- About CII
- Board of Directors
- U.S. Asset Owners Advisory Council
- Corporate Governance Advisory Council
- Markets Advisory Council
- CII Staff
- Press Releases
Leading Investor Group Applauds SEC Proposal to Tighten Insider Trading Rules Leading Investor Group Hails SEC Rule Requiring Universal Proxy Cards in Contests for Board Seats CII Virtual Fall Conference, September 22-24 CII Elects Board Members for 2021-2022 CII Virtual Spring Conference, March 8-10 SEC Muzzles the Voice of Investors by Raising the Bar on Shareholder Proposals Leading Investor Group Seeks Strengthened Sustainability Reporting CII Virtual Fall Conference, September 17-22 Leading Investor Group Dismayed by SEC Proxy Advice Rules Leading Investor Group Calls for Action on Racism Amy Borrus to Become Executive Director of the
Council of Institutional Investors on July 1
CII Statement on Virtual Shareholder Meetings During Public Health Emergency CII Elects Board Members for 2020-2021, Approves Three Policies CII Spring Conference, March 9-11, Washington, D.C. Leading Investor Group Blasts SEC’s Proposed Rules for Proxy Advice and Shareholder Proposals CII Announces Advisory Council Members for 2020 Leading Investor Group Rebukes SEC for Proposed Rules That Undercut Critical Shareholder Rights Leading Investor Group Urges Companies to Commit to Long-Term Executive Compensation Council of Institutional Investors Board Appoints Amy Borrus to Succeed Ken Bertsch as Executive Director Media Advisory: CII Fall Conference, September 16-18, Minneapolis Council of Institutional Investors Responds to Business
Roundtable Statement on Corporate Purpose
Leading Investor Group Calls Out Directors Responsible for
Dual-Class Companies Without “Sunsets”
Leading Investor Group Petitions SEC to Require Clear Disclosure on CEO Pay Targets Council of Institutional Investors Says Lyft’s Planned Dual-Class Structure is Harmful to Investors Media Advisory
CII Spring Conference, March 4-6, Washington, D.C.
CII Statement on Share Buybacks CII Research and Education Fund Publishes
Guide to Disclosure of Board Evaluation Processes
Investor Group Applauds CommonSense Principles 2.0 CII Fall Conference, October 23-25, New York City Leading Investor Group Responds to President’s Tweet on Quarterly Financial Reporting Investor Group Responds to Wall Street Journal Editorial CII Applauds Shareholder Protections in House Bill CII Elects New Board, Names Florida SBA Executive
Director & CIO Ashbel Williams Chair
New Report Details Practical Steps Corporate Boards Can Take to Combat Sexual Harassment CII Applauds SEC Commissioner Jackson's Call for Listing Standards to Require Sunsets on Dual-Class Stock CII Spring Conference, March 12-14, Washington. D.C. CII Announces Advisory Council Members for 2018 CII Report Highlights Risks Associated with a Common Chinese Corporate Structure Institutional Investors Oppose Stitch Fix Dual-Class Structure but Welcome Sunset Provision Uber’s Governance — Investor Response Do Not Disadvantage US Investors on Research,
CII Asks SEC
CII Fall Conference, September 13-15, San Diego CII Welcomes S&P Dow Jones’ Decision to Ban New Multi-Class Companies from Key Stock Indexes CII Applauds FTSE Russell Decision to Set Voting Rights
Minimum for Inclusion on Indexes
Investor Group Urges Blue Apron to Ditch No-Vote Shares Institutional Investors Dismayed by House Passage of
Financial CHOICE Act
CII, Institutional Investors with $4+ Trillion in Assets Oppose
Anti-Shareholder Provisions of the CHOICE Act
- CII in the News
- Governance & Financial Information
- Contact Us
- CII Research and Education Fund
Leading Investor Group Dismayed by SEC Proxy Advice Rules
Washington, D.C., July 22, 2020 – The Council of Institutional Investors (CII) is relieved that the Securities and Exchange Commission (SEC) has dropped the most problematic aspect of its original proposal for heavy-handed regulation of proxy advisory firms. Even so, we are concerned that the rules and guidance the SEC approved today could result in delays in distribution of proxy advice, driving up costs for investors, impairing the independence of proxy advice and causing uncertainty for institutional investors. Just how damaging the new regulatory regime could be isn’t clear because the SEC has acted without providing details of its approach.
"We are disappointed that the commission did not first issue a revised proposal and draft guidance and seek public comment," said CII Executive Director Amy Borrus.
The SEC had proposed to require the firms to give companies two rounds of reviews of proxy advice before sending it to their investor clients. The final rule appears to eliminate this most damaging aspect of the SEC’s initial proposal, which would have severely weakened important shareholder rights.
However, the new rules and guidance seem to effectively require investment advisors who vote proxies on behalf of investor clients to consider and evaluate any response from companies to proxy advice before submitting votes. That could cause significant delays in the already constricted proxy voting process. It also could jeopardize the independence of proxy advice as proxy advisory firms may feel pressure to tilt voting recommendations in favor of management more often, to avoid critical comments from companies that could draw out the voting process and expose the firms to costly threats of litigation.
"The SEC has not established a compelling case to tighten regulation of proxy advisory firms, and we are concerned that it has adopted untested and unvetted requirements that could have adverse effects on investors’ ability to get the timely and unbiased proxy advice they need to act as stewards of the companies they own," Borrus said.
CII believes the legal basis for the SEC’s rulemaking—its interpretation that proxy advice is “solicitation” under the federal securities laws—is fundamentally flawed. A leading proxy advisory firm, Institutional Shareholder Services (ISS), has filed a lawsuit on this point and we expect it ultimately will be decided in court. We believe the SEC should have waited for the legal challenge to play out before issuing final rules.
The factual basis for the SEC’s rulemaking was equally flawed. Business lobbyists have claimed for years that proxy advisory firms’ reports are rife with errors. The SEC recited these “concerns,” but failed to provide evidence supporting them, and, when CII filed a FOIA request with the SEC seeking evidence of its economic analysis of claims of errors, agency staff responded with a memorandum clarifying that the SEC did not do an assessment on its own to corroborate the veracity of the claims.
CII's own research concluded that the rate of factual errors in proxy advice is extremely low; most of the "concerns" the SEC cited are policy disputes or disagreements on methodology.
"The SEC should regulate based on firm legal grounds and evidence, not pressure from business lobbyists seeking to strengthen corporate control of the proxy voting process," said CII Executive Director Amy Borrus.
CII thinks the SEC’s new directive that investment advisors review comments from companies in response to proxy advice sounds unobjectionable in principle. However, in practice, it could significantly delay voting and undermine the independence of proxy advisory firms. This approach is a significant departure from the SEC’s original rule proposal that has never been tested in practice. We and other market participants have not had a chance to review it and evaluate how it would affect the complex, time-sensitive and important proxy voting process.
Likewise, CII is concerned that the final rule preserves the SEC’s codification of its position that proxy advice may be challenged through legal actions, including the SEC’s suggestion that evaluating a company based on corporate governance best practices that exceed minimum legal requirements may be misleading. If companies that don’t like proxy advisors’ methodology or advice threaten or resort to lawsuits to pressure proxy advisors, the independence and objectivity of proxy voting advice could be jeopardized.
"The SEC should strive to preserve investors’ access to independent, objective advice, not make it harder for shareholders to hold corporate management at the companies they own accountable," Borrus said.
###Click for PDF version. For media inquiries, please contact CII Editor Rosemary Lally.