SEC Adopts Amendments to Proxy Voting Advice Rules

On July 13, 2022, the SEC voted to adopt amendments to the proxy rules governing proxy voting advice. The amendments rescind key elements of the proxy voting advice rules that the SEC adopted in 2020, but that never took effect. The SEC indicated that the amendments are intended to enhance the ability of proxy advisory firms, or proxy voting advice businesses (PVABs), to provide independent proxy voting advice to their clients in a timely manner. Under the amendments, proxy voting advice generally remains a “solicitation” subject to the proxy rules, including liability for material misstatements or omissions of fact, and PVABs would continue to be subject to the conflicts of interest disclosure requirements adopted in 2020.

The amendments remove two conditions, which the SEC adopted in 2020, to the availability of certain exemptions from the information and filing requirements of the federal proxy rules applicable to PVABs. The conditions required that PVABs (1) make their advice available to the companies that are the subject of their advice (registrants) at or before the time that the PVABs make the advice available to their clients; and (2) provide their clients with a means of becoming aware of any written responses by registrants regarding the proxy voting advice. The amendments also rescind related safe harbor provisions and exclusions from those conditions. In rescinding the two conditions, the SEC stated that it believed that the potential informational benefits of the conditions do not sufficiently justify the risks they pose to the cost, timeliness, and independence of proxy voting advice on which many investors rely.

The amendments also rescind supplemental guidance to investment advisers, originally prompted by the adoption of the conditions to the proxy rule exemptions, about their proxy voting obligations. The guidance, among other things, was intended to (1) assist investment advisers in assessing how to consider certain registrant responses to proxy voting advice and (2) address situations in which advisers use a PVAB’s electronic vote management system and related disclosure obligations.

The amendments also delete an explanatory note, added in 2020, to the proxy rules’ liability provision (Exchange Act Rule 14a-9) that provided specific examples of what may, depending on the particular facts and circumstances, be considered misleading to investors with respect to proxy voting advice. The SEC expressed concern about the risk of confusion created by the note, stating that it invited undue focus on one particular type of solicitation (proxy voting advice) and potentially suggested that PVABs have a unique obligation to disclose methodology, sources of information, and conflicts of interest with their advice. The amendments address the potential confusion while affirming that proxy voting advice generally is subject to liability under the proxy rules.

The amendments will be effective on September 19, 2022.

The SEC’s Press Release can be found here.

The Final Rule can be found here.