Comment in Support of the SEC’s Proposed Changes to the Rules for Proxy Voting Advice
Bottom Line: The Business Roundtable supports the SEC's proposed rulemaking to implement reasonable disclosure and procedural requirements for proxy advisors. However, there are also additional areas where the BRT thinks issuers, investors and capital markets would benefit from further SEC action.
The BRT agrees with the SEC's assessment that institutional investors and investment advisers who rely on proxy advisors for voting guidance cannot identify potential risks if they do not have access to sufficiently detailed disclosure about the full extent and nature of any conflicts that are relevant to the voting advice they receive. The inability to make such assessments not only makes fiduciary compliance uncertain, but weakens the overall goal of protecting retail investors that the fiduciary requirements for investment advisers were designed to address.
The BRT has also long been concerned that proxy advisors produce reports that frequently include errors, factually inaccurate information and incomplete analyses. In 2013, and again in 2018, a survey of BRT member companies found that nearly all respondents found one or more factual error(s) in reports proxy advisors prepared about their companies. Even if errors are corrected in the report, member companies have noted that corresponding updates are not necessarily made to the recommendations.
The majority of member companies responding to the survey have pursued opportunities to meet with proxy advisors, but only 33 percent report that their efforts have resulted in meetings. Further, nearly one in five respondents who met with proxy advisors to discuss their reports was unsatisfied with the outcome of those interactions.
In addition to having little opportunity to review and correct material errors, BRT member companies report that proxy advisors are not transparent with respect to their methodologies and procedures, so errors cannot be anticipated and may be systematically repeated.
In addition, there is no indication that proxy advisor voting guidelines and recommendations are, in fact, in line with long-term value creation or are even consistent with peer-reviewed academic research or empirical analysis of voting recommendations and economic outcomes.
Therefore, the BRT supports SEC rules requiring including a hyperlink to an issuer’s response as a simple and efficient solution to ensure that the clients of proxy voting firms are able to consider issuers’ views at the same time they are considering the proxy voting advice and before making their determinations. This will lead to more informed voting and investment decisions.
However, the BRT also believes that the SEC could go further with its rulemaking, including requiring proxy advisors to:
- Disclose how they determine that their voting policies and methodologies are consistent with the investor’s best interests
- Publish their criteria and requirements for evaluating matters subject to a vote before the fiscal year in which the matters arise.
- Allow review and feedback for reports issued over the course of the year, not just the benchmark and specialty reports currently contemplated by the proposed amendments.
- Publicly disclose final voting reports and custom reports 90 days after a shareholder meeting to allow for analysis of the impact of the advice on the company’s long-term value.
- Structure voting platforms to disable the automatic submission of votes (so-called “robo-voting”) when an issuer has submitted a response to the voting advice.
- Disclose when analysis and recommendations are based on information different from what the company filed.
Read the full comment letter HERE.