SAF Submits Comments on Amends to the Proxy Advisor Process

The Shareholder Advocacy Forum recently submitted comments to the Securities and Exchange Commission regarding its proposed rules to amend the proxy process. These revised rules are aimed at addressing concerns shareholders and businesses have raised criticizing the current process for lacking transparency among the proxy advisors and some of their recommendations.

Over the past decade, the SEC has issued several guidance documents to provide greater transparency for the proxy advisors to adhere to, minimum thresholds for shareholder proposals to meet to be reconsidered the following year if the proposal fails to garner majority support, and investment advisors responsibilities for voting in support or opposition of proposals on behalf of their clients and the proxy advisor’s recommendations.

Currently, there is a duopoly of two companies – Institutional Shareholder Services and Glass Lewis – that control 97% of the proxy advisory business. As the proxy advisory business continues to expand, it is important that shareholders and businesses have confidence in the recommendations they receive from the proxy advisors and that they are free from conflicts of interest. In our comments, SAF addressed several of these questions broadly, which were included in the proposed rule the Commission solicited feedback for: transparency from conflict of interests, the automatic voting of shares, and ensuring that a sufficient amount of time is provided to businesses to review recommendations.

SAF applauded the Commission’s amendments and asked the Commission to go further than the amendments addressed in helping improve the current proxy process. Additionally, SAF asked the Commission to consider several additional suggestions before the proposed rules on the proxy voting system are finalized:

• In the effort to further increase transparency when businesses support or opposition to a proposal and the proxy advisors’ recommendation is opposite that of the business, the SEC is encouraged to require proxy advisors to disclose their reasons to the general public as to why their why their recommendations differ. This would increase transparency and possibly increase shareholder participation in the voting process. This could also heighten the duty-of-care standard the proxy advisors must abide by.

• In addition to allowing businesses to review proposal recommendations, we recommend the Commission consider studying the effects of a policy that allows for automatic voting to be briefly suspended if there is a dispute over a proposal between the proxy advisor and the business’s recommendations. We believe this could enhance the shareholders ability to review all relevant information and weigh both recommendations before voting.

Click here to view the comments.