This past week in remarks at the annual SEC Speaks conference, Rick Fleming, who heads the SEC's Office Investor Advocate expressed his opposition to efforts to regulate proxy advisory firms, decrying complaints about proxy advisory firms and stating that “the investors who are paying for [proxy advisory firm] service[s] are not the ones who are expressing those concerns.” Created in 2014, the Office of the Investor Advocate has four primary functions, the primary of which is to “provide a voice for investors” and Mr. Fleming serves as the first Investor Advocate for the office. Although Mr. Fleming reports to SEC Chair Jay Clayton, by law, the Office also submits reports directly to Congress without the Commission's review.
In his remarks, Mr. Fleming notes that investors are “wary” about efforts to regulate proxy advisory firms because these investors rely on proxy advisory firms to satisfy fiduciary voting obligations “in a cost-effective way”. Further, Mr. Fleming notes that investors are not the ones calling for regulations on proxy advisory firms and that companies are doing so because “proxy advisors have given asset managers an efficient way to exercise much closer oversight of the companies in their portfolios, and those companies don’t like it”. Mr. Fleming does admit that proxy advisors are not perfect, but he states that the SEC should be spending its time on other priorities. Mr. Fleming did not address conflicts of interest or the myriad of other issues plaguing the proxy advisory firm industry, although he acknowledged that the Commission already has tools to deal with allegations of failure of investors to discharge their fiduciary duties by using the recommendations of proxy advisory firms.
Mr. Fleming’s views underscore the importance of the messages the Center submitted to the SEC in its proxy roundtable comments – that the extreme demands of proxy season make it difficult for the firms using proxy advisory firm services – Institutional Investors and Investment Advisors – to hold the firms accountable for flagrant conflicts of interest, errors, and procedural shortcomings. Further, the Center highlighted the multiple procedural and structural defects inherent in the proxy advisory firm industry would significantly impair the ability of even the most ardent institutional investor or investment advisor from effectively holding proxy advisory firms accountable. The Center continues to work hard to advocate for reasonable change to the oversight and accountability of proxy advisory firms.