Nell Minow, Vice Chair of ValueEdge Advisors and a co-founder and former president of Institutional Shareholder Services Inc. (ISS), takes a different view on the proxy advisor rules. She told me that the rulemaking procedure is deficient in several different ways, and could be subject to court challenge. Initially, the Commission acted without proper regard for supporting evidence, she stated, and did not conduct any realistic review of the implications of the impacts or costs of the changes. Proxy voting advice will become more expensive and less independent, in her view, and the SEC failed to consider these factors. She also noted that the rulemaking was based in part on the rescission of no-action letters issued by the Division of Investment Management in 2004 to Egan-Jones Proxy Services and ISS concerning proxy advisor independence. She claimed that the Commission has no available documentation supporting the process for this decision.
First Amendment issues may also be actionable, Minow said, with regard to the rules impinging on the ability of proxy advisors to publish information when and where they wish. She also thinks that the Commission should have reproposed the rules, as the provisions adopted differ significantly from the initial proposals. Much of the comments on the 2019 proposals involved the mandatory advance notice requirement, which was not adopted. Commenters did not have the opportunity to examine the safe harbor provisions adopted by the Commission prior to adoption.
Finally, Minow sees the rules themselves as unnecessary. For example, more than 90% of all ISS recommendations align with management directives. She noted that the SEC currently has ample authority to enforce any violations of fiduciary duties by investment advisers, rendering the rulemaking superfluous.