Comment Letter to SEC Regarding Amendments to Exemptions From the Proxy Rules for Proxy Voting Advice

Summary of Study

Bottom Line: This comment letter supplement argues that the SEC's proposed proxy advisor rule is needed but it should go further to require additional disclosure from proxy advisor firms in an effort to reduce robo-voting, where investors automatically vote based on recommendations of proxy advisors without doing any of their own due diligence. The Coalition believes that proxy advisor firms should not be allowed to offer such an automated voting service.

Many midsize and smaller investment advisors outsource their voting decisions to proxy advisors like ISS and Glass Lewis to reduce costs. The Coalition's research finds that these investment advisors have chosen to adopt proxy advisor recommendations without developing their own policies and procedures. Some examples from investor disclosures include:

  • "We generally follow ISS's recommendations and do not use our own discretion in voting."
  • "It is our policy to vote client shares based on the recommendations of Glass-Lewis & Co."
  • "We outsource all proxy voting services to ISS..."

This research builds on an extensive literature about the prevalence of robo-voting among investment fund advisors. For instance, the American Center for Capital Formation found that investment managers followed the advice of ISS more than 95 percent of time. The SEC acknowledged these concerns with robo-voting but did not directly address them.

The Coalition calls on the SEC to curtail such robo-voting by forbidding proxy advisor firms from offering an automated voting service. The Coalition also opposes investment funds that simply adopt proxy advisor recommendations without any additional review.

The Coalition does not oppose technology to prepopulate voting ballots for proxy advisors clients, yet each client should be required to review these recommendations before the vote is taken and provide affirmative consent. Individual investment advisers should not be allowed to simply defer their voting recommendations. Doing so violates their fiduciary responsibility to their clients and their beneficiaries.

Read the full comment letter HERE