In a long-anticipated development, the Securities and Exchange Commission has announced it will hold an open meeting on August 21 at which it would approve new guidance impacting proxy advisory firms as well as the institutional investors and advisors utilizing their services. The announcement, posted on the agency’s website, detailed two separate agenda items for the meeting giving a little insight on what to possibly expect at the meeting.
- Investor Use of Proxy Advisory Firms – The first agenda item concerns guidance regarding how institutional investors and investment advisors utilize proxy advisory firm services. Based on earlier public statements by SEC officials, this could potentially include new parameters about what actions must be taken in order for entities with fiduciary voting responsibilities to uphold those duties.
- SEC Rules on Proxy Voting – The second agenda item will include “an interpretation and related guidance” regarding the “applicability of certain rules” to proxy voting advice. This likely will focus on what behaviors proxy advisory firms must exhibit in order to maintain the exemption to the federal proxy solicitation rules.
Although we will not know what the SEC plans to do until the meeting, here are a couple of observations about the agenda:
- Guidance and Interpretations – Not Rulemaking: The announcement does not include any mention of a rulemaking. Rulemaking would be the most permanent and authoritative action the SEC could take to address proxy advisory firms. Guidance and interpretations can be extremely influential on market behaviors and participants. However, from a legal and technical perspective, each lacks the same authoritative nature and permanence as a rulemaking.
- Guidance – Staff or Commission? The SEC can issue either Staff or Commission-level guidance. Commission-level guidance carries significantly more authority than Staff-level guidance and is much more difficult to change. In fact, Commission-level guidance parallels much more closely to a rulemaking. Staff guidance, while having the potential to be impactful, can be changed much easier when the SEC shifts to a Democrat majority in an Administration change.
- Interpretations Mirror Staff Guidance: Staff interpretations provide guidance for those complying with the federal securities laws, but like guidance, do not represent a legally binding requirement. Yet, they are enormously influential and do have the impact of dictating market practices in other areas.
The Center will provide a detailed explanation of the Commission's actions in our update next week.