The SEC's newest commissioner, Elad L. Roisman, is leading the agency's efforts to revamp the nation's proxy-voting system and is taking a look at how proxy-advisory firms' services are utilized and whether any additional regulation is necessary.
Mr. Roisman, who addressed attendees at an Investment Company Institute conference in San Diego on Monday, said he recognizes that "proxy-advisory firms provide services that their clients greatly value. For that reason, I do not believe we should impose additional regulations upon them without thorough consideration. But, I believe it is incumbent upon their clients to use their services responsibly. And I am interested to hear how asset managers have gotten comfortable that they are doing that."
When examining some proxy-advisory firms' voting guidelines, Mr. Roisman said he noticed "several things that would give me pause before adopting them wholesale," like when guidelines set benchmarks unrelated to legal requirements and company-specific attributes.
On the subject of robo-voting, Mr. Roisman said he's exploring how much upfront instruction an asset manager provides to a proxy-advisory firm about how to pre-populate an electronic proxy card. "How much discretion does this leave to a proxy adviser?" he continued. "To what extent do (investment) advisers review and sometimes override the pre-populated suggestions of the proxy-advisory firms before submitting their votes to be counted?"
Mr. Roisman said he'd like to hear how asset managers are processing proxy-advisory firms' potential conflicts of interests. "Additionally, since these conflicts affect company-specific recommendations, it would be important to know — at the time an asset manager reviews the proxy-advisory firm's recommendations on each company's proxy — whether the proxy-advisory firm has a conflict with respect to that company or a shareholder proponent," he said.
Timothy M. Doyle, vice president of policy and general counsel for the American Council for Capital Formation, a corporate governance advocate in Washington, said it's clear the SEC has made proxy voting a core issue. In November, it hosted a daylong roundtable discussion on the matter and Mr. Doyle expects to see a rule-making proposal sometime this year.
"Having Commissioner Roisman at the helm of the process is a great first step and means you have someone who really understands the minutiae of the SEC's rule-making process steering the process," said Mr. Doyle, who would like to see a mandate for proxy firms to disclose any conflicts of interest.
Mr. Roisman, a Republican who was sworn into office in September, previously held positions that include chief counsel to the Senate Banking, Housing and Urban Affairs Committee, SEC senior counsel and securities counsel, and counsel to former SEC Commissioner Daniel M. Gallagher.