A federal judge has vacated part of a Securities and Exchange Commission rule that stipulated proxy-voting advice constitutes a solicitation.
In 2020, the SEC adopted amendments that required proxy advisory firms to disclose conflicts of interests to clients and 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. The amendments also made clear that proxy-voting advice generally constitutes a solicitation.
In 2022, the SEC, under a new administration, rescinded two of those amendments but left in place the one concerning solicitation.
Institutional Shareholder Services, one of the two major proxy advisory firms, originally filed a lawsuit in 2019 — after the SEC proposed the rule-making but before it was finalized — challenging the SEC's efforts and pressed on after they were finalized in 2020 and again when two of the amendments were rescinded in 2022.
And on Feb. 23, a judge in the U.S. District Court for the District of Columbia, Washington, agreed with ISS.
"The court holds that the SEC acted contrary to law and in excess of statutory authority when it amended the proxy rules' definition of 'solicit' and 'solicitation' to include proxy voting advice for a fee," Judge Amit P. Mehta wrote in the decision. "The ordinary meaning of those terms when Congress enacted the Exchange Act in 1934 did not encompass voting advice delivered by a person or firm with no interest in the outcome of the vote."
In a statement, an ISS spokesperson said, "We're pleased with the court's decision affirming our longstanding view that the provision of independent voting advice does not constitute a proxy solicitation."
When asked for comment, an SEC spokesperson said, "We are still reviewing the decision."
Separately, the SEC is facing multiple legal challenges concerning its 2022 rescission that rolled back the 2020 rule. Lawsuits brought by the U.S. Chamber of Commerce and National Association of Manufacturers are still proceeding, respectively.
