The SEC should rethink proposed rules that impose new requirements on proxy advisory firms and raise thresholds for submitting shareholder proposals, members of the agency's investor advisory committee said Friday.
A divided committee voted 10-to-5 to support a recommendation of the group's investor-as-owner subcommittee that SEC officials rework the two proposals and in the meantime address more pressing issues such as "proxy-plumbing" reforms, including ways to correctly count votes and universal proxies.
The planned rules "may collectively shift the balance in a manner that does not serve investor interests (and) as currently framed will not reliably achieve their stated goals, because the system is in need of more basic reform, and because it is necessary to establish a link between the actions and clearly identified problems," the group's recommendation said.
Committee members supporting the recommendation also would like to see the SEC consider "reasonable alternatives" to address the issues raised, including ways to correct errors made by proxy advisers and adjustments to shareholder proposal thresholds.
"We do believe the commission could improve conflict of interest disclosure for proxy advisers. Right now, they simply haven't laid out (the case)," said John Coates, John F. Cogan Jr., professor of law and economics at Harvard Law School and research director of the Center on the Legal Profession.
In addition to making proxy plumbing a higher priority, the committee recommended that SEC officials "do a better job of analyzing the issues" that led to the two proposed rule- makings, including following SEC guidance on cost-benefit analysis. "The current draft proposals lack what we would like to see added as basic components, such as a statement of the market failure that is creating a need for regulation," Mr. Coates said during a committee telephone conference call.
The comment periods on the two proposals end Feb. 3.
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.
