REGULATION/LEGISLATION

CII sends letters opposing proxy-voting, SEC assessment legislation

The Council of Institutional Investors sent letters to congressional leaders opposing separate legislation that would tighten regulation of proxy-voting advisory firms and require the Securities and Exchange Commission to assess costs and benefits of its proposed regulation.

Kenneth A. Bertsch, CII executive director, wrote the letters, sent Monday, to both Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, and Rep. Maxine Waters, D-Calif., Democratic ranking member of the committee.

In one letter, Mr. Bertsch wrote: “We strongly oppose HR 5311” — the Corporate Governance Reform and Transparency Act, introduced May 24 and sponsored by Rep. Sean P. Duffy, R-Wis. — “which aims to tighten regulation of proxy advisory firms to the detriment of investors.”

The bill would require proxy-advisory firms to “to permit companies receiving proxy advisory firm recommendations access in a reasonable time” to comment on them “to the person(s) responsible for developing the recommendation,” the bill states.

Among other provisions, the bill would require the proxy advisory firms to “employ an ombudsman to receive complaints about the accuracy of voting information used in making recommendations” and resolve complaints “prior to voting on the matter to which the recommendation relates.”

The bill “could weaken public company corporate governance in the United States; lessen the fiduciary obligation of proxy advisers to investor clients; and reorient any surviving proxy advisers to serve companies rather than investors,” the letter said. “We believe proxy advisory firms play an important and useful role in enabling effective and cost-efficient independent research, analysis and informed proxy-voting advice. In our view, the bill could undermine advisory firms’ ability to provide a valuable service to investors.”

“The view that the two leading proxy advisory firms, ISS and Glass Lewis, dictate proxy-voting results is simply incorrect,” Mr. Bertsch added in the five-page letter, which was also signed by 27 other institutional investors, including officials representing the $187.4 billion California State Teachers’ Retirement System: $179.5 billion Florida State Board of Administration, $154 billion New York City Retirement Systems; $60 billion UAW Retiree Medical Benefits Trust and $21 billion General Board of Pension and Health Benefits of the United Methodist Church.

The letter notes Institutional Shareholder Services and Glass Lewis are non-voting dues-paying members of CII, while CII is also an ISS client.

In the other letter, Mr. Bertsch wrote that “it not clear to us how the provisions” of HR 5429, the SEC Regulatory Accountability Act, introduced June 9 and sponsored by Rep. Scott Garrett, R-N.J., “would improve the cost effectiveness of the SEC’s existing rulemaking process or benefit long-term investors, the capital markets or the overall economy.”

The bill states it would require the SEC “to assess the costs and benefits, both qualitative and quantitative, of intended regulations and propose or adopt regulation only on a reasonable determination that the benefits on the intended regulation justify the costs of the regulation.”

The bill “is based on a faulty premise that a generally accepted methodology currently exists that allows the SEC in a cost-effective manner to reliably measure and then balance the costs and benefits of its proposals or rules consistent with its mandate to protect investors,” Mr. Bertsch wrote in the three-page letter. “In most instances, the benefits of a commission rule relating to the financial markets, particularly a rule designed to protect investors, cannot be reliably measured.”

Amy Borrus, deputy director, said CII officials have not received any response to the letters.