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In 2019, the SEC proposed changes to its proxy advisor rules (the “2019 Proposed Rules”).  Later the SEC adopted final rules regarding proxy voting advice (the “2020 Final Rules”) provided by proxy advisory firms, or proxy voting advice businesses (“PVABs”).  PVABs include ISS, Glass Lewis and other proxy advisors.  The SEC now proposes to amend the 2020 Final Rules.


The 2020 Final Rules, among other things, did the following:

  • Amended 17 CFR 240.14a-1(l) (“Rule 14a-1(l)”) to codify the Commission’s interpretation that proxy voting advice generally constitutes a “solicitation” subject to the proxy rules.
  • Adopted 17 CFR 240.14a-2(b)(9) (“Rule 14a-2(b)(9)”) to add new conditions to two exemptions (set forth in 17 CFR 240.14a-2(b)(1) and (3) (“Rules 14a-2(b)(1) and (3)”)) that PVABs generally rely on to avoid the proxy rules’ information and filing requirements. Those conditions include:
    • New conflicts of interest disclosure requirements in 17 CFR 240.14a-2(b)(9)(i) (“Rule 14a-2(b)(9)(i)”); and
    • A requirement in 17 CFR 240.14a-2(b)(9)(ii) (“Rule 14a-2(b)(9)(ii)”) that a PVAB adopt and publicly disclose written policies and procedures reasonably designed to ensure that (A) registrants that are the subject of proxy voting advice have such advice made available to them at or prior to the time such advice is disseminated to the PVAB’s clients and (B) the PVAB provides its clients with a mechanism by which they can reasonably be expected to become aware of any written statements regarding its proxy voting advice by registrants that are the subject of such advice, in a timely manner before the security holder meeting (the “Rule 14a-2(b)(9)(ii) conditions”).
  • Amended the Note to Rule 14a-9, which prohibits false or misleading statements, to include specific examples of material misstatements or omissions related to proxy voting advice.

In addition to those two conditions noted, Rule 14a-2(b)(9) also sets forth two non-exclusive safe harbor provisions in paragraphs (iii) and (iv) that, if met, are intended to give assurance to PVABs that they have satisfied the conditions of Rules 14a-2(b)(9)(ii)(A) and (B).  Further, Rules 14a-2(b)(9)(v) and (vi) contain exclusions from the Rule 14a-2(b)(9)(ii) conditions. Those rules provide that PVABs need not comply with Rule 14a2(b)(9)(ii) to the extent that their proxy voting advice is based on a client’s custom voting policy or if they provide proxy voting advice as to non-exempt solicitations regarding certain mergers and acquisitions or contested matters.

The SEC stated the proposed amendments do not represent a wholesale reversal of the 2020 Final Rules. Rather, they are intended to be tailored adjustments in response to concerns and developments related to particular aspects of the 2020 Final Rules. The goal of the proposed amendments is to avoid burdens on PVABs that may impede and impair the timeliness and independence of their proxy voting advice and subject them to undue litigation risks and compliance costs, while simultaneously preserving investors’ confidence in the integrity of such advice.

Proposed Amendments to Rule 14a-2(b)(9)

According to the SEC investors continue to express strong concerns about the Rule 14a-2(b)(9)(ii) conditions.  The SEC states investors have asserted that the Rule 14a-2(b)(9)(ii) conditions impose increased compliance costs on PVABs and impair the independence and timeliness of their proxy voting advice and that such effects are not justified or balanced by corresponding investor protection benefits.

The SEC is proposing to amend Rule 14a-2(b)(9) by deleting paragraph (ii) and rescinding the Rule 14a-2(b)(9)(ii) conditions. The proposed amendments would also delete paragraphs (iii), (iv), (v) and (vi) of Rule 14a-2(b)(9), which contain safe harbors and exclusions from the Rule 14a-2(b)(9)(ii) conditions. The Rule 14a-2(b)(9)(ii) conditions were intended to benefit shareholders by improving the overall mix of available information so as to allow them to make more informed voting decisions. While the goal of facilitating more informed voting decisions remains unchanged, the SEC believes that the continued concerns expressed by the investors who rely on proxy voting advice to make their voting decisions warrants a reassessment of the appropriate means to achieve that goal.

When adopting the proposed amendments, the SEC considered PVABs’ efforts to develop industry-wide practices, as well as improve their own business practices, that could address the concerns underlying the Rule 14a-2(b)(9)(ii) conditions.  The SEC noted ISS has mechanisms in place that approximate at least a portion of the Rule 14a2(b)(9)(ii) conditions. Specifically, ISS makes its proxy voting advice available to registrants at the time such advice is disseminated to its clients. Although ISS does not update its proxy voting advice to incorporate any response a registrant may have to such advice, it does offer its advice to registrants for free. This presumably makes it easier for registrants to access ISS’ proxy voting advice and respond to such advice by publishing and filing additional soliciting materials in a more timely manner.

Proposed Amendment to Rule 14a-9

In the adopting release for the 2020 Final Rules, the SEC codified the guidance set forth in a previous interpretive release that proxy voting advice is generally subject to Rule 14a-9. The 2020 Final Rules amended Rule 14a-9 by adding paragraph (e) to the Note to that rule. Paragraph (e) sets forth examples of what may, depending on the particular facts and circumstances, be misleading within the meaning of Rule 14a-9 with respect to proxy voting advice. Specifically, Note (e) to Rule 14a-9 provides that the failure to disclose material information regarding proxy voting advice, such as the PVAB’s methodology, sources of information, or conflicts of interest could, depending upon particular facts and circumstances, be misleading within the meaning of the rule.

According to the SEC, PVABs, their clients and other investors continue to express concerns and uncertainty regarding the extent of PVABs’ liability under Rule 14a-9. PVABs continue to assert that the amendments may increase their litigation risks, thereby increasing their costs, which, ultimately, may be passed along to their clients. These parties indicate that those litigation risks could also impair the independence and quality of PVABs’ proxy voting advice if, for example, registrants use the threat of litigation to pressure PVABs to make their proxy voting advice more favorable to such registrants. Further, PVABs and their clients remain concerned that Rule 14a-9 claims may be available for registrants who disagree with their proxy voting advice. Such disagreements could pertain not only to PVABs’ voting recommendations, but also to the specific methodology, analysis and information that PVABs use to formulate their recommendations.

In light of these concerns, the SEC is proposing to delete Note (e) to Rule 14a-9. As discussed above, Note (e) sets forth examples of what may, depending on the particular facts and circumstances, be misleading within the meaning of Rule 14a-9 with respect to proxy voting advice. Although Note (e) was intended by the SEC to clarify the potential implications of Rule 14a-9 for proxy voting advice under existing law, the SEC believes it appears instead to have unintentionally created a misperception that the addition of Note (e) to Rule 14a-9 purported to determine or alter the law governing Rule 14a-9’s application and scope, including its application to statements of opinion.  The proposed deletion of Note (e) is intended by the SEC to address that misperception and thereby reduce any resulting uncertainty that could lead to increased litigation risks or the threat of litigation and impaired independence of proxy voting advice.

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