice firms figure prominently in the proxy process. The proposed rule amendments would rescind two of the July 2020 SEC-adopted rules applicable to proxy advice firms, in effect lifting conditions to the availability of two exemptions from the proxy rules’ informational and filing requirements on which proxy advice firms often rely. The current conditions require that:
registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner
clients of proxy voting advice business are provided with a means of becoming aware of any written responses by registrants to proxy voting advice
The SEC also adopted final rules in July 2020 that modified Rule 14a-9, which prohibits false or misleading statements. The 2020 rule was amended to add Note (e), which provides examples of material misstatements or omissions concerning proxy voting advice. In particular, Note (e) provides that the failure to disclose material information pertaining to proxy voting advice could be misleading. There have been concerns this in particular heightens firms’ litigation risks, which may in turn impair the independence and quality of their proxy voting advice.
The new proposed rule amendments would:
rescind Note (e) to Rule 14a-9 as well as the related safe harbors and exclusions from those conditions
confirm that the rule applies to material misstatements of facts contained in proxy voting advice. The proposing release also presents SEC guidance regarding the application of Rule 14a-9 to statements of opinion contained in proxy voting advice.
nullify the 2020 modifications made to the proxy rules’ liability provision
Interested parties may submit feedback during the proposal’s 30-day comment period, which will follow its publication in the Federal Register. Refer to the Proxy Voting Advice final rule on sec.gov for more details on methods for submitting comments.
For more information on the new amendments, contact Valian Afshar, Special Counsel, Office of Mergers and Acquisitions, Division of Corporation Finance, at (202) 551-3440, US Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.