In Focus

SEC Staff Signals Less Transparency on Shareholder Proposal Exclusions

The SEC staff on September 6 announced that it may decline to state a view on some company requests to omit shareholder proposals. In other cases, the staff may provide a verbal response, informing the shareholder proponent and company, but not others in the market. This marks a departure from the staff’s previous practice of responding in writing to such requests and posting them publicly on the SEC’s website. CII wrote to the SEC staff in August opposing this new direction.
“If the SEC staff does what seems to be indicated here, the result will be less transparency, more guesswork by shareholder proponents and companies, more litigation, harm to the shareholder proposal process, and likelihood that small main street shareholder proponents will be left in the cold, since companies will know they are unlikely to litigate on inclusion of a proposal,” said CII Executive Director Ken Bertsch.

Divided SEC Seeks to Clarify Proxy Voting Responsibility, Issues New Interpretation on Proxy Advisors

On 3-2 votes, the Securities and Exchange Commission on August 21 approved new guidance for investment advisors, and issued a new “Interpretation” on applicability of proxy solicitation rules to proxy advisors.  The investment advisor guidance appears similar to “staff guidance” issued in 2014, but with more force as “commission guidance.” The new Interpretation may be the first step in a process involving a later rule proposal. By making it clearer that the SEC sees proxy advisory firms as subject to proxy solicitation rules, this could give the SEC a stronger hook to place requirements on the firms later, which could be concerning, as is the potential for lawsuits that may threaten existing proxy advisors and discourage new entrants in the small but critical market.
SEC Commissioner Allison Herren Lee said the SEC actions entail "new substantive requirements – most notably increased issuer involvement in the proxy advisory firm’s process.” She noted that the SEC has not fully gathered and weighed evidence to understand whether that would improve reports, and the requirements run contrary  to views expressed by institutional investors and asset managers. Lee said the changes could raise costs, make timely investor consideration of issues more difficult, and compromise independence of research. “We agree with Commissioner Lee that the commission should have put the new guidance and interpretation out for public comment,” said CII Executive Director Ken Bertsch.

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Fair Financial RulesSensible, effective rules safeguard investors and strengthen markets.

Dual-Class StockEach share of a public company's common stock should have one vote.

Majority Voting for DirectorsIn uncontested elections, directors should be elected by majority vote.

Universal ProxyIn contests, investors should be free to vote for the nominees they prefer.

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