Wednesday, August 01, 2018

SEC requests comments on proxy rule revision

By Jay Fishman, J.D.

The SEC issued a statement from Chairman Jay Clayton asking investors, issuers, and other market participants to comment on whether the Commission’s existing proxy rules should be refined in advance of a fall 2018 roundtable that will discuss the matter. The SEC requests the public to submit comments about the Commission’s current proxy process before or after the roundtable in either electronic or paper form.

Reason for roundtable. Chairman Clayton remarked that the roundtable is needed to reassess the proxy process and shareholder engagement in light of the many changes that have occurred in the financial markets, corporate governance, and technology since the Commission last issued a concept release in 2010, which addressed whether the proxy process at that time met shareholder and U.S. public company expectations for accuracy, reliability, transparency, accountability, and integrity.

Potential topics. The potential topics for consideration at the roundtable could include: 
  • The proxy voting process, specifically the potential for broker-dealers to over- or under-vote the securities; the practical difficulties with confirming whether an investor’s shares have been voted according to the investor’s instructions; and the costs and challenges associated with distributing proxy materials to beneficial owners who hold in “street name”;
  • The reasons why retail shareholders typically vote a low percentage of their shares compared to institutional investors, and whether better communication, coordination among proxy participants, increased use of technology, rule changes, and investor education could boost retail shareholder participation;
  • An assessment of the current shareholder proposal process, specifically how to allow for more shareholders to submit proposals to be voted on without increasing the cost of that process;
  • An assessment of proxy advisory firms in the current proxy voting process, particularly whether investment advisers to funds and other clients over-rely on proxy advisory firms for information and voting recommendations, as well as whether issuers are provided with an opportunity to raise concerns if they disagree with a proxy advisory firm’s recommendations;
  • A determination of the benefits and consequences resulting from further reliance on, and changes in, technology, and whether technology can be used to make the proxy process more effective for participants; and
  • An assessment of the current rule requiring the use of universal proxy cards that contain all nominees’ names in contested board of director elections, which currently makes it difficult for shareholders to vote for a combination of directors from the management and dissident slates without attending the shareholder meeting in person.
Comments. Electronic commenters should use the SEC’s Internet submission form or send an email to Paper commenters should mail their comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington D.C. 20549-1090. All comments must refer to File Number 4-725 and, if email is used, the file number should be included on the subject line. The SEC will disclose the date of the roundtable at a later time.