In an interesting legal procedural development, the SEC and ISS have mutually agreed to put the lawsuit ISS filed against the agency over the August 2019 proxy advisory firm guidance on hold until the completion of the proxy advisory firm rulemaking or January 1, 2021, whichever comes first.
ISS Alleged the SEC's Guidance Was Improper - As the Center reported in late October, ISS filed a lawsuit against the SEC claiming the agency violated the Administrative Procedures Act in issuing the August 2019 proxy advisory firm guidance without a formal rulemaking. Only days after the lawsuit was filed, however, the SEC issued a formal proposed rule (which included broader proxy advisory firm reform) codifying the August guidance contested by ISS and seeking . In the motion to “pause” the litigation, the SEC referenced the November proposed rulemaking noting it could narrow the issues subject to litigation. ISS agreed to the SEC’s motion and it has been approved by the Court.
What does this mean? There are a couple of quick takeaways from this legal news:
- No “changes” from ISS during 2020. ISS will not be complying with the August 2019 Guidance during the 2020 proxy season, including having to potentially make disclosures of methodologies, information sources, and conflicts of interest to avoid legal liability.
- The SEC plans to finish the proxy advisory firm rules during 2020. The year-long mutually agreed upon litigation hold indicates the SEC hopes to have the proxy advisory firm rules finalized prior to January 1, 2021.
- SEC open to negotiation? The mutual nature of the litigation hold on a hotly contested issue combined with the SEC’s own rhetoric on the potential narrowing impact of a final rule may signal the agency is willing to negotiate on how the rules are finalized. The Center is actively engaged in advocacy on proxy advisory firm reform.
- Compliance with any new proxy advisory firm requirements unlikely until at least 2021: With the SEC aiming to finalize rules during 2020, the logical “compliance date” for proxy advisory firms (i.e., for having to provide draft/final report review periods) is not likely to begin until at least 2021 and potentially later.