Recent changes on proxy voting by the Securities and Exchange Commission impact advisors tothe extent on how they deal with theprocess through their firm, but also ifthey use a proxy advisory firm.
The SEC’s Supplement to CommissionGuidance regarding Proxy VotingResponsibilities of Investment Advisers
became effective on Sept. 3, 2020.Additionally, the SEC final rules governing proxy advisors intended to improvethe accuracy and transparency of information provided by those firms, willgo into effect on Nov. 2, 2020 witha required compliance date of Dec. 1,2021, for certain provisions and fullcompliance by the 2022 proxy season.
The SEC expects that the amendmentswill provide issuers, among other things,with access to the proxy advisory firms’recommendations in a timely mannerand will allow issuers to share any additional information with shareholders thatmay be material to their voting decisions.
My colleague Trina Glass discussedthese final rules and how they affectadvisors in more detail.
PRE-POPULATION OF VOTING PROXIESPre-population and automated votingoccur before the submission deadlinefor proxies to be voted on at a shareholder meeting. With the new rule,advisors that pre-populate clients’ votesmust determine whether an issuer plansto file or has already filed additionalmaterials reflecting its views regardingthe voting recommendations.
This should be done as part of an
advisor’s reasonable due diligence into
matters on which it votes (or when
the advisor uses a proxy voting advi-
sory firm or automated voting process to
assist it with the process).
Some steps that an advisor can take to
demonstrate that it (or the proxy voting
firm) is making voting determinations
in a client’s best interest include, but is
not limited to:
• Review any policies and procedures
to determine whether the advisory firm
or proxy firm have the ability to react
to or address circumstances where the
advisor becomes aware that an issuer
intends to file or has filed additional
soliciting materials with the SEC after
the advisor has made its determination
and/or has received the proxy advi-
sory firm’s voting recommendations, but
before the submission deadline;
• Determine whether the advisor orthe proxy advisory firm may obtain nonpublic information about how a proxywill be voted, and then choose whetherthe advisor will be able to use that nonpublic information in a manner thatwould conflict with or not be in the bestinterest of the advisor’s clients
Advisors are required, as part of its duty
of loyalty to clients, to make full and fair
disclosure of all material facts relating
to the advisory relationship including,
material facts related to the exercise of
its proxy voting authority. Advisors that
use automated voting should disclose:
• The extent of the advisor’s use of
automated voting and under what cir-
cumstances it will use it;
• How the advisor’s policies and pro-
cedures address the use of automated
voting when the advisor becomes aware
that an issuer intends to file or has
already filed additional soliciting mate-
rials with the SEC regarding a matter
to be voted on prior to the submission
deadline for proxies; and
• Provide a client with information to
understand the role of automated vot-
ing in the advisor’s exercise of its voting
authority and provide informed consent
on use and scope of automated voting.
The proxy amendments and the guidance, in part, are focused on ensuringadvisors act “in a manner consistentwith their fiduciary obligations” andthat they provide investors with enoughinformation to make informed decisions.
The new requirements may impactan advisor’s continued use of electronicproxy voting and the use of proxy advisor voting firms due to the amendmentsand the corresponding anticipatedincreased cost of compliance.
Thomas D. Giachetti is chairman of theInvestment Management and SecuritiesPractice Group of Stark & Stark. He can bereached at firstname.lastname@example.org.
THE COMPLIANCE COACH
By Thomas D. Giachetti
How New SEC Proxy Voting Rules
Revised amendments mean advisors who proxy vote or work with
proxy advisors need to be careful.