In a Comment Letter to the Securities and Exchange Commission, Better Markets expressed strong support for their proposal to repeal the most objectionable aspects of the final rule regarding proxy advisory firms promulgated in 2020. Specifically, the proposal would remove conditions for reliance on important exemptions, conditions which require that 1) proxy advisory firms provide copies of their advice to registrants who are the subjects of that advice at the time the advice is disseminated to clients, and 2) that proxy advisory firms provide clients with the registrants’ written responses to their advice, if any.
Why It Matters. Ultimately, proxy advisory firms provide shareholders with independent advice and analysis that is not tainted or spun by the inherently biased management of a company. The recommendations that proxy advisory reports produce can improve corporate performance even when the recommended positions fail to win shareholder approval. Proxy advisory firms have empowered investors, as reflected in the fact that management often seeks to defuse an issue in the interest of the shareholders before (or after) a shareholder vote. At a minimum, the enhanced shareholder engagement that proxy advisers facilitate often forces management to better explain the rationale for its decisions.
What We Said. It is no surprise that corporate management finds proxy advisory firms to be a thorn in their side. Silencing proxy advisory firms has been on the wish-list of corporate management and their trade associations and lobbying organizations for years.
Our comments focus on the unfounded criticisms of the Proposal and the serious defects that marred the 2020 Final Rule, which further justify this corrective action by the SEC.
There were at least two serious flaws in the process that led to the 2020 Final Rule: first, the 2020 Final Rule sought to solve a problem that did not exist, as the SEC did not cite any credible evidence that there was any sort of market failure or other issue in the market for proxy advice that justified its heavy-handed approach. Second, the 2020 Final Rule was the result of a corrupted public engagement process, as it was revealed that several of the purported letters from the few “investors” who claimed to want a rule addressing proxy advisory firms were actually from corporate interests. In light of these serious problems in the process that led to the 2020 Final Rule, revising the rule is not only in the public interest but also entirely consistent with the canons of rational rulemaking.
Bottom Line. We support the SEC’s proposal to rescind the provisions of a 2020 rule that stifle the availability of independent and timely advice for shareholders exercising their proxy voting rights. Those provisions were not only contrary to the public interest but also contrary to the record before the agency at the time, which reflected staunch opposition from all but corporate management and their allies. The SEC is entirely justified in revisiting and revising the 2020 Final Rule.
Read our full letter here or click the button below.