Securities and Exchange Commission, The Securities and Exchange Commission Headquarters Building in Washington, D.C., (Mar. 20, 2011), (Last Visited Feb. 12, 2020).

By: Krishna Pathak

In November 2019, the Securities and Exchange Commission (SEC) proposed new rules regarding proxy advisors.[1] The Notice of Proposed Rulemaking included provisions that restricted proxy advisors by redefining “proxy solicitation.”[2] Under the proposed amendments, a solicitation that would be subject to Rule 14a-1(1) only occurs “when a person who furnishes proxy voting advice will be deemed to be engaged in a solicitation subject to the proxy rules.”[3] However, voting advice given when a request was not prompted would not constitute a solicitation.[4] Under this amendment, recommendations would no longer be able to contain any materially false or misleading statement.[5] Further, the Notice on Proposed Rulemaking includes amendments to Rule 14a-2(B)(1) and 14a-2(b)(3), which would provide exemptions from the information and filing requirements of the proxy rules, subjecting businesses that provide proxy voting advice  to the following conditions.[6] The businesses would have to (1) include a disclosure of material conflicts of interest in their advice, (2) provide registrants and other persons soliciting advice an opportunity to review and give feedback on proxy voting advice before it is issued, and (3)  include in their voting advice a link to a written statement that sets for the  soliciting person’s views on the proxy voting advice when requested by registrants.[7]

The shift in the definition of proxy solicitation would undermine years of industry practice, requiring firms to revamp their proxy advisor roles completely.[8] Many businesses came out in support of the changes, claiming increased transparency would allow for increased oversight and accountability of the previously unchecked proxy advisor system.[9] Still, others argued that the proposed rules would disadvantage the shareholder by permitting companies to operate without liability.[10] The SEC’s regulations appear to be a part of a larger movement toward the increase in oversight and accountability from the business world. The Business Roundtable’s Statement on the Purpose of the Corporation[11] and the World Economic Forum’s Davos Manifesto[12] both focused on including stakeholders in corporate governance and creating sustainable and socially responsible corporations. Efforts to face corruption and increase transparency, as well as encourage companies to thing about the larger impact of their operations have dominated discussions in the business community.[13]

If the rules are enacted, advisory firms must send recommendations to issuers before sending them to clients, allowing for the issuers to exercise some oversight and increase transparency.[14] Proponents of the change claim that bringing politics into proxy voting violates fiduciary duties, but that the proposed changes will restore transparency in proxy voting while reducing political influence.[15] The Chamber of Commerce has argued that the proxy advisors have become an unchecked force in capital markets, giving certain groups more power than others.[16]

On the other hand, the Council for Investor Rights and Corporate Accountability, which includes Icahn Enterprises, found that the proposed rules would infringe on freedom of speech and would tarnish the integrity of proxy voting advice by exercising regulatory authority over businesses.[17]  Others argue that federal control over proxy solicitation is unnecessary because investors do not need protection from themselves.[18] A group of Democratic senators, including Tammy Duckworth, also commented that subjecting proxy recommendations to review is contradictory to the purpose of proxy advice.[19] Duckworth argues proxy advisors are meant to give independent recommendations on how shareholders should vote in order to hold executives of public companies accountable.[20]

Although the change could allow for increased oversight from businesses over proxy advice, the SEC’s proposed rules completely alter a long-held practice, and could potentially restrict proxy advisor’s role in providing independent advice and recommendations to investors.[21] Nevertheless, the SEC’s enactment of the proposed rules would have lasting impacts on investing and the business world at large.

[1] Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice, 84 Fed. Reg. 66518 (proposed Dec. 4, 2019) (to be codified at 17 C.F.R. 240).

[2] Id.; see also Press Release, U.S. Securities and Exchange Commission, SEC Proposes Rule Amendments to Improve Accuracy and Transparency of Proxy Voting Advice (Nov. 5, 2019),

[3] Id.

[4] Id.

[5] See David. A. Katz & Laura McIntosh, The Mixed Response on SEC’s Proposed Rules on Proxy Advisory Firms, Harv. L. Sch. F. on Corp. Governance, (Dec. 7, 2019),

[6] See id.; see also Press Release, U.S. Securities and Exchange Commission, SEC Proposes Rule Amendments to Improve Accuracy and Transparency of Proxy Voting Advice (Nov. 5, 2019),

[7] See id.

[8] See Kellie Mejdrich, Billionaire Investors Rip SEC Plan to Curb Proxy Advisers, Politico, (Feb. 3, 2020),

[9] Id.

[10] See Christopher Burnham, The SEC is Right to Force More Transparency into Proxy Voting, Forbes (Jan. 31, 2020),

[11] Business Roundtable, Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans, (Aug. 19, 2019),

[12] World Economic Forum, The Universal Purpose of a Company in the Fourth Industrial Revolution, (Dec. 2, 2019),

[13] See Klaus Schwab, Capitalism Must Reform to Survive, Foreign Affairs, (Jan. 16, 2020),

[14] See Burnham, supra note 10.

[15] Id.

[16] See Kellie Mejdrich, Billionaire Investors Rip SEC Plan to Curb Proxy Advisers, Politico, (Feb. 3, 2020),

[17] See Richard Kirby & Beth-ann Roth, SEC’s Proxy Advice Proposal Violates First Amendment, Law360 (Jan. 30, 2020),

[18] See Mejdrich, supra note 16.

[19] Senator Tammy Duckworth, Comment Letter on Amendment to Exemptions from the Proxy Rules for Proxy Voting Advice and Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8 (Jan. 30, 2020),

[20] Id.

[21] See Katz, supra note 5.

Share this post