The SEC Adopts Final Rules Concerning Proxy Voting Advice

Recently, the Securities and Exchange Commission has voted to adopt amendments related to proxy voting advice. This amendment was originally proposed in November 2021, and the amendments were finalized to avoid placing burdens on businesses. The concern was related to the timeliness of independent advice businesses. Now, the amendments have been enacted to address misperceptions related to liability standards with regard to proxy voting advice. The amendments are also designed to preserve the confidence of investors in the integrity of business advice.

SEC Chair Gary Gensler Targets Voting Advice

According to SEC Chair Gary Gensler, it is critical for investors who are clients of proxy advisory firms to receive timely, independent advice that allows them to make accurate decisions that align with their financial goals. He stated that these amendments address issues related to the independence and timeliness of proxy voting advice. To facilitate shareholder democracy, it is important for investors to get access to information in a timely manner. These amendments address that.

The Final Amendments Address a Variety of Issues

The final amendments that were enacted by the SEC address a variety of concerns. First, they have rescinded two rules applicable to proxy voting advice businesses. They were adopted by the Commission in 2020, and they rescind conditions related to the availability of two exemptions from proxy rules information and filing requirements. Proxy holding advice businesses have often relied on these exemptions in the past to avoid providing information in a timely manner. Now, with these conditions removed, it should be easier for institutional investors to get their information on time.

Another amendment deletes changes made in 2020 to the proxy rules’ liability provision. The original change, instituted in 2020, has created a significant amount of confusion regarding the application of this provision to proxy voting advice. In essence, the rule undermined the goal it was designed to meet. Therefore, the change to the proxy rules’ liability provision has been eliminated.

Finally, the amendments also received guidance that the SEC issued in 2020. This guidance was related to investment advisers and their proxy voting obligations. This has been removed to clarify the responsibilities that business advice proxy voting firms have.

The Expected Impact of the Amendments

It remains to be seen exactly what type of impact these amendments will have. In the past, a lot of shareholders were confused about what to do with their proxy voting advice. As a result, they frequently reached out to advise businesses for help. Unfortunately, the advice did not always come in a timely manner, and investors did not always have the information they needed to make accurate decisions regarding their voting responsibilities.

Now, if these amendments have the intended impact, it should be easier for proxy voting advice businesses to understand what their obligations are. Then, they can provide timely advice to their clients. Right now, these amendments are available on the Federal Register, and after 60 days, they will become effective. The SEC will watch closely to see how the changes impact shareholder democracy.

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