SEC Chairman Cites Fishy Letters in Support of Proxy Policy Change

SEC Chairman Jay Clayton. (Photo: Bloomberg)

When Securities and Exchange Commission Chairman Jay Clayton handed a policy win to corporate executives this month, he pointed to a surprising source of support: a mailbag full of encouragement from ordinary Americans.

To hear Clayton tell it, these folks are really focused on the intricacies of the corporate shareholder-voting process. "Some of the letters that struck me the most," he said at a commission meeting in Washington, "came from long-term Main Street investors, including an Army veteran and a Marine veteran, a police officer, a retired teacher, a public servant, a single mom, a couple of retirees who saved for retirement." Each bolstered Clayton's case for limiting the power of dissenting shareholders.

But a close look at the seven letters Clayton highlighted, and about two dozen others submitted to the SEC by supposedly regular people, shows they are the product of a misleading — and laughably clumsy — public relations campaign by corporate interests.

That retired teacher? Pauline Yee said she never wrote a letter, although the signature was hers. Those military vets? It turns out they're the brother and cousin of the chairman of 60 Plus Association, a Virginia-based advocacy group paid by corporate supporters of the SEC initiative. That single mom? Data embedded in the electronically submitted letter says someone at 60 Plus wrote it. That retired couple? Their son-in-law runs 60 Plus.

"I never wrote a letter," said one of the retirees, Vytautas Alksninis, reached by phone at his home in Connecticut. "What's this all about?"

Then there's the public servant Clayton mentioned. Marie Reed's letter has sharp words for proxy advisers, firms that counsel fund companies on how to vote at shareholder meetings. But when reached by phone in California, the retired state worker said she wasn't familiar with the term. She said the letter originated with a public-affairs firm that contacted her out of the blue.

"They wrote it, and I allowed them to use my name after I read it," she said. "I didn't go digging into all of this."

The SEC declined to comment on any irregularities with the letters. In a Tuesday interview, Clayton sidestepped a question about how the agency ensures comment letters are genuine. He did emphasize that the regulator's potential revamp of shareholder voting rules are proposals, adding that there will be ample time for people on both sides to weigh in before any changes are finalized.

"We welcome input in all ways," Clayton said in the interview with Bloomberg Television's David Westin. "On this issue, where there are a lot of different views and a lot of different interests, we encourage people to come in and talk to us, send us their comments."

Unusual Error

Even a casual reading of the letters shows something amiss. Four of the seven bear the same unusual error — an out-of-context phrase inserted into the SEC's mailing address. The same mistake turns up in at least 20 other letters submitted by supposedly ordinary Americans in support of the change. It's an inadvertent digital fingerprint revealing the scope of the campaign.

At issue is the proxy process, the rules for how corporations conduct shareholder votes, such as when directors stand for re-election at annual meetings. Most of the time, management wins in a landslide. But shareholders occasionally revolt over excessive pay or mismanagement, or a small investor forces a vote on an issue that management doesn't endorse.

In recent years, more small shareholders have been proposing resolutions about social or environmental issues such as climate change. And investment managers that control large numbers of votes, such as BlackRock Inc., have begun prioritizing these topics as well, arguing that they're relevant to the long-term sustainability of business models. That's an unwelcome change for some corporate boards, especially in the fossil-fuel industry.

Last year, the National Association of Manufacturers helped form the Main Street Investors Coalition to oppose what it calls the "politicization" of the investment process and to argue that fund managers and boards should focus on maximizing profits. One of its priorities is changing shareholder voting rules.

Although the coalition has other members, NAM provided most of its initial funding, according to a person with knowledge of the arrangement who spoke on condition of anonymity. The manufacturers' association represents corporate giants such as Exxon Mobil Corp. and Chevron Corp.

NAM said in a statement that it didn't fund 60 Plus or direct any advocacy efforts on the SEC issue. Chevron wouldn't comment on the coalition but acknowledged in a statement that it sometimes works with trade associations to "help inform their understanding of issues." Exxon Mobil said it had no immediate comment.

Public Comments

Last year, Clayton signaled he was considering changes to the rules and issued a call for public comments. Letters poured in. Most were from investment firms, corporations, trade groups and other interested parties that openly identified themselves. Many fund managers wrote to say some of the changes under consideration would be counterproductive.

