Securities and Exchange Commission Investor Advisory Committee Telephonic Meeting
Securities and Exchange Commission
Investor Advisory Committee Telephonic Meeting
Thursday, September 5, 2019
Key Topics & Takeaways
- Recommendation Regarding the Proxy Process: The Investor Advisory Committee approved the recommendation clarifying the proxy voting end to end user system, intermediary reconciliations, universal proxy voting, and the role of the SEC in implementation and advisability. The committee approved the proposal with a “distinct” majority vote, with committee members J.W. Verret and Lydia Mashburn dissenting.
Opening Statements
Chairman Jay Clayton
In his opening statement, Clayton referenced the Securities and Exchange Commission’s (SEC) guidance related to an investment adviser’s fiduciary duty under Rule 206(4)-6 of the Investment Advisers Act, and an investment adviser’s fiduciary duty under Rule 14a-2(b) and the definition of solicitation under Rule 14a-9 of the Securities and Exchange Act of 1934. He stated that the guidance embodies the importance of proxy voting, makes the rules clear, and builds upon consistencies of investment adviser duties of care. Clayton expressed his desire to continue improving the proxy process and for the committee to make the system less cumbersome for main street investors.
Commissioner Robert J. Jackson Jr.
In his opening statement, Jackson echoed Clayton’s points and emphasized the “falling” level of retail participation in the proxy process. He stated the need to further understand the machinery, time, and effort required to improve the process for main street investors.
Recommendation Regarding the Proxy Process
Panel Presentation
John Coates, SEC Investor Advisory Committee, stated that the committee discussion on the issue produced a recommendation which focuses on the end to end user interoperability and SEC implementation; ways for intermediaries to do their job and reconcile mismatches and the layers of ownership that can disrupt voting; and the advisability of universal proxy voting by the SEC. He said the proposal can enhance the proxy process and help combat voting fraud, adding that there is room for more work to be done to improve the system.
J.W. Verret, SEC Investor Advisory Committee, emphasized that the proposal’s end to end user confirmation is a helpful component, but said that he opposed the recommendation. He said this is due to the proposal not engaging or considering the SEC guidance for the interrelated system. Verret added that the proposal goes “too far” on universal proxy voting and does not adequately address the issue of shareholders and mandating end to end user vote confirmation.
Heidi Stam, SEC Investor Advisory Committee, said that the subcommittee aimed to tackle “actionable” issues and that the other areas addressed are “worthy” aspects to be considered in the future, as improving the proxy system is a long-term project.
Paul Mahoney, SEC Investor Advisory Committee, agreed with a number of J.W. Verret’s points and urged the committee to keep those issues in mind after finishing the proposal at hand.
Lydia Mashburn, SEC Investor Advisory Committee, expressed that many aspects are laudable, including the end to end user vote confirmation and reconciling votes, but stated that the recommendations have technical language flaws. She continued that the committee cannot rely on private actors alone to correct the system. Mashburn recommended that the SEC review its internal operations to improve the proxy system. Mashburn said that the proposal could discourage main street investors from engaging further in the proxy voting process.
Jennifer Marietta-Westberg and Stephen Holmes, SEC Investor Advisory Committee, expressed their desire for more work to be done to improve the proxy voting process. Marietta-Westberg also echoed Clayton’s call for the SEC to continue having a role in improving the system.
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