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Securities and Exchange Commission Open Meeting

Securities and Exchange Commission

Open Meeting

Tuesday, November 5, 2019

Key Topics & Takeaways

Opening Statements

Chairman Jay Clayton

In his statement, Clayton emphasized the importance of expanding the effectiveness and transparency of the proxy process. He said that the proposals under consideration are rooted in key Securities and Exchange Commission (SEC) principles of materiality and facilitating constructive information for issuer and shareholder engagement. Clayton added that the proposals would help provide modernized approaches and retrospective review of regulations. Clayton opined that as the market develops, the SEC should take steps to modernize its approaches. He explained that the proposals expand upon SEC issued guidance regarding investment advisers’ fiduciary duty the definition of solicitation, as well as updating shareholder proposal thresholds and resubmission policies. Clayton expressed his desire for the SEC to consider proxy plumbing and proxy cards as the next steps to improve the proxy process.

Commissioner Elad Roisman

In his statement, Roisman said that it has been roughly 27 years since the SEC has amended the solicitation rules under Section 14(a) of the Securities Exchange Act of 1934. He highlighted that since the last amendments, institutional investors hold roughly 80 percent of the market value of public companies. Roisman continued that as a byproduct, asset managers are now able to vote in corporate elections, and the changes have coincided with the business of advising asset managers on how to cast votes. He expressed that the SEC should review and update current rules to match the changes in the marketplace. Roisman stated that the first proposal would confirm investment advisers’ fiduciary obligations to proxy clients and address general solicitation interpretation standard for proxy voting advice.

Later in the meeting, Roisman provided a statement explaining that the second proposal under consideration would amend Rule 14a-8 of the Securities Exchange Act of 1934 in order to create tiered shareholder proposal submission standards. He added that the proposal would also amend resubmission standards to cut shareholder time and costs when voting. Roisman highlighted that since 1954, these standards have not been updated and that the SEC should not ignore trends in the market.

Commissioner Robert J. Jackson Jr., Securities and Exchange Commission

In his statement, Jackson said that the proposals under consideration would limit public companies’ ability to hold executives accountable. He said that these proposals do not consider the costs and benefits. Jackson expressed that the SEC does not value vote totals as a reflection of merit totals in terms of corporate governance. He suggested that the submission and resubmission standards would destroy the long-run value for ordinary investors.

Commissioner Hester M. Peirce, Securities and Exchange Commission

In her statement, Peirce said that the first proposal would help identify inaccuracies and further address investment adviser fiduciary obligations. She also expressed that the second proposal would help reduce shareholder voting costs.

Commissioner Allison Herren Lee, Securities and Exchange Commission

In her statement, Lee echoed many of the same points as Jackson, adding that the proposals operate to suppress shareholder rights. She said that there is no basis for greater issuer involvement leading to improved proxy advise. Lee also stated that the proposals would make voting for shareholders less viable.

Item I: Commission Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice Panel Presentation

William Hinman, Director, SEC Division of Corporation Finance, stated that SEC should focus on the important service proxy voting businesses provide to institutional investors. He said that the proxy process provides a timely and cost-effective service to investors. Hinman suggested that proxy advisers at times vote based on insufficient information or methodologies. He expressed that the proposal would enhance disclosures to improve inaccuracies, conflict of interest disclosure, transparency, and provide completeness for the proxy voting process. He said that the division is aware of the potential of disruptions the proposal may cause and welcomed feedback.

Dan Greenspan, Counsel, SEC Division of Corporation Finance, echoed that the proposal would establish new disclosure requirements, revise the definition of solicitation, and would amend Rule 14a-9. He said that specifically, the proposal would standardize disclosure requirements for conflicts of interest and provide investors the ability to review proxy process methodologies and inaccuracies.

S.P. Kothari, Chief Economist and Director, SEC Division of Economic and Risk Analysis, added that the amendments would benefit investors by providing them better information to make more informed decision when choosing proxy advisers.

Question & Answer

Peirce asked if the proposal provides clear lines between traditional investment advice and proxy voting advice. Greenspan said that he believes the proposals are crafted appropriately and suggested if definitions are ambiguous, for stakeholders to provide feedback during the comment period.

The Commission voted in favor of the proposal, 3-2.

Item II: Commission Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8

Panel Presentation

Hinman stated that the proposal would amend Rule 14a-8 for shareholders proposal procedures, resubmission thresholds and communication efforts. He said that the proposal would preserve smaller shareholder ability to demonstrate an interest in the company while cutting shareholder costs and time for proposal considerations.

Matt McNair, Counsel, SEC Division of Corporate Finance, added that the proposal would set thresholds to shareholders with $2,000 worth of shares for three years, $15,000 worth of shares for two years, and $25,000 worth of shares for one year. He highlighted that the proposal would allow for one proposal per person during meetings and would not allow shareholders to aggregate their shares for submissions. McNair said that resubmission proposals voted on in the last three years that received less than five percent of votes, voted on twice with less than 15 percent of votes, or voted on three times with less than 25 percent votes would no longer be eligible for resubmission under the proposal. He also said that proposals that have been voted on three or more times in the last five years with less than 50 percent of votes cast or a decline of 10 percent of votes would not be eligible for resubmission.

Kothari said that modernizing these requirements would increase engagement between registrants and their shareholders. He said that the benefits of cost savings could be passed down in the form of higher investments.

The Commission voted in favor of the proposal, 3-2.

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