Securities Regulation Daily Wrap Up, PROXIES—Companies lobby for notice-and-comment when proxy advisors change voting policies, (Feb 6, 2019)
In a letter to the head of the SEC, approximately 300 public companies asked the agency for stronger regulation of proxy advisory firms, increased transparency, and stricter thresholds for resubmission of shareholder proposals.
Several hundred public companies wrote to urge SEC Chairman Jay Clayton to improve the proxy process. The signatory companies credit the SEC with recognizing the need for reform in this area, as evidenced by its having held a roundtable on the proxy process in November, and they argue for solutions to three "critical frustrations" with proxy advisory firms. They also recommend action in the areas of shareholder proposals, shareholder communications, and the proxy voting process.
The letter posits that issues in the proxy process are part of a "poorly-calibrated regulatory ecosystem" that is chilling IPOs and otherwise driving companies away from the public markets. First, it identifies three frustrations with the operations of proxy advisory firms: conflicts of interest, inaccuracies, and a lack of transparency.
With respect to conflicts, the SEC should adopt regulations to ensure that conflicts of interest are eliminated or, if this is not possible, minimized and disclosed. Disclosure should be on the first page of proxy advisory reports. The companies also urge the SEC to require transparent processes and practices that allow public companies of any size to engage with proxy advisory firms so that disputes can be resolved, and any errors corrected, quickly. Finally, the SEC should require public notice and comment when a proxy advisory firm intends to change its voting policies from one proxy season to the next.
The letter also urges the SEC to create "more reasonable standards for submission and resubmission of shareholder proposals." It cites with approval the SEC’s 1997 proposal, which would have established 6, 15, and 30 percent support thresholds for first, second, and third resubmissions. Under current regulations, those thresholds are 3, 6, and 10 percent.
The agency should also repeal the distinction between objecting and non-objecting beneficial owners, the companies say, because this inhibits their ability to communicate with most investors who are not registered shareholders. Finally, the SEC should update the proxy voting process to improve transparency and increase participation by retail investors.
RegulatoryActivity: CorporateGovernance Proxies