For years leading up to the Securities and Exchange Commission's July 2020 decision to amend certain rules governing proxy advisory firms, the debate raged as to what changes should be made and whether any changes were needed at all.
And although the debate never really went away as the issue headed to court, SEC Chairman Gary Gensler put the matter front and center once more on June 1 when he directed staff to consider recommending further regulatory action on the issue.
Additionally, on June 1, the SEC's division of corporation finance said it will not recommend enforcement actions related to the proxy rule amendments. The amendments went into effect last year, but affected proxy advisory firms are not required to comply until Dec. 1, 2021.
"It's Christmas in June for investors," Amy Borrus, Washington- based executive director of the Council of Institutional Investors, a non-partisan organization that represents asset owners with combined global assets of about $4 trillion, said in a statement.
"Last year's controversial proxy advice rule was a solution in search of a problem," she added in a phone interview. "Institutional investors, who are the clients of proxy advisory firms, did not seek it, nor did they support the SEC's actions on proxy advice."
Broadly, investor groups criticized the SEC's actions last year while the business community welcomed them.
In July, the SEC, in a 3-1 vote with Republicans in control, approved sweeping changes to rules governing proxy advisory firms. The rule amendments made clear that proxy voting advice generally constitutes a solicitation; required proxy advisory firms to disclose conflicts of interests to clients; allowed 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; and obliged proxy advisory firms to provide clients with access to any response the company provides on voting advice before those clients vote.
Also, the rule-making codified that the failure to disclose material information regarding proxy-voting advice, like methodology, sources of information, or conflicts of interest could be deemed misleading.
Mr. Gensler has now directed staff to weigh recommending further action. "The staff should consider whether to recommend that the commission revisit its 2020 codification of the definition of solicitation as encompassing proxy-voting advice, the 2019 interpretation and guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 rule amendments, among other matters," he said in a statement.
In August 2019, the SEC issued an interpretation that proxy-voting advice provided by proxy advisory firms generally constitutes a "solicitation" under the federal proxy rules and provided related guidance about the application of the proxy anti-fraud rule to proxy-voting advice.
"We really like the fact that they're going to re-examine this determination that was made some time ago that proxy-advice givers are somehow in the category of solicitors, which we never understood," said Kurt Schacht, head of advocacy for CFA Institute in Washington. "It is merely advice."
After Mr. Gensler's confirmation in April, Democrats now have a 3-2 majority at the SEC.