Public companies are pleased with Securities and Exchange Commission amendments governing proxy advisory firms and look forward to participating more in firms' recommendation processes, according to the 2020 Proxy Season Survey from the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness and Nasdaq, released Monday.
The Chamber has long been a vocal proponent of stricter regulations for proxy advisory firms and in July, the SEC 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, among other changes.
Of the 182 public companies that were surveyed in July and August, 81% said they were aware of the SEC rule-making and 99% of those said they were supportive of it. Moreover, 97% of companies said they would avail themselves of the review-and-comment mechanism included in the SEC rule-making, while 85% said that such a mechanism would not create any unnecessary delays or confusion in the proxy voting process.
Institutional investors, who roundly oppose the rule amendments, have said the comment and review portion will likely result in proxy advice distribution delays, driving up costs for investors, impairing the independence of proxy advice and causing uncertainty for institutional investors.
The percentage of companies that formally requested proxy advisory firms to provide them with a preview of vote recommendations dropped to 7% in the survey, down from 17% last year, 21% in 2018 and 30% in 2017.
The survey also found that when companies asked to meet with proxy advisory firms on matters subject to a shareholder vote, their request was denied 69% of the time.
Edward Knight, vice chairman at Nasdaq, said in a media call Monday that more transparency is needed. He supports the SEC rule-making because it will "improve the proxy process, it will enhance institutional investors fulfilling their fiduciary duties (and) it will bring more transparency to the system, which no one can really object to in our view."
In the survey, 44% of companies said that proxy advisory firms carefully research and consider all relevant aspects of a particular issue on which it provides advice.
Separately, 54% reported being approached by ISS Corporate Solutions during the same year in which the company received a negative vote recommendation. ICS, a wholly owned subsidiary of ISS, provides governance data, analytics and services to corporate issuer clients.
A representative from ISS could not immediately be reached for comment. An ISS spokesman previously said that ISS, a registered investment adviser, has developed a comprehensive program to manage potential conflicts of interest as required by current regulations.
In August, the Department of Labor proposed a rule that would require ERISA-governed fiduciaries to cast proxy votes only when they would have an economic impact on the retirement plan. The Chamber also supports the Labor Department proposal, while the investor community has largely blasted it.