The National Association of Manufacturers, Exxon Mobil and Chevron all called for new limits on shareholders' proposals. So did two ordinary citizens who identified themselves as members of Main Street Investors. Other letters were ostensibly written by regular folks.

But more than two dozen of them appear to have ties to 60 Plus, a member of the Main Street Investors Coalition. While the nonprofit group calls itself an advocate for senior citizens' issues, it routinely takes money from corporations and advocates for their causes on issues as varied as sugar subsidies and Alabama utility commissioners.

The group didn't cast a wide net in recruiting letter-writers. Names included those of a woman who used to work at 60 Plus's accounting firm; a former secretary at 60 Plus; and various friends and relatives of Saul Anuzis, the 60 Plus president. None mentioned a connection to the organization.

One letter bore the name of Chad Connelly. In an email, Connelly acknowledged being friends with Anuzis but disavowed the letter. "Someone apparently used my name," he wrote. "That's not a letter I've ever even seen."

Even Scott Hogenson, a contractor for 60 Plus who has appeared in the press as its spokesman, submitted a comment. The letter gives his name as S. Alan Hogenson and doesn't mention his relationship to the group. In an interview, Hogenson said he wrote the letter and stands by it.

Anuzis, the 60 Plus president, acknowledged that his group recruited submitters, provided drafts and, in two cases, sent letters on members' behalf. He also acknowledged getting money from members of the coalition. "We don't get paid for specific projects," he said in an interview. "We get contributions from members who are part of the coalition. We're not getting paid for a specific letter."

Anuzis said the project aligns with 60 Plus's policy goals and that no names were used without permission. Those who said they hadn't agreed, such as his in-laws, were mistaken. "They are 80-some-years old," he said. "This happened months ago. I'm sure it's not top of their minds."

Clandestine Aid

Two letters point to another source of clandestine aid for the coalition. Reed, the retired state worker from California whose letter was cited by Clayton, said the man who provided her with a letter worked at FSB Core Strategies, a California public-affairs shop, and said he was working on behalf of a group called Protect Our Pensions. Another SEC letter containing similar phrases, also cited by Clayton, came from a California sheriff who said in a 2017 interview that he was introduced to Protect Our Pensions by the same FSB staffer. An FSB executive didn't respond to requests for comment.

Protect Our Pensions, whose talking points align with those of the fossil-fuel industry, was the subject of a 2017 Bloomberg Businessweek article showing it was put together by corporate public-affairs employees and that some of its alleged members, including the retired firefighter identified as its founder, said they had nothing to do with it or couldn't remember agreeing to join.

Opponents of changes to the voting system stuffed the SEC's mailbox too. The agency reported getting more than 18,000 identical form letters supporting the current rules. Those letters were obvious duplicates and are grouped together on the SEC's comments page. Clayton's speech didn't mention them.

In his Nov. 5 remarks, Clayton unveiled proposals along the lines of those pushed by Main Street Investors Coalition and its corporate backers that would shift power from investors to corporate boards. In addition to Clayton, who was appointed by President Donald Trump, the changes are backed by two Republicans on the five-member commission. For the changes to take effect, the SEC will have to vote again to finalize the rules after a 60-day public comment period.

The SEC's proposal would increase the amount of stock newer shareholders must own to get a proposal on the ballot, aligning with corporate claims that many resolutions are wastes of time and money. Under current rules, investors must have owned at least $2,000 of stock for a year before they can submit resolutions. The SEC's proposal would raise that dollar threshold to $25,000 for shareholders of less than two years and $15,000 for shareholders of less than three years, while leaving the $2,000 threshold in place for longer-term holders.

The proposal also would impose new restrictions on proxy-advisory firms, whose recommendations are often decisive on shareholder votes. Corporations complain that their advice is sometimes poorly reasoned or inscrutable. Clayton would require the firms to show their recommendations to companies before issuing them.

Fund managers warn the measure may have a chilling effect on proxy advisers, because a corporation could threaten a lawsuit if a draft recommendation isn't revised.

Anuzis said he was glad to hear that Clayton had cited letters generated by his organization. "I'm extremely proud that we were very effective," he said. "If four of our letters were quoted, that means we did a great job."

–With assistance from Ben Bain.