The massive and underhanded effort by corporate insiders to impose limits on the sole source of independent research, analysis, and regulations has almost completely failed. What the CEO-funded fake dark money front group the Main Street Investors Coalition wanted was to regulate proxy advisory firms (independent and hired — or not — by investors) like proxy solicitors (paid advocates hired by corporate managers and what we used to call corporate raiders). Options reportedly under consideration included the clearly unconstitutional proposal to require proxy advisors to give their draft reports to the covered companies ahead of time (which they often do voluntarily anyway). The rhetoric reflected the intense pressure from the business community. SEC Commissioner Elad Roisman, who had the lead on this issue said:
These Main Street investors who invest their money in funds are the ones who will benefit from—or bear the cost of—these advisers’ voting decisions. It is our job as regulators to help ensure that such advisers vote proxies in a manner consistent with their fiduciary obligations and that the proxy voting advice upon which they rely is complete and based on accurate information.
But the advocates for regulation were unable to prove that this was not already the case. So pretty much all the SEC did was remind proxy advisors to follow the laws already on the books. As Commissioner Hester Peirce said:
In issuing today’s guidance, we are not building a new regulatory regime, but are explaining the contours of an existing one to help investment advisers and proxy advisors carry out their responsibilities. These guidance documents do not prescribe what investment advisers and proxy advisors must do to carry out their responsibilities, but they describe some things these firms might consider to help them accomplish those goals. The firms themselves bear the ultimate responsibility for compliance, and we look forward to our continued work with them and other market participants.
“Advisers who vote proxies must do so in a manner consistent with their fiduciary obligations and, to the extent they rely on voting advice from proxy advisory firms they must take reasonable steps to ensure the use of that advice is consistent with their fiduciary duties…In addition, proxy advisory firms, to the extent they engage in solicitations, must comply with applicable law,” he noted.
We would love to see the SEC investigate and fine fund managers who do not vote proxies in a manner consistent with their duty as fiduciaries. In the past, this has occurred when fund managers voted to benefit their corporate clients, and there is zero evidence of any fund manager ever voting contrary to the interests of beneficial holders for any other reason than commercial self-interest.
Two Commissioners voted against even this mild statement, including Commissioner Jackson, who said:
I’m concerned that today’s guidance may alter the competitive landscape for the production and use of that advice—without addressing whether doing so might make it harder for investors to oversee management. I therefore respectfully dissent….The role of proxy advisors has been hotly debated for decades, with strong views on all sides. But one thing we know is that a competitive market for voting advice benefits both investors and issuers by generating crucial accountability for companies and proxy advisors alike. I would have considered the effects of today’s guidance on the competitive landscape more fully before taking these steps.
We note that Jackson includes in his statement a factual rebuttal to claims that proxy advisors are too powerful. His footnote 7:
Compare Statement of the U.S. Chamber of Commerce on the Market Power and Impact of Proxy Advisory Firms (June 5, 2013) (describing “ISS and Glass Lewis [as] the de facto standard setters for corporate governance policies in the U.S.”) with Stephen J. Choi, Jill E. Fisch & Marcel Kahan, The Power of Proxy Advisors: Myth or Reality, 59 Emory L.J. 869 (2010) (finding that the largest proxy advisor’s recommendation shifts, at most, 10% of overall shareholder votes).