“Regulatory Seesaw”: SEC Rescinds Key Provisions of Proxy Advisory Rules

The SEC voted this week by 3–2 to adopt amendments to its existing, not yet effective, rules governing proxy voting advice by rescinding key provisions that would have helped curb proxy advisors. 

Dissenting Commissioner Hester Peirce cited the Association’s Center On Executive Compensation several times in her opinion.

• Bowing to significant pressure from ISS and others, the amendments rescind two important rules applicable to proxy advisors adopted in 2020: that companies should get proxy reports in a timely manner and that they should be able to include written responses to their reports in the final report received by investors.
  
  
• The final amendments also delete the 2020 changes made to the proxy rules’ liability provision—specifically the part where the SEC discussed how it could be misleading for proxy advisors to omit their methodology or conflicts of interest in their reports. Essentially, the rule now affirms that “differences of opinion” are not enough to trigger liability—rather, “misstatements or omissions of material fact” are required.
  
  
• Finally, the adopting release rescinds guidance the Commission issued in 2020 to investment advisers regarding their proxy voting obligations, including how they consider company responses to proxy advisor recommendations. 

Ironically, ISS was also upset by the ruling, since they believed the rule should have been “rescinded in its entirety” as it was a “solution in search of a problem.” Recently confirmed Republican Commissioner Mark Uyeda was perplexed about the reasons for the amendments in the absence of changes in the facts. He expressed concern that “this regulatory seesaw does not reflect administrative ‘best practices’ that promote long term reliance and confidence by market participants in the stability of important areas of securities regulation.” 

The SEC’s final amendments and rescission of the guidance will become effective 60 days after publication in the Federal Register. In the meantime, read the fact sheet and final rule.