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SEC Provides Guidance on Proxy Voting Responsibilities

In the wake of mounting criticism about how proxy advisers operate, the Securities and Exchange Commission (SEC) recently issued guidance to assist investment advisers in fulfilling their proxy voting responsibilities. In a 3-2 vote along party lines, the guidance is angled toward advisers that engage with proxy advisory firms such as Institutional Shareholder Services (ISS) and Glass Lewis.


These proxy advisory firms provide a wide range of proxy voting services to institutional investors and investment advisers and they can have a significant influence on vote results. A negative say-on-pay recommendation from ISS is generally associated with a 20-30% reduction in shareholder support, according to Mercer. Legislators, regulators and corporate interest groups have raised concerns about proxy advisers’ “black box” voting policies, inaccurate analyses and potential conflicts of interest.

Mercer’s Carol Silverman, Susan Eichen and Amy Knieriem broke down the SEC’s language into two key pieces. The first piece confirms that proxy advisers are liable for false or misleading information and recommends actions to mitigate this risk. The second recommends actions for investment advisers to fulfill their fiduciary duties (the duty to provide advice that is in the best interests of the client) when relying on proxy advisers’ voting recommendations. 

While the guidance doesn’t require proxy advisers to operate in a particular way, Mercer said, investment advisers might pressure proxy advisers to make changes consistent with the SEC recommendations. In addition, as proxy advisers look to avoid liability for false and misleading statements, organizations may have more leverage when challenging the accuracy of proxy advisory reports.

Dissenting commissioners worry that the guidance will increase costs that could discourage new proxy advisory firms from entering the market and lead smaller investors to vote less frequently, thus increasing the impact of votes by larger funds.

The guidance and interpretation will be effective upon publication in the Federal Register. The SEC said investment advisers should review their policies and procedures in light of the guidance in advance of next year’s proxy season.

About the Author

Brett Christie Bio Image

Brett Christie is a staff writer at WorldatWork.


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