On November 5, 2019, the SEC announced proposed amendments to its proxy solicitation rules to require additional disclosure about “material conflicts of interest that proxy voting advice businesses provide their clients” in an attempt to “help ensure that proxy voting advise used by investors and others who vote on investors’ behalf is accurate, transparent, and materially complete.”

  • amend Exchange Act Rule 14a-1(l), which defines the terms “solicit” and “solicitation” to specify when a person who provides proxy voting advice would be deemed to have engaged in a solicitation[1] and clarify that voting advice provided in response to an unprompted request from not constitute a solicitation;
  • revise Rule 14a-2(b), which currently provides exemptions from the information and filing requirements of the proxy rules, to require proxy voting advice businesses relying on those exemptions to be subject to additional conditions:
    • (i) these businesses must include disclosure of material conflicts of interest in their proxy voting advice,
    • (ii) registrants and some other soliciting persons must be given an opportunity to review and provide feedback on such proxy voting advice before it is issued, and
    • (iii) registrants and some other soliciting persons may request that proxy voting advice businesses include hyperlinks in their voting advice, directing the recipient of the advice to a written statement that sets forth the registrant’s or soliciting person’s views on the proxy voting advice; and
  • modify Rule 14a-9 to include examples of when the failure to disclose certain information in the proxy voting advance could be considered misleading within the meaning of the rule.

Following the publication of the proposed amendments, several proxy advising firms filed suit against the SEC, arguing that the SEC’s position is inconsistent with Congress’ intent when it adopted the Securities Exchange Act of 1934.

The comment period was completed on early January, but the SEC continued receiving comment letters through the end of February. In total, the SEC received approximately 771 comments from individuals, companies, and stakeholders that discussed the impact of the proposed amendments. We will continue to follow developments and post updates to the Capital Markets Watch.