Fight Over SEC Proxy Rule Changes Comes to a Head

"… It also raises serious concerns regarding the lack of balance in the SEC's presentation of the issues and its failure to follow its own guidance on economic analysis. Based on this concern, it urges the Commission to withdraw, revise, and republish the proposals to:

• Present a balanced assessment of proxy advisors and shareholder proposals.
• Comply with SEC guidance on the economic analysis included in the releases.
• Present evidence supporting the need for the proposals, rather than stating simply that problems "may" exist.
• Address reasonable alternatives to the proposed changes and why they are not more likely to achieve the stated goals of the proposals at a lower net social cost.
• More fully address how the PA/SP actions particularly affect small and mid-sized investment managers and "Main Street" shareholders.
• Discuss the risk that the proposals could impair the ability of proxy advisors to sustain their businesses, or new competitors to enter the business, which could result in increased monopoly power and more — not fewer — one-size-fits-all voting outcomes.

"These procedural abuses in the Commission proposal were of critical importance to me," she stated in an email. "While the procedural abuses are particularly egregious in these proposals, the problem is more widespread. Apparently, under the current leadership, careful economic analysis and a balanced presentation of the issues is only required when you are proposing to strengthen protections. When you're proposing to roll back investor protections, anything goes."

Hale, who has been arguing against the SEC's proposed proxy rules, told ThinkAdvisor in an email: "The SEC's [IAC] letter argues that these proposed rules would reduce the influence of shareholders on corporate governance, which is absolutely true. But even worse, as the letter points out, are the commission's shoddy arguments and lack of evidence presented in favor of these rules. The commission didn't clearly identify a problem, didn't present a balanced assessment, and didn't consider potentially less-disruptive alternatives.

"Other than inside-the-Beltway business trade groups and conservative think tanks, it's unclear who supports these rules. … The asset managers and asset owners who have commented so far all seem to be opposed. And none of the corporate execs who supposedly would benefit from these rules have spoken out in favor of them. Then again, why should they?

"There is no evidence that shareholder proposals burden corporations and a lot of evidence that they spark instructive dialogue between shareholders and managements that can enhance corporate value. Likewise, there is scant evidence that proxy advisors give advice based on factual errors or that they somehow mislead asset managers into voting their proxies contrary to their preferences.

"SEC rulemaking traditionally has been based on problems that investors widely agree need to be fixed. That's not the case here. And the solutions, if they are contentious, are usually based on compromise. In this case, those investors and corporate execs on the side of the commission, if they exist, are not even making themselves visible."

Thus far there have been roughly 7,000 comment letters to proposed Rule 14a-8 submitted to the SEC, a large majority a form letter against any changes. The comment period for the proposed rules ends Feb. 3.

— Related on ThinkAdvisor:

• SEC Approves Proposed Proxy Rule Changes
• SEC Takes Aim at Proxy Voting