January 23, 2015
In a move which indicates the Securities and Exchange Commission intends to follow through on its July 2014 guidance on proxy advisory firms, the agency recently announced that in 2015 it will evaluate how proxy advisors make voting recommendations and mitigate conflicts of interest. The announcement came from the agency's Office of Compliance Inspections and Examinations' (OCIE) 2015 National Examination Program Priorities. OCIE, described as the "eyes and ears" of the SEC, performs examinations of investment advisors, broker dealers, issuers, and the securities markets to ensure compliance with the federal securities laws. The 2015 examination of proxy advisory firms mirrors the format of the July 2014 proxy advisory firm guidance, which focused on both proxy advisors and the investment advisors which utilize proxy advisory firm services. Specifically, the announcement states that the OCIE will examine how proxy advisory firms make recommendations on proxy voting and how they disclose and mitigate any potential conflicts of interest. Additionally, the OCIE will examine how investment advisors comply with their fiduciary obligations to vote proxies on behalf of their clients. It will be interesting to see how the OCIE's review of proxy advisory firms plays out. An SEC review of proxy advisory firms in 2012 to address issues with peer group formulation did not result in any official SEC action. However, the peer group audit combined with significant media attention on the issue of peer groups did cause ISS to make significant changes to its selection process. The fact that proxy advisors were included among the 2015 priorities is an encouraging sign that the SEC considers the issues of proxy advisory firms and proxy voting to still require oversight.
