The U.S. Chamber of Commerce, Business Roundtable and other business-focused groups have filed an amicus brief in support of the Securities and Exchange Commission concerning a lawsuit brought against the regulator by proxy advisory firm Institutional Shareholder Services over the SEC's recent rule-making on proxy advice.
The business community, like the Chamber and Business Roundtable, welcomed the SEC's actions in July when it approved sweeping changes to the rules governing proxy advisory firms. After a long rule-making process, the SEC adopted amendments that require those firms to disclose conflicts of interests to clients and allow 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 SEC also stipulated that proxy voting advice generally constitutes a solicitation.
"The reforms adopted by the SEC at issue here add reasonable and necessary structure to the proxy advisory firm reporting process and will go a long way toward preventing many of the significant problems with proxy advice that damage (the groups') members, shareholders and the investing public," the groups stated in the brief, which was filed Nov. 6 in U.S. District Court.
The brief was also filed by Center On Executive Compensation and the National Investor Relations Institute.
ISS originally filed a complaint in the U.S. District Court for the District of Columbia in October 2019, after the SEC proposed the rule-making but before it was finalized. In January, the lawsuit was placed on hold until final rules were adopted.
In unveiling its final rules, the SEC did scale back its proposal — notably, it removed a provision that would've allowed companies that are the subject of voting advice to make revisions before final recommendations went out to clients — but ISS filed an amended complaint in September seeking to invalidate and enjoin the rules that declare that proxy advice constitutes a solicitation.
An ISS spokesman could not immediately be reached for comment, but in September, Gary Retelny, president and CEO of ISS, said in a statement the complaint contends that the SEC's rules exceed the agency's statutory authority because they unlawfully regulate proxy advice as proxy solicitation. Moreover, the rules are "arbitrary and capricious" because the SEC did not adequately explain why the existing regulatory structure provided by the Investment Advisers Act of 1940 was insufficient to address any purported concerns with proxy advice. Lastly, the rules violate the First Amendment to the extent they compel proxy advisers to share their recommendations with issuers and disseminate issuers' responses, according to the statement.
The Chamber and Business Roundtable see things differently and wrote in the brief that "the SEC has statutory authority to regulate proxy advisory firms that exert enormous influence on shareholder voting." Moreover, "the SEC's reforms are reasonably designed to facilitate more transparent and better informed shareholder decision making, consistent with the longstanding objectives of the securities laws."
The National Association of Manufacturers — another proponent of stricter oversight of proxy advisory firms — filed a motion last month in U.S. District Court to intervene in the lawsuit on behalf of the SEC.
