Major US corporate lobby groups tells SEC to regulate proxy firms as investment advisers

US regulator to issue ruling in coming months.

One of the US’ most powerful corporate lobby groups has signed a letter to SEC Chairman, Mary Schapiro, urging the regulator to clamp down “as soon as possible” on shareholder proxy voting advisory firms, saying they are “unregulated and unsupervised”. In a sign of the firepower being ranged in the US against the proxy firms, a group called The Shareholder Communications Coalition, which represents Business Roundtable, an A-Z of US corporate chief executive officers with nearly $6 trillion in annual revenues, said SEC rules giving shareholders a voting on executive pay had made it “even more imperative” that the SEC move to regulate. It suggests that the SEC make proxy firms subject to the Investment Advisers act of 1940, which predominantly covers asset managers. The coalition includes the National Investor Relations Institute, The Securities Transfer Association, and The Society of Corporate Secretaries and Governance Professionals.
Legislators in both the US and Europe say they will rule on proxy voting advisory firms in the coming months. At the end of 2011, both the SEC and the European Commission said they would rule in 2012 on disclosure of conflicts of interest and transparency of information at proxy firms after seeking industry responses on revised corporate governance rules.
In its letter, the Shareholders Communication Council said “substantial concerns” had been raised in the US about what it said were “conflicts of interest, lack oftransparency on methodology and use of incorrect information for formulating opinions.” The letter did not include any examples.
In a deep-reaching set of views, the corporate lobby group said proxy advisory firms should be made to submit all information to companies prior to any shareholder vote to allow the company to review the information in them for accuracy.
It said they should correct errors that a company says they have made and include a disclaimer in their advice to shareholders where companies do not agree “with a particular factual assertion”.
The letter says the SEC should also look at whether institutional investors are using proper fiduciary oversight of their proxy advisor or merely operating what it calls a “tick-box” approach to voting. It says the SEC should review if institutional investors are evaluating a 2008 review of ERISA regulations by the Department of Labor that said fiduciaries may conduct a cost-benefit analysis before deciding whether to vote at all.
Bob Monks, the influential corporate governance specialist and founder of Institutional Shareholder Services (ISS), the world’s largest proxy voting firm, last month hit out at proposed regulation by the SEC of proxy firms, arguing that they are being targeted because they represent a threat to the “autocracy of the CEO and incumbent boards”.

Link to letter to SEC