In a July 11, 2013 speech to the Society of Corporate Secretaries & Governance Professionals, SEC Commissioner Daniel Gallagher expressed concerns about whether investment advisers are fulfilling their fiduciary duties to investors when they rely on, and follow, proxy advisory firm recommendations. Commissioner Gallagher stated that investment advisers may view their proxy voting responsibilities with more of a compliance mindset than a fiduciary mindset. He attributed this shift in voting practices, in part, to two SEC staff no-action letters issued in 2004 that provide a potential safe harbor against claims of conflicts of interest when an investment adviser votes client proxies based on the recommendations of an independent third party, even though the recommendations may be consistent with the investment adviser’s own interests.

Commissioner Gallagher concluded his speech by stating that the no-action letters should be replaced with SEClevel guidance to ensure that investment advisers “take responsibility for their voting decisions rather than engaging in rote reliance on proxy advisory firm recommendations.” In addition, he suggested that the SEC undertake a fundamental review of the role and regulation of proxy advisory firms and explore possible reforms, including, but not limited to, requiring a universal code of conduct, ensuring recommendations are designed to increase shareholder value, increasing transparency and overall accountability and ensuring that conflicts of interests are appropriately dealt with.