NAM Wants to Intervene in the ISS Challenge to the Proxy Advisory Rule

I couldn’t help laughing when I saw that the National Association of Manufacturers has filed a motion with the court to intervene in the ISS lawsuit challenging the SEC’s new rule on proxy advisory firms. What they are asking is to be considered one of the parties to the case, and thus be allowed to present evidence and make legal arguments. And I couldn’t help thinking of the opening line of the old Mary Howitt poem: ““Will you walk into my parlour?” said the Spider to the Fly.”

It is not unusual for someone who is not a party to a lawsuit to ask the court for permission to contribute information or arguments that may help come to the correct result. We have offered to do this ourselves in this case, and hope to be filing what is called an amicus curaie (“friend of the court”) brief making some of the same arguments we outlined in our comments to the SEC about their failure to meet the legislative requirements of the Administrative Procedure Act. But NAM is asking for more, here. They are saying their interest in this regulation is so vital their interests should be at the same level of the regulator (the SEC) and the regulated entity (proxy advisory firms). We think this is unlikely, but not out of the question for the judge to agree. We have made the complete filing available below.

  1. NAM says they have the right to intervene as a party co-equal with the SEC and proxy advisory firms: ‘The very companies whose stock is being voted plainly have standing to defend the SEC’s rules regulating how that stock is voted.” Even if that were true, this rule, we note, does not regulate how the stock is voted. It regulates the access to independent research available to those who vote the stock. We also note that these votes, of course, are almost entirely advisory only and not binding on the company to take any action whatsoever and that if issuers do not like the way shareholders vote their proxies they are welcome to make better arguments or take the company private and deal with private equity investors instead. We would also argue with their assertion that “The Final Rule thus clearly benefits the NAM’s members.” We would clarify that it “benefits” the executives and other insiders by entrenching them from even the mildest market-based oversight, contrary to the interests of the member corporations.
  2. NAM also argues that its interests will not adequately be represented by the SEC and the Department of Justice. If we were the law firm representing ISS, we would challenge this claim as the rule was orchestrated by the NAM and the Chamber of Commerce through diversion of corporate funds into a vast and deceptive lobbying campaign, and the final rule, despite overwhelming opposition from the shareholder community the SEC is supposed to protect.

This last point is the basis for our conclusion that there are significant advantages in allowing NAM to be a party to this case. Litigation is a double-edged sword. Through discover and depositions ISS and their lawyers will be able to get much more information about the lobbying campaign, including the creation of fake dark money front groups masquerading as objective public interest initiatives , sock puppets failing to disclose their connections and conflicts of interest, and even a video attempting to link proxy advisory terms to abortion, gun control, and immigration.

We are particularly interested in the mysterious rescission of the guidance on proxy voting at the SEC before the hearings on proxy voting. As we noted at the time, the SEC insisted there were no records of meetings or memoranda connected to this decision to rescind guidance that had been in effect for 14 years. We look forward to depositions and discovery to get information about the NAM’s involvement in that decision. And so much more. Game on, fly. The web is ready.

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