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Paul Hodgson: The SEC is too busy trying to fix imaginary problems to deal with real issues

A recent Investor Advisory Committee (phone) meeting showed the regulator’s real priorities

At the recent telephonic meeting of the SEC’s Investor Advisory Committee (IAC), SEC chair Jay Clayton used his introductory remarks once again to attack the twin bêtes noires of the current Commission majority – proxy advisors and shareholder resolutions.

Never mind that the meeting was about proxy plumbing – the process of fixing the current proxy voting system – and that an overwhelming majority of participants in the proxy plumbing meetings last year assured the SEC that proxy plumbing was the major concern and that proxy advisors and shareholder resolutions were working fine as they were.

“We have focused on areas that are clearly in need of immediate attention”

Regardless of the messages of the majority of participants in the process, he took the opportunity to reiterate the dire warnings about “fraudulent” proxy advisor advice, and attributed the lack of participation in the voting process by so-called Main Street investors to the fact that shareholder proposals are irrelevant to shareholder value, cumbersome, too easily submitted and too easily included on the proxy statement.

After that, the IAC returned to the actual topic of the meeting and reconfirmed – with some small amendments – the recommendations it had submitted originally in late July this year. These were summarised in an earlier report, and the basic recommendations have not changed. They are listed at the bottom of this article:At this meeting, however, there was some dissent, with concern about costs of end-to-end vote confirmations and suggestions that this should only be conducted on contested elections or votes. In addition, some wanted the universal proxy card to be voluntary rather than mandatory. Furthermore, while the IAC states in its introduction to the recommendations that: “We do not believe private actors will improve the system without SEC intervention”, one committee member indicated that she thought the SEC was the problem.

The introduction continued: “We have focused on areas that are clearly in need of immediate attention, that can attract a consensus from a wide array of stakeholders, and that we also believe are actionable by the Commission in a relatively short period of time.” But will the SEC do anything? These are recommendations from the IAC, they do not have any force, and the current Commission majority appears to be too busy trying to fix problems that are not there to pay any attention to fixing problems that very clearly exist.

Summary of IAC’s recommendations:

1. That the SEC should “require end-to-end vote confirmations to end-users of the proxy system, potentially commencing with a pilot involving the largest companies”.
2. That it should require all participants to cooperate during and outside proxy season in reconciling votes to help uncover and fix flaws in the system;
3. Investor views should be canvassed by way of a study on anonymity, and share lending;
4. Adoption of a proposed universal proxy rule.