The Center On Executive Compensation strongly encouraged the Securities and Exchange Commission to abandon its proposal to reverse the finalized 2020 proxy advisory reform rules requiring proxy advisory firms to comply with transparency provisions.
The 2020 final rule would have provided helpful transparency by requiring proxy advisors to provide all companies with a copy of their report at the same time as investor clients and then forward the company response to investors.
Additionally, the Center joined several allied business groups in a joint letter expressing concerns regarding the extraordinary amendments to a rule that has not been fully implemented and advocating for requiring proxy advisory firms to comply with the final rule as planned. The signing organizations include: Business Roundtable, U.S. Chamber of Commerce, National Association of Manufacturers, Nareit, NIRI (The Association for Investor Relations), the American Securities Association, and Biotechnology Innovation Organization.
The SEC’s proposed amendments raise significant concerns, including:
- Companies will no longer be entitled to receive their report at the same time as investors and will not have the opportunity to respond before votes are cast;
- The amendments would reverse course on the Commission’s efforts to encourage greater transparency in the market, including within the proxy advisory sector; and
- The Commission did not sufficiently justify why amendments are needed prior to the availability of market data on the 2020 final rule’s impact.
The largest proxy advisor, ISS, rolled back an already meager transparency program that provided S&P 500 companies with a draft report in response to the 2020 final rule. Perhaps as an effort to head off criticism, ISS just announced a limited data verification process.
Outlook: The Center's view is the final rules should be allowed to stand. As the market evaluates the impact of the rules, the Commission can engage with investors, companies, and proxy advisors to determine if amendments are necessary.