Proposed SEC rules that impose new requirements on proxy advisory firms and raise thresholds for submitting shareholder proposals would undercut shareholder rights and should be reworked, the Council of Institutional Investors said in comment letters being submitted Friday.
"The SEC has failed to make the case for the drastic regulatory schemes it would impose on proxy advisory firms and on shareholders who file resolutions at companies in their portfolios," said CII Executive Director Ken Bertsch in a statement, calling them "solutions in search of a problem."
The comment periods on the two proposals end Monday. If finalized, proxy advisory firms would have to disclose more information about their processes and any conflicts of interest and give companies the opportunity to offer revisions.
Proposed changes to the shareholder proposal process include raising the minimum amount of stock held and the time held before shareholders could file resolutions at annual corporate meetings. Shareholders could not aggregate their holdings with others and must be available to meet with the company to discuss the proposal. Thresholds for resubmitting shareholder proposals in subsequent years would also be higher.
The CII comment letters said the proxy firm and shareholder submission proposals "are the most significant attempt by the SEC to limit the voice of shareholders since the Commission was created in 1934," and called the changes "fundamentally flawed and unnecessary."
The letters said that the Securities and Exchange Commission has failed to make the case for the drastic regulatory schemes. The SEC's economic analysis fails to support the proposed changes and the SEC may not even have the authority to regulate proxy advisers as proposed. "We believe this issue ultimately will be decided in court," one CII comment letter said.
The agency's investor advisory committee voted Jan. 24 to recommend that SEC officials rework the two proposals.
In a quarterly letter sent to investors Thursday, hedge fund Third Point LLC also criticized the proposed changes for proxy advisory firms, calling the SEC’s actions “an end run around shareholder rights” that is supported by corporate interests.
“One can easily imagine that the proxy firms will find themselves in an untenable position. As corporations argue for interpretations of fact or a recasting of opinions to be more favorable to them — by advocating for the selection of their own performance metrics, for example — the proxy firms will be scrambling to publish their recommendations under the threat of litigation, if they reject the corporates’ assertions. This threat should not be underestimated,” the letter said.
“With all there is to do to police markets, why would the SEC adopt a cumbersome and costly solution when no one has demonstrated that a real problem exists?”
