Commissioner Allison Herrren Lee expressed her objections to the Republican Commissioners’ proposed rule on proxy proposals and proxy advisors, starting with the core point that no one has documents any kind of actual problem.
There is a common theme that unites the two proposals before us today: they both would operate to suppress the exercise of shareholder rights.
The proposed changes to our current proxy regime would make it more costly and more difficult for shareholders to cast their votes or even to get their issues onto corporate ballots. There is a stark divide between issuers and shareholders on the policies reflected here.[1] The bottom line is that these policy choices, if adopted, would shift power away from shareholders and toward management.
There is nothing inherently wrong in making such a choice, particularly if data suggests the need to correct some imbalance. But what does the data show about proxy voting? That the vote recommended by management carries the day some 90 percent of the time.[2] Management’s views nearly always prevail. That is the context in which we consider these two proposals that would tilt the scales even further against shareholders….
I agree with the stated goal in the proposal that proxy advice should be based on the “most accurate information reasonably available.”[3] What is missing in this proposal, however, are two critical underpinnings for the policy choices it reflects. First, it is missing data demonstrating an error rate in proxy advice sufficient to warrant a rulemaking. In fact, as the comment file shows, assertions of widespread factual errors have been methodically analyzed and largely disproven.
Second, there is no basis for assuming that greater issuer involvement would improve proxy voting advice. As I have stated before, issuers bring deep expertise and insight, but also have a clear stake in the outcome. Their views are helpful and necessary, but already easily accessible. They should not be allowed to influence the independent recommendations of proxy advisors. Indeed, we take this precise approach in other contexts, such as with issuer involvement in research provided to investors by analysts.[5] FINRA Rule 2241 promotes objective and reliable research by, among other things, seeking to limit any prepublication review by issuers to a verification of facts….
The second proposal will also have the effect of suppressing the exercise of shareholders rights—in this case, uniquely those of the smallest retail investors—by raising eligibility and resubmission thresholds for the shareholder proposal process.
This process has long provided a vital mechanism for shareholders to communicate their views to, and engage with, management. For decades, shareholders have succeeded in effecting significant improvements in corporate governance, including majority vote rules for the election of directors, staggered board terms, limits on poison pills that serve to entrench management, and increased adoption of proxy access bylaws. Shareholder proposals often highlight the need for important corporate reforms that are later adopted. This was the case, for example, with proposals requesting the expensing of stock options before this was required by GAAP. [footnotes omitted]
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