Proxy advisors are firms that advise institutional investors and other market participants on how to vote during shareholder meetings, and they will now be made to follow stricter regulations in the US, following the SEC’s vote on 22 July.
These newly amended rules will mandate proxy advisors to reveal their voting recommendations to public companies either before or at the same time it is being sent to their clients.
Furthermore, they will be mandated to notify their clients of the response of the public companies’ responses to their advice. In order to facilitate this exchange of information, proxy advisors can request that public companies file their proxy statements not less than 40 days before shareholder meetings.
In a 3-1 vote on Wednesday, the US Securities and Exchange Commission approved an overhaul of regulations governing proxy advisory firms.
Additionally, the new rules will require proxy advisors to reveal any potential conflicts of interest alongside their voting recommendations.
Publicly traded companies have always had issues with the level of influence proxy advisors seem to wield over these shareholder votes. It’s so much that some asset managers even use software to automatically match their ballots to advisors’ voting recommendations in shareholder meetings. In a statement sent to the SEC, Exxon Mobil’s vice president for investor relations stated that proxy advisors are “effectively our largest shareholders, despite having no direct stake in Exxon Mobil’s success.”
SEC Commissioner Hester Peirce, backing the rule, said: “the final rules require proxy voting advice businesses to hold themselves to a standard appropriate for the power they exercise”.
On the contrary, proxy firms have criticised the ruling as a favor to large companies stemming from several years of campaign and lobbying for stricter regulation of the advice that they issue.
Emphasising that position, Gary Retelny, CEO of Institutional Shareholder Services, said: “while the rules adopted today may appear less draconian than originally envisioned, they nevertheless serve as a blow to institutional investors seeking to judiciously monitor portfolio companies.”
SEC officials have indicated that the new regulations will take effect from the 2022 proxy season onward.
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