The U.S. Chamber of Commerce criticized the SEC in a letter Monday for its decision not to recommend enforcement actions related to rule amendments adopted in 2020 governing proxy advisory firms.
"The abrupt decision to suspend enforcement of the rule appears to be an effort to placate the proxy advisor oligopoly and a minority of activists that wish to preserve the status quo," Tom Quaadman, executive vice president of the Chamber's Center for Capital Markets Competitiveness, said in a letter to SEC Chairman Gary Gensler. "The decision is void of any evidence or methodical arguments for why nonenforcement is in the best interest of investors."
In July 2020, 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.
Investor groups mostly criticized the SEC's actions last year while the business community, including the Chamber, welcomed them.
Mr. Gensler, who became chairman in April, directed staff on June 1 to consider recommending further regulatory action on the proxy issue, the same day the SEC's division of corporation finance said it will not recommend enforcement actions on last year's amendments. The amendments went into effect last year, but affected proxy advisory firms are not required to comply until Dec. 1, 2021.
Those moves we praised by investor groups — "It's Christmas in June for investors," Amy Borrus, executive director of the Council of Institutional Investors, said in a statement after the announcement — and condemned by business groups.
"We are concerned about the precedent this decision sets by signaling to market participants that the SEC can arbitrarily pick and choose what regulations it wishes to enforce," Mr. Quaadman said in the letter sent Monday.
The Chamber recommended the SEC to "prioritize effective oversight and enforcement" of the amendments; "preserve its longstanding view that proxy advice constitutes a 'solicitation;'" and revisit some provisions that were initially proposed in November 2019 but not part of the final rule package, like provisions intended to address "robovoting," which the Chamber described as "institutional investors automatically following the recommendations of proxy advisers."
