SEC staff guidance on proxy voting and the use of proxy advisory firms “is a rich opportunity for public companies to take the initiative back,” former SEC Chairman Harvey Pitt said Wednesday.
In June, a Securities and Exchange Commission legal bulletin outlined guidance for proxy advisory firms and investment advisers that use them, in response to concerns over the firms' level of influence and potential conflicts of interest. The guidance reinforces fiduciary duties involved in giving and taking proxy advice, and the ultimate goal of shareholder value.
That guidance “is a positive first step toward bringing more transparency and rationality to the current system of proxy voting advice,” Mr. Pitt told attendees at a Washington event hosted by the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness to assess the impact of the new guidance.
Mr. Pitt said companies should focus on communicating and managing conflicts of interest with proxy firms, and better communication with institutional investors. “It is absolutely essential to know what is on the mind of your investors,” he said.
“There is a problem if (asset managers) effectively … outsource, if they are not looking carefully at their decision-making on voting” with proxy firm recommendations, Mr. Pitt said. “There will be review of this from an (SEC) enforcement perspective.”
For investors and proxy firms that ignore the SEC guidance, Robert Coury, executive chairman of pharmaceutical manufacturer Mylan Inc., warned, “litigation is coming.”