U.S. SEC votes to undo Trump-era curbs on shareholder advisers

U.S. SEC votes to undo Trump-era curbs on shareholder advisers


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WASHINGTON — The U.S. securities regulator voted on Wednesday to rescind rules introduced under former President Donald Trump that critics said impeded the independence of firms that advise investors on how to vote in corporate elections.

The move is the latest installment in a long-running battle over how to regulate proxy advisers like Institutional Shareholder Services and Glass Lewis, which advise investors how to cast their ballot on issues including the election of directors, merger transactions and shareholder proposals.

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The Securities and Exchange Commission’s five-member panel voted 3-2 to adopt the rule changes.

Corporations say the advisory companies have amassed too much sway over corporate elections and should be more tightly regulated.

In 2020, the SEC introduced rules that increased proxy advisers’ legal liability and required them to share recommendations early on with corporate executives. Investor advocates said the changes tilted the scales in favor of corporate bosses over investors.

Wednesday’s rules specifically rescind two exemptions, including a requirement that proxy advisers provide a first look to corporations of the advice to be placed on the agenda. It also removes a requirement that allowed clients of proxy firms to be notified of any written responses to their advice from companies.

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The SEC, whose composition has changed under President Joe Biden, first proposed these rule changes in November and said investors had expressed concerns that the conditions created increased compliance costs for proxy advisers and impaired the independence and timeliness of their advice.

It also removes a footnote that provides examples of instances of liability, which the agency said created confusion and uncertainty.

“It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice,” SEC Chair Gary Gensler said.

Proponents of the rule cheered the changes, but said the SEC should have gone further to undo some aspects.

“While we applaud the Commission for removing some of the 2020 rule’s more draconian provisions, the rule should have been rescinded in its entirety,” ISS said in a statement.

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Not everyone welcomed the changes.

“The SEC has offered no justification for abandoning a decade’s worth of bipartisan, consensus-driven policymaking,” said Jay Timmons, chief executive of the National Association of Manufacturers, adding that his group would be filing a lawsuit in the coming weeks to “protect manufacturers from proxy advisory firms’ outsized influence.”

Also on Wednesday, the SEC voted to propose a rule that aims to provide more specificity around three circumstances in which public companies can refuse to include shareholder proposals in their voting materials.

The so-called bases for exclusion comprise the following: cases where the main elements of a proposal have already been implemented by the company; if the proposal addresses the same subject matter as another on a company’s proxy; and if the proposal was submitted in the recent past and didn’t receive much shareholder support.

The public must weigh in before the agency can adopt such a proposal.

(Reporting by Katanga Johnson and Michelle Price in Washington Editing by Christopher Cushing, Jonathan Oatis and Leslie Adler)

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