The lawyers from law and lobbying firm Squire Patton Boggs overlook three key points with their self-categorized “modest proposal” on the SEC’s proxy advisory rule. Their proposal is based a completely faulty characterization of the law, the facts, and the obvious and most effective policy. Oh, and they also forget to mention that their client is one of the fake dark money front groups behind the disinformation campaign, as we pointed out earlier. It is unseemly to try to support a rule based on claims of conflicts of interest while acting based on one’s own.
1. Their proposal is based on the discredited claim of “robo-votes.” Even if “robs-votes” were a thing (we reiterate: they are not) they would be cast only on routine matters like re-election of directors and approval of the auditors. In both categories, proxy advisors recommend in favor, as proposed by management, well over 90 percent of the time. All evidence shows that in the kind of non-routine matters the law firm is addressing here, proxy advisory clients review the recommendations and come to their own conclusions. So this proposal addresses a non-existent “problem.” Of course, if they acknowledged that, they would have to admit that this entire multi-million-dollar effort to suppress shareholder votes is really about CEOs’ fear of shareholder oversight, even when it’s non-binding and advisory-only.
2. You’d think a law firm might be sensitive to the First Amendment issues of prior restraint. Apparently not.
3. If there is any evidence that institutional investors are voting proxies in a manner that is inconsistent with their duty as fiduciaries, the solution is for the SEC to use its ample enforcement authority, not to squelch the First Amendment rights of the sole source of independent research, analysis, and recommendations.
The SEC’s Proposed Rules seek to provide investors who employ proxy advisors an opportunity to “look and listen” to both the proxy advisor’s report and the registrant’s response before casting their vote. However, that measure will not achieve its regulatory goals unless current electronic default voting practices are “stopped” or otherwise altered. Without changes to default voting, the registrant’s response to an advisor’s recommendation will likely be unread, untimely and futile.
Suspension of robo-voting (or requiring the pre-population of ballots on contested matters with a neutral “abstain” or “no-vote” position) would serve as a real time reminder to fiduciaries of the need to inform themselves about a contested proposal by requiring them to undertake the volitional act of changing a pre-populated neutral vote to an affirmative or negative vote. On the other hand, if the investor does not view the matter in question as one that merits the time and effort to do so, it could elect to have its neutral vote remain in place. This system is consistent with SEC’s view that funds can determine to “focus resources on only particular types of proposals based on the client’s preferences.”
Although proxy advisors and those who support them are likely to object to the foregoing modest proposal, it should be remembered that all parties in the proxy process have a shared interest in assuring that investors cast their votes on a fully informed basis. Those who complain about any burden imposed upon proxy advisors by any additional regulation should be asked why they consistently voice strong objection to measures intended to ensure that their clients have the full benefit of both sides of the story before they cast their vote.