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New SEC Guidance Concerning Proxy Advisory Firms
August 4, 2014
Problems with proxy advisory firms have been the subject of much discussion among public company executives. As of July 1, 2014, the SEC took a long anticipated first step, issuing new regulations designed to improve transparency and accountability between proxy advisory firms and investors.
The SEC’s new guidance for proxy firms includes three distinct adjustments to previous proxy guidelines:
- Proxy advisory firms must proactively and specifically disclose to investors “significant” or “material” interests the firm has “in the matter that is the subject of the voting recommendation”
- Investment advisers must proactively, and at least annually, monitor the policies and practices of third party proxy advisory firms used to facilitate proxy voting and proxy voting decision-making
- Institutional investors have a duty to “ascertain that the proxy advisory firm has the capacity and competency to adequately analyze proxy issues”
The Business Roundtable, a long-time advocate for increased SEC supervision of proxy advisory firms, believes the new guidelines are a positive first step in improving transparency, but there is still room for improvement. One of the Roundtable’s strongest recommendations, which it has presented in testimony before the House of Representatives, would require all proxy advisory firms to register under the Investment Advisers Act of 1940 (Advisers Act).