ISS Lawsuit a Pre-Emptive Strike: According to a press release issued Thursday, ISS's lawsuit against the SEC contends August's Commission-level guidance was issued without a formal rulemaking process. Interestingly, during the August meeting, Democratic SEC Commissioner Allison Lee blasted the use of guidance, stating a rulemaking should have been conducted. SEC Chairman Jay Clayton called on the SEC’s general counsel, who opined that a rulemaking was not needed.
ISS’s Lawsuit Contests a Main Assertion in the Guidance. In the lawsuit, ISS attempts rebut to the guidance’s statement that proxy voting advice is a proxy solicitation. If ISS is not subject to the proxy solicitation rules, the proxy advisor would not need to comply with the anticipated new requirements to be exempt from the forthcoming proposed rules.
Changes to proxy advisory firm exemption: The SEC’s August 2019 guidance reinforced the notion that proxy voting reports issued by proxy advisory firms constitute a federal proxy solicitation. Tuesday’s rulemaking will likely update the conditions of the exemption, which proxy advisory firms can use to avoid the extremely expensive and burdensome requirements associated with being subject to the federal proxy solicitation rules.
Mandatory conflict disclosures, company review of proxy reports: Proxy advisory firms are expected to have to comply with new requirements in order to qualify for the exemption from the proxy solicitation rules. According to reports, the expected requirements are likely to include the following HR Policy-supported changes:
- Mandatory conflict of interest disclosures;
- Providing companies with opportunities to view proxy reports prior to publication; and
- The opportunity to provide a response to proxy advisory decisions in the proxy report.
More details Tuesday. The details of how each of these proposed requirements will work—if they are included by the SEC—will be disclosed at Tuesday’s open meeting and would then be subject to a 60-day comment period. The rulemaking will also involve updating the resubmission thresholds for shareholder resolutions.