Glass Lewis Response To SEC Statement Regarding Staff Proxy Advisory Letters

Nichol Garzon is Senior Vice President and General Counsel at Glass, Lewis & Co. This post is based on a Glass Lewis memorandum by Ms. Garzon.

The proxy advisor no-action letters, issued in 2004 to Egan-Jones and ISS, described the duty of investment advisers to ensure their proxy advisor(s) have the capacity and competency to adequately analyze proxy issues. While the SEC withdrew these no-action letters yesterday, the law in this area has not changed. Indeed, it has always been the law that an investment adviser, as a fiduciary to its clients, is required to take steps to avoid having a conflict of interest influence its decisions on behalf of clients.

Investment advisers who vote proxies on behalf of their clients generally follow policies and procedures that address how to vote proxies when the adviser has a conflict, and they are required to disclose these policies to their clients, such as:

  • The adviser may abstain from voting, and give the power to vote to the client;
  • The adviser may follow a predetermined voting policy that dictates how the adviser shall vote on particular matters;
  • The adviser may appoint an independent third party to cast the vote on its behalf; or
  • The adviser may vote in accordance with the recommendation of an independent third party.

SEC Staff Legal No. 20 (June 30, 2014) provides the most current view of the SEC regarding investor and proxy advisor responsibilities related to proxy voting.

Glass Lewis provides robust disclosures and audit capabilities that enable our investment adviser clients to demonstrate compliance with SLB 20. A full description of relevant processes, procedures and disclosures is available in the Glass Lewis Statement of Compliance to the Best Practice Principles for Providers of Shareholder Voting Research & Analysis. The Best Practice Principles (“BPP”) were developed and launched in advance of the 2015 proxy season by the world’s leading proxy advisors, under the direction and with the support of the European Securities and Markets Authority. Glass Lewis applies the Best Practice Principles to its activities globally and provides an annual update on its compliance with the BPP.

As described in our June 1, 2018 response to a request for information from Sen. Dean Heller (Rep.), Chairman of the U.S. Senate Subcommittee on Securities, Insurance & Investment, Senate Committee on Banking, Glass Lewis complies with the interpretation given by the SEC in SLB 20 with respect to what does and does not constitute a solicitation of proxies.

While Glass Lewis works with each client to implement the client’s respective proxy voting policy on Glass Lewis’ Viewpoint vote management platform, the formulation of the actual policy is at the sole discretion of the client. Glass Lewis does not have the discretion to deviate from a client’s instructions or to determine a vote that is not consistent with the policy specified by the client.

Further, the SEC’s guidance does not explicitly state or suggest that an investment adviser must manually vote all the proxies it receives, or that it must reiterate its voting policies after each proxy statement it receives. Such a requirement also would conflict with the SEC Staff’s response to Question 1 in SLB 20.

In that question, the SEC was asked what steps an investment adviser could take to demonstrate that its proxies were being cast in accordance with the adviser’s proxy voting policies and in the best interests of the adviser’s clients. The SEC answered by suggesting that the adviser periodically review a sample of the proxies voted to see whether they complied with the adviser’s policies. This supports the common practice among institutional investors of casting ballots in accordance with a predetermined client-specific voting policy. The pre-population of voting instructions on a ballot by Glass Lewis’ Viewpoint platform is merely an administrative, ministerial task that strictly adheres to each client’s specific voting instructions and involves no discretion on the part of Glass Lewis.

The Viewpoint platform alerts each Glass Lewis client when preliminary ballots are ready for review, and clients have all the disclosures and other information they need at their fingertips to review and evaluate the matters up for a vote. Clients can choose to restrict the submission of a ballot until after specified client personnel have reviewed and approved the votes. Clients can, and do, make changes to the preliminary ballot before signing off, and can even change their vote and resubmit it, assuming the voting deadline has not passed. Clients also have direct access to robust reporting and audit capabilities that allow them to audit Glass Lewis’ compliance with their voting policies on a regular basis.

In addition, there is another exemption from the federal proxy rules that proxy advisory firms can rely on, and which was discussed in SLB 20.

Rule 14a-2(b)(3) of the Securities Exchange Act of 1934 contains an exemption that extends to the provision of proxy voting advice by any person to another person with whom it has a business relationship provided certain conditions are met. In order for the exemption to apply, the person giving the proxy voting advice must: (i) give financial advice in the ordinary course of business; (ii) disclose to the recipient of its advice any significant relationship with the issuer, its affiliates, or a security-holder proponent of the matter on which advice is given, as well as any material interest it may have in the matter to be voted on; (iii) not receive any special commission or remuneration for furnishing the advice from any person other than the recipient of the advice and others who receive similar advice; and (iv) not furnish the advice on behalf of any person soliciting proxies or on behalf of a participant in a contested election.

Glass Lewis meets all the above criteria and thereby relies on this exemption as well.

Specifically, as described in further detail in our annual BPP Statement of Compliance, Glass Lewis provides sufficient disclosure on the face of its Proxy Paper reports to enable its clients to: (i) understand the nature and scope of any potential conflict it may have with the issuer, its affiliates, or a security-holder proponent of a matter on which advice is given, as well as any material interest it may have in such matter; and (ii) make an assessment about the reliability or objectivity of the recommendation.

Glass Lewis strongly believes that investors and issuers are both better served by preserving the independence of proxy advisory firms through the avoidance of undue influences. As such, Glass Lewis does not provide consulting services to issuers. Glass Lewis is committed to ensuring that in its role as a proxy advisor, institutional investors can comply with the fiduciary duties they owe to their respective clients, and companies are entitled to a fair, reasonable and independent assessment.

Instead of providing consulting services to issuers, Glass Lewis maintains an online resource center designed specifically for the issuer community, whereby companies can (i) arrange a free engagement meeting with Glass Lewis outside of the solicitation period (which begins on the date the notice of meeting is released and ends on the date of the meeting); (ii) submit company filings or supplementary publicly-available information; (iii) suggest that a particular topic be discussed through a Proxy Talk, a recorded open forum intended to help company representatives, dissidents or shareholder proposal proponents engage with Glass Lewis’ clients and provide detail on specific issues; (iv) request a free copy of the company’s Issuer Data Report (IDR)—a fact-based report that includes the key data used by Glass Lewis to the company’s research report, so as to allow the issuer to notify Glass Lewis of any issues prior to Glass Lewis completing and publishing its analysis to its investor clients; (v) notify Glass Lewis of a purported factual error or omission in a research report; and (vi) purchase a copy of its own research report upon publication to Glass Lewis’ investor clients.

In addition, Glass Lewis has robust policies and procedures to help manage all other potential conflicts of interest that may arise in the course of its business, including from its ownership structure, business partnerships, clients, employees and outside advisor relationships. In situations where a conflict is unavoidable, Glass Lewis provides specific, prominent disclosure of the potential conflict on the cover of the relevant research report, and a description of the exact nature of the conflict in the appendix of such report (

Glass Lewis intends to continue to fully engage with the SEC and other market participants on the role of proxy advisory firms in the industry, which includes participating in the upcoming Roundtable on the Proxy Process announced by SEC Chairman Jay Clayton earlier this year.

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