Back to General Resources

SEC Open Meeting

Securities and Exchange Commission

Open Meeting

Wednesday, August 21, 2019

Key Topics & Takeaways

Opening Statements

Chairman Jay Clayton

In his statement, Clayton emphasized the importance of voting and advisers’ fiduciary duties in the voting process. He said market participants have consistently expressed to the Securities and Exchange Commission (SEC) that voting and the liability of presenting accurate information are both key components in the proxy process. Clayton added that due to the large role of investment advisers, the examples included in the guidance would help investment advisers vote based on their client’s best interests. He said that the SEC is not making any new recommendation to address the proxy voting system, but rather is making modifications to existing rules.

Commissioner Elad Roisman

In his statement, Roisman suggested that the proposed guidance is the result of a decade of comments identifying the need for the SEC to take action to improve the proxy voting process and to calibrate it to current markets. He said updating the current rules for proxy voting is “overdue,” as the proxy process is fundamental for investors to share the growth and success of companies. Roisman said the guidance would to improve Rules 14a-2(b) of the Securities and Exchange Act of 1934 and would clarify the definition of solicitation under section 206(4)-6 of the Investment Advisers Act, with hope for continued improvements to the proxy system. He said the goals of guidance are to improve investor and client responsibilities, for advisers to utilize all tools to meet their fiduciary duty and to clarify the definition of solicitation with no changes to the exemptions process. Roisman added that the guidance also intends to protect the transparency and inclusion of accurate information in disclosures.

Commissioner Robert J. Jackson Jr.

In his statement, Jackson said that the proposed guidance could lead to unintended consequences, such as large advisory firms gaining more market power, increased costs for participating in proxy voting and more barriers to entry for investors and issuers. He recommended that the SEC further study the impact of the proposed guidance on competitiveness. Jackson expressed dissent to the proposals.

Commissioner Hester M. Peirce

In her statement, Peirce said that the guidance would assist market participants to better serve their clients by clarifying fiduciary obligations and providing current and accurate information on their proxy services. She said that the guidance is designed to help proxy advisers to think through their role in the voting process and would improve the current proxy voting framework.

Commissioner Allison Herren Lee

In her statement, Lee echoed many of the same points as Jackson and expressed her interest in formal input from market participants to help the SEC understand the effects of the proposals for investors and issuers. She recommended that the SEC identify and weigh associated risks to the guidance and expressed her dissent.

Item I: Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers

Panel Presentation

Paul Cellupica, Deputy Director, SEC Division of Investment Management, stated that the guidance would clarify an investment adviser’s fiduciary duty under Rule 206(4)-6 of the Investment Advisers Act. He said that proxy advisers provide voting recommendations or research to clients, at times based on specific issues for certain clients, while always maintaining fiduciary obligations. Cellupica said the guidance provides clarity for adviser and client standards in the proxy process, as well as on the need to provide complete and accurate information.

Thankam Varghese, Counsel, SEC Division of Investment Management, expressed that the guidance would assist investors to serve their clients better and emphasized the improvements to adviser disclosure forms. She said the guidance will help investment advisers adopt and implement designs based on their clients’ best interests. Varghese said the guidance provides examples to help advisers and clients shape their relationships based on the voting preferences of the clients. She added that the guidance addresses adviser retention, scope, and requirements to analyze and rectify errors in their research and policy processes. Varghese also said the guidance provides steps for investors to evaluate conflicts of interests and considers adviser requirements to exercise voting authority under different voting circumstances.

Item II: Commission Interpretation and Guidance Regarding the Applicability of Proxy Rules to Proxy Voting Advice

Panel Presentation

William Hinman, Director, SEC Division of Corporation Finance, stated that the guidance is crafted based on the important role of proxy advisers and to clarify the interpretation of solicitation under proxy rules while making no changes to the exemptions process. He said the guidance helps the regulatory framework mold to the realities and decision-making processes of investment firms. Hinman said the guidance is grounded based on advisers actively analyzing shareholder voting priorities and the need for only clients to solicit advice for voting recommendations. He noted that advisers must not take steps to influence voting decisions for personal gain, and said the guidance provides advisers examples to help prevent clients from being misled.

Adam Turk, Deputy General Counsel, SEC Division of Corporation Finance, expressed that the guidance addresses the applicability of rules under section 14 of the Securities and Exchange Act of 1934 and concentrates on the definition of solicitation to prevent advisers from influencing votes in the proxy voting process. He said the guidance would help clients make clear solicitation communications, with no changes to the exemptions process, with a duty to remove advisers that are misleading clients. Turk said the guidance provides examples for advisers to provide accurate information and disclose conflicts of interest to clients.

Question & Answer

Clayton asked if the guidance would create new obligations and if the requirements for notice and comment are triggered. A staff member from the SEC Division of Corporation Finance said that there are no new obligations created in the proposed guidance. He added that under the Administrative Procedure Act, this guidance does not meet the criteria to trigger notice and comment requirements.

For more information on this event, please click here.