SEC Announces Dec. 5 Roundtable Discussion on Proxy Advisory Firms; ISS Up For Sale

November 08, 2013

This week, the Securities and Exchange Commission announced it will host a Roundtable Discussion on the proxy advisory firm industry that likely will be used to gather more information regarding the impact of conflicts of interest on proxy advisory firms’ voting recommendations and overall concerns regarding transparency.  The December 5th Roundtable will be the first official action taken by the Commission since issuing its June 2010 concept release on the U.S. proxy voting system.  A Roundtable Discussion is a forum for collecting information about a regulatory or other matter during which Commissioners and staff have the opportunity to hear speakers from a variety of viewpoints prior to deciding whether or how to engage in regulatory action.  With respect to conflicts of interest, the practice of ISS providing consulting services to the companies on which it provides "independent" voting recommendations is of particular concern, and one the Association’s Center On Executive Compensation raised in testimony before the House Subcommittee on Capital Markets this summer.  The SEC’s press release states the agenda and participants will be announced shortly.  SEC Commissioner Daniel Gallagher has repeatedly called for a "fundamental review" of the role of proxy advisory firms and for the Commission to withdraw two staff-level interpretive letters and to issue Commission-level guidance requiring investment advisers to ensure that they are voting their proxies in the best interests of their clients, not merely following a proxy advisory firm’s recommendations.  Ironically, the news of the Commission’s renewed interest in proxy advisory firms comes a week after MSCI, the parent company of ISS, announced that the proxy advisor was for sale.  The roundtable announcement also follows shortly after a rulemaking petition recently submitted by NASDAQ OMX requesting the Commission to require proxy advisory firms to disclose all conflicts of interest as well the methodologies behind their proxy voting policies.