SEC shelves anti-proxy proposals

5 May 2020

Elizabeth Pfeuti

EU regulation

The Securities and Exchanges Commission (SEC) has shelved proposals that would have limited the power of shareholder advisory firms in corporate decision making.

The SEC is scrapping a portion of its proposal that would have forced proxy advisers to submit their voting recommendations to companies for checking before distributing them to investors in advance of shareholder meetings.

The decision, as reported by the Financial Times, is a win for proxy advisers including Minerva Analytics, which was one of the first voices raising alarm to this issue, writing to the SEC at the beginning of the year.

Since then, other proxy advisers have thrown their backing to the cause, as have several hedge fund groups.

In January 2020, Minerva Analytics CEO Sarah Wilson wrote to SEC chairman Jay Clayton arguing that the proposed amendments would have “significant, far-reaching and harmful impacts” on the voting landscape in the US.

Overall, Minerva called for the SEC to fix existing legislation instead of adding new rules.

Wilson wrote: “We agree that the proxy system is broken.  That is to say, the proxy plumbing is broken, not research.

“Issuers and shareholders collectively pay far too much for inefficiency; there are multiple layers of obscure and opaque fees; confidentiality is not assured, and the market is currently monopolised by a dominant intermediary which prevents freedom of choice. The SEC is presented once more with an historic opportunity to bring the US proxy plumbing into the 21st century and once more it has been misdirected.”

According to the Financial Times, people familiar with the matter said the SEC was instead shifting its focus to a ‘speed bump’ approach that would make it less likely for shareholders blindly follow such recommendations.

A reworked proposal could outlaw “robo-voting”, under which some players automatically submit shareholders’ votes to companies based on their recommendations. This delay would give companies more time after publication to rebut any recommendations they do not like.

There is no official direction yet from the regulator, which is currently considering all comments before a final statement is made by the SEC’s four commissioners.

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