Remarks to the SEC Investor Advisory Committee

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s remarks to the SEC Investor Advisory Committee, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Good morning. I understand the Committee will be continuing the discussion about our proxy system in today’s telephonic meeting.

Last month the Commission issued guidance regarding how an investment adviser’s fiduciary duty and Rule 206(4)-6 under the Advisers Act relate to an adviser’s proxy voting on behalf of its clients, including in circumstances where the investment adviser uses a proxy advisory firm. [1] In addition, the Commission issued a separate interpretation and related guidance that proxy voting advice provided by proxy advisory firms generally constitutes a solicitation subject to the federal proxy rules. [2] Neither of these actions changed existing law or rules. They do, however, embody two fundamental tenets.

First, as this group’s work has often emphasized, including today’s agenda, proxy voting generally is considered important. [3] The importance of the proxy voting process is made clear in many ways, including that our proxy rules regulate how proxies can be solicited and what information must be disclosed. Those rules impose significant anti-fraud liability on statements which, at the time and in the light of the circumstances under which they are made, are false or misleading with respect to any material fact. [4]

Second, to the extent an investment adviser takes on voting responsibility, the investment adviser must, consistent with its duties of care and loyalty, exercise that responsibility in the best interests of the client. [5]

We are continuing our efforts to review and improve the proxy process, and we continue to welcome your advice and views.

At the last meeting in July, I set forth some questions that I hoped you would keep in mind as we consider changes to the system, keyed to the interests of our long-term Main Street investors. Those questions included:

Why is it that Main Street investors with direct holdings are voting less often, and are there aspects of our proxy system that discourage Main Street investor participation? Are they overloaded? Are they indifferent on some, many, or virtually all of the matters submitted to shareholders? If so, why are they indifferent? Is the process too cumbersome and, if so, can it be made less so? Are the matters submitted for a vote important to long-term shareholder value? Who should decide whether they are or could be? In this regard, are the submission and resubmission thresholds, and other requirements for inclusion of a proposal in the issuer’s proxy, appropriately crafted to ensure that the proposing shareholder’s interests are aligned with those of a reasonable portion of the company’s long-term investors? Can our proxy system be improved so that it is easier to do so?

I appreciate your work to date on these issues and hope that you will keep these questions front of mind as you consider further improvements to the proxy system for the benefit of our Main Street investors.

Thank you.

Endnotes

1Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Release No. IA-5325 (August 21, 2019) (“Investment Adviser Proxy Voting Guidance”).(go back)

2Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, Release No. 34 – 86721 (August 21, 2019).(go back)

3See, e.g., Meetings of the SEC Investor Advisory Committee on: July 25, 2019 (discussing the Proxy Process and including a recommendation from the Investor-as-Owner Subcommittee on the U.S. Proxy System); September 13, 2018 (discussing U.S. Proxy Voting Infrastructure); March 8, 2018 (discussing and including a recommendation from the Investor-as-Owner Subcommittee on Dual Class and Other Entrenching Governance Structures in Public Companies); March 9, 2017 (discussing Unequal Voting Rights of Common Stock); January 21, 2016 (discussing NASDAQ Listing Standards—Shareholder Approval Rules); July 16, 2015 (discussing Shareholder Rights); April 09, 2015 (discussing Proxy Access and Staff Review of Rule 14a-8(i)(9) Under the Securities Exchange Act of 1934); February 12, 2015 (discussing Proxy Access), October 9, 2014 (discussing and including a recommendation from the Investor-as-Owner Subcommittee on the Impartiality in the Disclosure of Preliminary Voting Results); July 25, 2013 (discussing and including a recommendation from the Investor-as-Owner Subcommittee on Universal Proxy), available at: https://www.sec.gov/spotlight/investor-advisory-committee.shtml.(go back)

4Further, in the context of a share-for-share merger subject to a shareholder vote, we impose additional liability under the Securities Act of 1933 on registrants and officers and directors for the information in the associated registration statement.(go back)

5See Investment Adviser Proxy Voting Guidance at 3-4.(go back)

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