The National Association of Manufacturers filed a motion Thursday in U.S. District Court to intervene on behalf of the Securities and Exchange Commission in a lawsuit brought against the regulator by proxy advisory firm Institutional Shareholder Services over the SEC's recent rule-making on proxy advice.
NAM has long supported stricter oversight of proxy advisory firms and welcomed the SEC's actions in July when it approved sweeping changes to the rules governing those firms. Specifically, the SEC adopted amendments that require proxy advisory firms to disclose conflicts of interests to clients and allows companies that are the subject of voting advice to be able to access that advice prior to or at the same time as the advice is disseminated to clients.
The SEC also stipulated that proxy voting advice generally constitutes a solicitation.
"The SEC's deliberate approach to this issue has resulted in vital reforms that will provide manufacturers and their shareholders with more information about these unregulated actors, and the NAM plans to vigorously defend the rule in court," said Linda Kelly, NAM senior vice president and general counsel, in a statement.
In an email, an ISS spokesman said that "ISS opposes the NAM's effort to inject itself into this lawsuit. However, this action confirms our view, and the view of most institutional investors, that the SEC's proxy adviser rule-making was undertaken for the benefit of big business and not for the Main Street investors that proponents claimed to be protecting."
ISS originally filed a complaint in the U.S. District Court for the District of Columbia, Washington, in October 2019, after the SEC proposed the rule-making but before it was finalized. In January, the lawsuit was placed on hold until final rules were adopted.
And while the SEC did scale back its proposal — notably, it removed a provision that would've allowed companies that are the subject of voting advice to make revisions before final recommendations went out to clients — ISS filed an amended complaint in September seeking to invalidate and enjoin the rules that declare that proxy advice constitutes a solicitation.
Gary Retelny, president and CEO of ISS, said in a statement that ISS' complaint contends that the SEC's rules exceed the agency's statutory authority because they unlawfully regulate proxy advice as proxy solicitation. Moreover, the rules are "arbitrary and capricious" because the SEC did not adequately explain why the existing regulatory structure provided by the Investment Advisers Act of 1940 was insufficient to address any purported concerns with proxy advice. Lastly, the rules violate the First Amendment to the extent they compel proxy advisers to share their recommendations with issuers and disseminate issuers' responses.
ISS is optimistic that the court will rule on this matter by early 2021, Mr. Retelny said.