Glass Lewis: proposed SEC proxy advisory bill a “massive step backwards” for engagement

Latest response to the planned Proxy Advisory Reform Act

Glass Lewis has blasted proposed regulation for the proxy advisory sector by the US market regulator, the Securities and Exchange Commission (SEC), arguing that it would undo the successful engagement work carried out by investors and companies in recent years.

The proxy firm’s CEO Katherine Rabin described the bill as “unnecessary” and that suggested provisions were based on an outdated and “completely wrong” view of how investors use proxy advisors and the power they have to influence voting outcomes.

The Proxy Advisory Reform Act, supported by Wisconsin Republican Sean Duffy and John Carney, a Democrat from Delaware, proposes bringing proxy advisory firms under the SEC’s direct jurisdiction. It also aims to “improve the quality of proxy advisory firms for the protection of investors and the U.S. economy, and in the public interest, by fostering accountability, transparency, responsiveness, and competition in the proxy advisory firm industry”.

The bill has already gained support from several corporate bodies, including the Society of Corporate Secretaries & Governance Professionals and the National Investor Relations Institute, who argue that proxy firms often outmuscle a company’s largest shareholder in terms of voting clout.

Rabin – speaking to Proxy Insight – outlined several ways in which her firm and others had promoted transparency.She also suggested that corporates may have an ulterior motive for pushing through the bill: “What many companies really want to know is what our recommendations will be before we publish them to our investor clients and to have the opportunity to influence our decision,” Rabin explained.

As it currently stands, the proxy bill would require proxy advisors to provide issuers with access to their research and other intellectual property so that the companies in question can respond to it. Rabin describes this process as a method “which our investor clients do not support and compromises our rights” as a research firm.

She added: “It would be a massive step backward from the incredible progress that has been achieved by investors and companies.”

Elsewhere in the interview, Glass Lewis’ Head of Research and Engagement, Aaron Bertinetti, added that proxy advisors were aiming to build more bridges with corporates and clarify their exact role in the market. “We’re not engaging on behalf of our clients, or advocating to push issuers or shareholder proponents towards specific outcomes”, he said.

In the name of transparency, Bertinetti suggested that investee companies should disclose all relevant information to its shareholders and the public domain as a notice of meeting is released.

He also revealed that in 2016 Glass Lewis is on target to engage 3,000 companies, with meetings held with 1,000, with the firm’s ultimate aim to engage with each of the 20,000 or so corporates that its research covers.