In Focus

SEC Expected to Announce New Proxy Voting Guidance August 21

The SEC has announced that it will meet August 21 to consider (1) new “guidance” for investment advisors on proxy voting; and (2) a new “interpretation” and related guidance for provision of proxy voting advice. CII and its members have been concerned on efforts to impose a new regulatory structure on proxy advisors that could significantly affect independence, cost and timeliness of reporting, interfering unnecessarily in contractual arrangements between institutional investors and proxy advisory firms. Unwise regulation also could create barriers to entry and otherwise harm competitiveness of the market for proxy advice. Company executives have pushed for regulation that would effectively require proxy advisory firms to give them pre-publication right to review reports, which cover executive pay, election of board members and other matters. The SEC signaled earlier this year that it expected to consider a rule change to impose new regulation on proxy advisors. However, the August 21 meeting will be limited to “guidance” and “interpretation,” which involves less deliberative process than a rule change, and it is unclear whether the SEC will put any of this out for public comment.

CII Launches New Tool to Hold Directors Responsible for Dual-Class Stock

CII has published a list of 159 directors who served on boards of U.S. public companies in 2018 and 2019 at the time they went public with dual-class share structures and no provision to “sunset” that structure within seven years or less. CII believes that differential voting rights let founders operate like dictators, often to the detriment of all shareholders. “The board that brings a company to public markets with unequal voting rights is responsible for the decision to disempower public shareholders,” said CII Executive Director Ken Bertsch. “Investors may want to raise concern about that in their engagement with other boards on which these directors serve,” Bertsch added.

CII, ICI File Amicus Brief Urging Court to Allow SEC’s Transaction Fee Pilot to Progress

CII and the Investment Company Institute (ICI) filed an amicus brief August 1 in the D.C. Circuit Court of Appeals urging the court to deny the stock exchanges’ petitions for review of the SEC’s transaction fee pilot and to allow the pilot to proceed. The SEC launched the pilot in December to study the effects that transaction-based fees and rebates may have on order routing behavior, execution quality and market quality more generally. Stock exchanges have asked the court to rule the program unlawful. CII and ICI argue in the amicus that the exchanges’ contention that the maker-taker model presents no problems worthy of investigation is false. They assert that the model harms investors by creating conflicts of interest that can lead brokers to route investors’ orders based on where the brokers will receive the highest rebates or incur the lowest fees, rather than based on where investors will receive the best execution.