In an appalling decision ignoring the most basic elements of administrative law and possibly the 1^st Amendment, the favorite appeals court of the corporate community, the 5^th Circuit, has overturned the Biden-era rule canceling the Trump-era crackdown on proxy advisory firms. The basis for the decision is very technical, a finding that the Commission did not have adequate “notice and comment” on the new rule. VEA and many others raised exactly that concern about the rule that is now being reinstated, which was rushed through at the behest of corporate groups like the National Association of Manufacturers, the plaintiffs in this case.

The SEC under the leadership of Trump appointee Jay Clayton in 2020 ordered proxy firms to provide their voting advice to their clients and companies at the same time. The agency also directed the firms to give their customers access to what companies said about the recommendations. 

Proxy advisor reports and recommendations are voluntarily purchased by the most sophisticated financial professionals in the world. No one is obligated to buy their products or follow their recommendations. Movie critics do not have to send their reviews to the actors and directors before publication. Restaurant critics do not have to send their reviews to the chefs and restaurant owners. 

We do not think this will have a chilling effect on the proxy advisors, who have shown themselves to be fearless in reporting accurately and independently. Corporate critics conveniently forget to point out that over 90 percent of proxy advisor recommendations are to vote as management suggests; those are routine items like re-election of directors and approval of auditors. And yet somehow the corporate community wants to kill the messenger over the few recommendations in favor of advisory-only activist proposals, which executives are legally permitted to ignore, even if they get a 100 percent vote in favor. This also applies to the advisory-only votes on CEO pay, a particular thorn in the side of executives and bords.

Proxy advisors provide an essential service, with a depth of research beyond what even the largest institutional investors could commit. This is especially important in the case of index funds, which offer investors the lowest possible fees because they do not research individual companies. In addition, we believe this decision is an obvious violation of the First Amendment, forcing private companies to provide their proprietary reports free of charge to the companies they cover.

SEC Chair Gary Gensler then removed the requirements, with the Biden appointee saying in 2022 that investors need the changes to get timely and independent advice. That rule is now overturned.