Greater Oversight of Proxy Advisors


For more than a decade, NIRI and other corporate groups have urged the Securities and Exchange Commission to regulate proxy advisory firms to ensure greater proxy report accuracy, better disclosure of conflicts of interest, and fair treatment of all issuers. In a 2018 NIRI member survey on advocacy priorities, 76 percent of respondents said that greater regulatory oversight over proxy advisors was “important” or “extremely important.”  

In August 2019, the SEC released new guidance on how investment managers should oversee the work of proxy advisory firms they hire. For more on that guidance, please see this Executive Alert

In November 2019, the SEC proposed new restrictions on proxy advisory firms and shareholder resolutions. The proposed proxy advisor rule would enable all issuers to obtain draft research reports prior to publication and then submit a written statement in response, which would be hyperlinked to the final report.  These provisions, if finalized by the SEC, should greatly help many companies during proxy season and give their IR teams more time to develop their messaging and engagement strategy in response to an adverse proxy advisor recommendation on executive compensation, board elections, or other matters.  For more details, please see this Executive Alert

This significant progress by the SEC would not have happened but for the work of NIRI, the Shareholder Communications Coalition, and other organizations, such as Nasdaq and the U.S. Chamber of Commerce.  In April 2019, the coalition submitted a letter to the SEC that outlined various recommendations for regulating proxy firms. The letter urged the SEC to require proxy firms to allow all issuers to review report drafts for five business days before issuance and comment on the accuracy of the factual statements in the report and the underlying assumptions used to develop voting recommendations. NIRI submitted a separate comment letter to the SEC that emphasizes the importance of providing a draft review opportunity for all issuers. In NIRI's 2018 advocacy survey of IR practitioners, 95 percent of respondents expressed support for a draft review mandate.

In November 2018, NIRI submitted a letter to the SEC that outlined how the Commission could use its existing authority to provide more oversight over proxy advisors. 

In an August 2017 comment letter, NIRI expressed concern over the automated proxy voting systems used by investment managers and asked the SEC to investigate whether those systems are consistent with agency guidance.  In October 2018, the American Council for Capital Formation (ACCF) published a report that indicates that a significant number of ISS clients are using automated voting platforms to vote soon after ISS reports are published. In November 2018, ACCF published a second report that provides more evidence of the prevalence of "robo-voting." 

In a December 2015 comment letter, NIRI expressed concern over the selective disclosure of excerpts from proxy advisory reports and asked the SEC to require the public disclosure of full proxy advisor reports when excerpts are leaked into the public domain.


Educational Efforts on Capitol Hill 
NIRI also has urged lawmakers to address proxy advisors. Along with a broad coalition of corporate groups, NIRI has supported H.R. 4015, "The Corporate Governance Reform and Transparency Act," a bill sponsored by Rep. Sean Duffy (R-WI) and Rep. Gregory Meeks (D-NY), that would have directed the SEC to regulate proxy advisors and mandate a review process so all issuers can review draft proxy reports. This bill passed U.S. House in December 2017, but did not pass the Senate before the 2018 midterm elections. The Senate Banking Committee held a hearing on this bill and other governance bills in June 2018, and NIRI submitted a statement in support of proxy advisor reform. 

In addition, dozens of NIRI members personally shared their concerns over proxy advisors during meetings with House and Senate staffers as part of NIRI's Leadership Week events in September 2017 and September 2018. 
 

Additional Resources
Here are links to comment letters, testimony, and reports that NIRI and other corporate groups have prepared on proxy advisory firms:

NIRI Executive Alert, SEC Releases New Guidance on Proxy Advisors, August 2019.

Tim Doyle, "Proxy Firms’ Independence Is Undermined by Their Own Shadow Reports," Morning Consult, July 2019.

Shareholder Communications Coalition, Letter to Commissioner Elad Roisman: Recommendations -- Oversight of Proxy Advisory Firms, April 2019

Milken Institute, "Proxy Advisory Firms, Governance, Market Failure, and Regulation," June 2019

Business Roundtable, Letter re: File Number 4-725 (Roundtable on the Proxy Process), June 2019

Nasdaq (with 318 Public Companies), Letter to SEC Chair Jay Clayton Re: Roundtable on the Proxy Process, February 2019

American Council for Capital Formation, "The Realities of Robo-Voting," November 2018.

American Council for Capital Formation, "Are Proxy Advisors Really a Problem?" October 2018.

U.S. Chamber of Commerce-Nasdaq, 2018 Proxy Season Survey, October 2018.  

NIRI Briefing Paper: The Case for Proxy Advisor Reform, September 2018

NIRI, Letter in Support of H.R. 4015, November 2017.

Shareholder Communications Coalition, Comment Letter on the SEC's Proxy Advisory Services Roundtable, December 2013.

NIRI Testimony to the House Financial Services Committee on Proxy System Reforms and Proxy Advisors, June 2013.


In November 2016, the U.S. Government Accountability Office (GAO) issued a report on proxy advisory firms. NIRI was one of the organizations that provided input to the GAO researchers who prepared this report. 

 

Proxy System Modernization

NIRI and the Shareholder Communications Coalition also have asked the SEC to address the outdated U.S. proxy system. In NIRI's 2018 member survey on advocacy, 58 percent of respondents said that proxy system modernization was “important” or “extremely important.”  Various IR practitioners have expressed frustration in NIRI's eGroups forum over the proxy fees they pay and the cumbersome proxy rules, which make it more difficult and costly for companies to communicate with their "street name" shareholders.  

In April 2019, NIRI and the coalition submitted a letter to the SEC that outlined interim steps that the agency could take to improve the proxy system. In November 2018, the SEC hosted a roundtable on proxy issues; NIRI wrote a comment letter that included various suggested improvements to the proxy system (see pp. 4-7). 

In an April 2015 comment letter, NIRI and the coalition called on the SEC to repeal its outdated OBO-NOBO (Objecting Beneficial Owner/Non-Objecting Beneficial Owner) rules that make it more difficult and costly for companies to communicate with their shareholders. The coalition reiterated these points in an April 2016 comment letter in response to the SEC's rulemaking on transfer agents.  

NIRI also wrote a commentary for CFO.com in 2014 on the need for these important reforms: "Shareholder Engagement Should Be a Two-Way Street," April 2014. In June 2013, NIRI's CEO testified before the House Financial Services Committee on proxy reform issues.

In 2010, the SEC published a concept release on the U.S. proxy system that addressed OBO-NOBO, "empty voting" and "over voting," vote confirmation, and other proxy voting issues. Here is a link to the comment letter that NIRI submitted on these issues. NIRI also prepared a comment letter in 2013 regarding proposed changes to proxy distribution fees. 

Additional Resources
Here are links to comment letters, testimony, and reports that other organizations have prepared on proxy system reform:

Investment Company Institute, Letter re SEC Roundtable on the Proxy Process, June 2019.

Shareholder Communications Coalition, Recommendations for Interim Improvements to the U.S. Proxy System, SEC File No. 4-725, April 2019.  

Computershare, Letter re: SEC Roundtable on the Proxy Process (File No. 4-725), April 2019.  

Society for Corporate Governance, Letter re: SEC File Number 4-725 on Roundtable on the Proxy Process – Voting Process and Retail Shareholder Participation, November 2018.  

Securities Transfer Association, Letter re SEC Roundtable on the Proxy Process, September 2018