VEA Comment on the SEC’s Awful Proxy Advisory Proposal

The full text of our comment is below. An excerpt:

I agree with the Commission’s own advisory committee and the letters on behalf of investors filed by CII, T. Rowe Price, John Coates and Barbara Roper, and others that this proposal is wrongly conceived. Despite the Commission’s rhetoric of support for proxy voting, this proposed rule would undermine this crucial element of accountability to shareholders by severely hampering the access of investors, including individual investors whose assets are managed by intermediaries to the sole source of independent information. It is wrong in every category.

It is wrong on the facts, based on unsupported, thoroughly and conclusively rebutted, allegations of conflicts and costs and on undervalued benefits. It is based on thinly disguised efforts from corporate executives to insulate themselves from even the mildest and most symbolic investor oversight, plus slightly better disguised efforts from fake dark money front groups funded by the same corporate insiders, trying to look like ordinary investors.

It is wrong on the process because it is based on faked and fraudulent comment letters and slanted and discredited, skewed data.

It is wrong on the law, failing to meet federal and Commission-specific requirements for rigorous, verified cost-benefit analysis. I second the concerns on this point raised in the comment by John Coates and Barbara Roper. It is also unconstitutional, beyond the authority of the Commission and an infringement of First Amendment freedoms of speech and the press.

It is also wrong as a matter of economics, because proxy advisory firms provide research no one is obligated to buy and recommendations no one is obligated to follow. There is a choice of providers with sharply delineated differences, there are no barriers to entry for new competitors, and the buyers are the most financially sophisticated professionals in the country.

This is the very definition of a free market working exactly as it should and there is no possible justification for further regulation, particularly one that would create new barriers to entry. It purports to be based on alleged conflicts of interest/agency costs that may be affecting one of the three proxy advisory firms but ignores the vastly greater conflicts the previous rules were intended to address and those that affect the advocates for this rule.

It is wrong as a matter of regulatory theory and policy. If the Commission has evidence that fund managers are voting proxies for any reason other than the exclusive benefit of clients, we strongly encourage them to bring enforcement actions, as they have in the past. There is no evidence in the record of proxy advisors giving recommendations that are objectively “wrong,” but even if they were, any regulation or enforcement should be directed at those who fail to act as fiduciaries in evaluating those recommendations. This proposal is a disappointing example of regulatory capture, with the agency that is supposed to advocate for investors instead promoting suppression of shareholder votes and access to the sole source of independent advice.

It is wrong as a matter of public integrity and accountability. The widespread distortion of this rulemaking process, including faked “astroturf” comments orchestrated by CEO-funded lobbying firms has irreparably undermined this proposal.

SEC comment January 2020 proxy advisory proposal

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