SEC Amends Rules Governing Proxy Solicitations


The Securities and Exchange Commission (SEC) voted Wednesday, July 22, 2020 to adopt amendments to its rules governing proxy solicitations, at the same time publishing new guidance meant to help financial advisers apply the amended rules.

SEC Chairman Jay Clayton says the final rule amendments, which have been modified from the proposed version published last year, are designed to ensure that clients of proxy voting advice businesses have “reasonable and timely access to more transparent, accurate and complete information on which to make voting decisions.” Clayton says the amendments aim to facilitate the ability of those who use proxy voting advice—investors and others who vote on investors’ behalf—to make “informed voting decisions without imposing undue costs or delays that could adversely affect the timely provision of proxy voting advice.”

The amendments would essentially require proxy voting firms to adopt and publicly disclose written policies and procedures reasonably designed to ensure that (i) companies that are the subject of proxy voting advice have access to the advice prior to or at the time the advice is disseminated to the proxy advisory firm’s clients and (ii) its clients have a mechanism by which they can reasonably expect to become aware of any written statements regarding the proxy voting advice from companies that are the subject of such advice, in a timely manner before the applicable shareholder meeting.

The guidance for investment advisers is an attempt to rein in the practice of some investment advisers relying on proxy advisory firms to prepopulate ballots based on their voting policies and automatically vote their shares in what Commissioner Roisman termed a “set it and forget it” approach.

To address this practice of “robovoting,” the guidance reiterates, among other things, that investment advisers owe a fiduciary duty to disclose all material facts of the investment advisory relationship between the advisers and their clients, and should consider whether the use of automated voting features is a material fact that should be disclosed. In addition, the guidance states that an investment adviser should consider whether its policies and procedures address circumstances where it becomes aware that a company intends to file or has filed additional soliciting materials with the SEC after the investment adviser has received the proxy advisory firm’s voting recommendation but before the submission deadline for proxies to be voted at a shareholder meeting.

The supplemental guidance is effective upon publication in the Federal Register.

Advisers that use third-party voting service providers are urged to respond to this guidance in the following ways:

  1. Provide sufficient disclosure to clients (presumably in Form ADV Part 2A, Part 3 and investment advisory contracts) regarding their use of third-party voting services as well as the level of advisers’ involvement in making proxy voting decisions, if any; and
  2. Create adequate and sufficient policies and procedures designed to review proxy voting firms’ policies and procedures and obtain timely information from them regarding a target firm’s written statement regarding proxy voting advice, if any.

Update your firm’s written policies and procedures with help from NRS. Contact us today.