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SEC Readies New Guidelines for Proxy Advisers




by:
Chauncey Lane
Husch Blackwell LLP - Austin Office

 
June 26, 2014

Previously published on June 17, 2014

The SEC is readying new guidelines for proxy advisory firms such as ISS and Glass Lewis amid complaints by corporations that such advisers have too much influence. The SEC previously held a roundtable about the sector, where stakeholders discussed a variety of concerns such as whether the firms properly disclose potential conflicts of interest and whether investment advisers too heavily rely on their advice when they vote on behalf of clients. Without signaling what the SEC might do, SEC Chairman Mary Jo White, speaking to an audience at the U.S. Chamber of Commerce, said that she was “particularly” interested in hearing the discussion on these issues.

SEC Commissioner Dan Gallagher has said the SEC has enabled investment advisers to rely too heavily on proxy advisory firms for advice after the SEC staff issued letters that permit advisers to rely on the advice without the fear of possible enforcement action. According to Gallagher, this is problematic because investment advisers have a fiduciary obligation to put their customers’ interests first.

Lawmakers have also weighed in on the debate. In a recent letter to the SEC, members of Congress, including New Jersey Republican Scott Garrett and North Carolina Republican Patrick McHenry, called on the SEC to require more disclosures of conflicts. In the letter, the lawmakers indicated concern that the SEC does not require proxy advisory firms to disclose whether a proponent of a shareholder proposal or a competing director slate is a client.

The coming guidance is expected to push for greater disclosure from proxy advisers that also sell corporate governance consulting services to the same companies subject to their voting recommendations. If implemented, such guidance would be a departure from existing SEC practice of requiring investors to contact advisory firms for more information about potential conflicts.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Chauncey Lane
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Securities
 
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