On November 5, a divided Securities and Exchange Commission (“SEC”) proposed new rules about proxy advisory firms. The proposed rules would, if adopted, have three principal effects:

  • Before a proxy advisory firm distributes its recommendations for a particular shareholder vote to its clients, it would be required to give a company an opportunity to comment on the recommendations. The proposed rules provide specific choreography for this interaction between the firm and the company.
  • In the proxy voting advice that a proxy advisory firm distributes to its clients, the firm would be required, if the company so requests, to include a hyperlink to a company statement responding to the firm’s recommendations.
  • The proxy voting advice would also be required to include disclosures on conflicts of interest, including between the proxy advisory firm and the company. The firm would also have a strong incentive, under revised antifraud provisions, to include disclosure on its methodology and sources.

The proposed rules would also codify the view that proxy voting advice, as it is currently provided by ISS and Glass Lewis, constitutes a proxy solicitation. This view underpins the SEC’s attempt to regulate the proxy advisory firms, and it is hotly contested, including in a lawsuit filed by ISS in late October.

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