SEC Gives Shareholder Advisors Relief From Trump-Era Rules

On July 13, the U.S. Securities and Exchange Commission’s five-member panel voted 3-2 to overturn rules introduced in 2020 that increased proxy advisors' legal liability and required them to share recommendations early on with corporate executives. Critics of the rules had said they impeded the independence of firms that advise investors on how to vote in corporate elections.

Investor advocates also said the changes tipped the scales in favor of corporations and their executives over investors.

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Proxy advisors like Institutional Shareholder Services (ISS) and Glass Lewis, which advise investors on how to cast their ballots on issues including the election of directors, shareholder proposals, and merger transactions, have been in a long-running battle with regulators over their independence.

Corporations for their part claim that advisory companies now have too much sway over corporate elections and need to be more tightly regulated.

With the rule changes, proxy advisors will no longer be required to provide corporations with a first look at the advice to be placed on the agenda, and they will no longer have to notify their clients of any written responses to their advice that they receive from companies.

The rule changes were first proposed by the SEC in November after investors expressed concerns that the conditions were impairing the independence and timeliness of advice given by proxy advisors and were increasing the advisors’ cost of compliance.

SEC Chair Gary Gensler defended the rule changes, saying: "It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice.”

Although the SEC—which has become decidedly more liberal under President Joe Biden—gave proponents of the rule changes what they wanted, many wish the regulator had gone further.

"While we applaud the Commission for removing some of the 2020 rule’s more draconian provisions, the rule should have been rescinded in its entirety," ISS said in a statement.

Industry advocates, on the other hand, were less welcoming of the changes.

"The SEC has offered no justification for abandoning a decade’s worth of bipartisan, consensus-driven policymaking," said Jay Timmons, President and Chief Executive Officer of the National Association of Manufacturers (NAM). He went on to say that NAM would be filing a lawsuit in the coming weeks to "protect manufacturers from proxy advisory firms’ outsized influence."

Unfortunately for Timmons and his fellow industry advocates, the current SEC is less likely than it was in 2020 to heed their concerns.