David A. Bell is a partner, Ryan Mitteness is an associate, and Soo Hwang is a Senior Attorney at Fenwick & West LLP. This post is based on their Fenwick memorandum.
The U.S. Securities and Exchange Commission on July 22, 2020, adopted amendments tightening regulation of proxy voting advice from proxy advisory firms (Release No. 34‑89372). The final rule implements additional regulations for proxy advisory firms, but stops short of some of the proposals included in the SEC’s original proposal (and described in our prior alert).
The final rule codifies the SEC’s interpretation set forth in August 2019 (and described in our prior alert) that voting recommendations and related materials provided by proxy advisory firms are “solicitations” subject to antifraud rules. In addition, the amendments add conditions that must be met in order for proxy advisory firms to rely on the exemptions historically available to them from filing full proxy solicitation materials (a key exemption for the conduct of their business). In particular, proxy advisory firms will need to include additional conflict of interest disclosure in their vote recommendation materials, provide their recommendation materials to the subject company not later than simultaneously with delivery to the proxy advisory firms’ clients, and provide access to responses by the subject company to the advisory firms’ recommendations.
Importantly for companies, the final rule does not give subject companies the opportunity to review and comment on proxy advisory firms’ recommendations prior to publication, or to explicitly require the proxy advisory firm to include a hyperlink to a response statement from the company with such recommendations at the time that they are sent.
