SEC says proxy voting firms face US legal clampdown

Regulation advice follows suggestion of rules in the EU last month.

Shareholder proxy voting firms in the US face regulation of their activities after the US Securities & Exchange Commission (SEC) said many respondents to an SEC consultation told them they interfered with rather than enhanced investor/company engagement. SEC Chair, Mary Schapiro, told a meeting of the Transatlantic Corporate Dialogue in Washington D.C. on December 15 that the SEC is considering guidance for US federal securities laws on oversight of the activities of proxy advisory firms. She said an SEC consultation on shareholder/corporate relations had elicited 275 comments and that US companies said they were “frustrated by the influence these firms have, and worry that they may not be accountable for, or even concerned with, the quality of the information on which they make voting recommendations.” Proxy voting firms also face more stringent regulation in the EU after a majority of respondents to an EU consultation on corporate governance last month said they favoured requiring voting advisors to be more transparent about their analysis, voting policies, potential conflicts of interest and their contact with companies ahead of AGM voting recommendations. In a significant disclosure of US corporate frustration with proxy voting firms, the SEChead said company boards said proxy recommendations based on incorrect information might be acting as a barrier to their efforts to persuade investors to change their minds. Schapiro added: “A related fear is that proxy firms’ conflicts of interest may be insufficiently disclosed, preventing shareholders from considering possible conflicts when analyzing those recommendations.” However, the SEC chief said the regulator was also considering legislating for better communications between shareholders and corporations and greater participation by shareholders in the voting process. She said the SEC was also looking at whether voting power is aligned with economic interest (usually a question of voting recall on loaned stock, long-term voting power or differential shareholder rights) and whether SEC disclosure requirements provide investors with sufficient information on the issue (usually an issue of shareholder register information). Every year, over 600 billion shares are voted at more than 13,000 shareholder meetings in the US and the SEC said it was also examining uncertainty surrounding vote confirmation. In many instances, investors are currently not able to receive confirmation that their votes have been cast and accurately counted.
Link to Schapiro speech