Glass Lewis Comment Letter to the SEC About Proposed Proxy Rules for Proxy Voting Advice

Gordon Seymour is Special Counsel for Public Policy and Nichol Garzon-Mitchell is Senior Vice President and General Counsel at Glass, Lewis & Co. This post is based on a Glass Lewis comment letter to the SEC in response to request for comments on the proposed rule regarding proxy advisors (discussed in posts here and here).

Thank you for the opportunity to comment on the “Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice,” recently proposed by the Securities and Exchange Commission. [1] Glass Lewis shares the Commission’s goal of making sure that the proxy process functions properly and enables shareholders to exercise their right to vote at annual and special meetings. To that end, Glass Lewis has engaged with the Commission on numerous occasions during its continuing efforts to explore how to improve the proxy process, a critical component of the corporate governance system.

Glass Lewis also fully supports and embraces the stated objectives of the Commission’s proposal with respect to proxy advice—promoting the accuracy, conflict management and disclosure, and transparency of that advice. This includes appropriate engagement with the companies that are the subject of proxy advice. In fact, we have committed to follow the internationally-endorsed Best Practices Principles for Shareholder Voting Research Providers, which address these critical issues, and annually report on our compliance with those principles.

Regrettably, however, we believe that the proposed rules would not further those objectives, but instead would have severe adverse consequences for investors and the public interest. In particular, we are deeply concerned that the costly and rigid “review and feedback” mechanisms in the proposed rules would introduce significant and unmanageable delays into the already compressed annual meeting time frame and threaten to impair proxy advisors’ independence. Both effects could hamper Glass Lewis’ ability to meet its institutional investor clients’ needs, while at the same time detracting from the limited time available for investors’ deliberations and ability to engage with companies on critical corporate governance issues. These adverse consequences would be compounded by the Commission’s plan to codify its August 2019 Interpretation that proxy advice is a solicitation, which introduced the specter of companies filing lawsuits to challenge matters of judgment, including proxy advisors’ methodologies, opinions and recommendations.

We are also concerned that the rushed process that has been followed in this rulemaking is not sufficient to adequately consider the legal issues its novel approach would raise and to fully understand and analyze the consequences—economic and otherwise—of the untested, unprecedented regulatory regime it would introduce. Accordingly, we respectfully submit that the Commission should not adopt the proposed rules and, instead, should continue to work with proxy advisors, investors and other stakeholders to develop a balanced and thoughtful approach to this area that better serves the interests of all market participants.

The complete publication, including footnotes, is available here.

Endnotes

1U.S. Securities and Exchange Commission, Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice, Release No. 34-87457 (Nov. 5, 2019) (the “Proposing Release” or “Release”).(go back)

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