Page 20 - Investment Advisor - November 2021

ESG HORIZONS

By Bernice Napach

SEC Proposes New Disclosures on Asset

Managers’ Proxy Votes

The proposed rule would require mutual funds and ETFs to divulge fund

votes on shareholder proxies.

he Securities and Exchange All three fund giants manage trillions
Commission is proposing chang- of dollars in equity index funds, which
Tes to the way that asset managers receive special mention in the SEC pro-
disclose how they vote on shareholder posal. “Because index funds’ investment
proxies and on corporate executive com- policies typically do not permit them to
pensation, known as “say on pay.” sell investments in the relevant index,
The enhanced disclosure require- these funds cannot sell a stock if they
ments involve changes to Form N-PX, are dissatisfied with management,” the
which asset managers file annually with proposal reads.
the SEC to disclose proxy votes, but “Instead, index funds may use their
which “can be difficult for investors to voting power to become active in cor-
use and can provide an incomplete pic- porate governance in order to increase
ture of a fund’s voting practices,” accord- national product of the U.S. and nearly the value of their investments,” it adds,
ing to the SEC proposal. The proposed half the world’s GDP. noting that the net assets of index funds
rulemaking would require fund com- make up nearly half of the assets in
panies to categorize each voting matter HOW THE COMMISSIONERS VOTED equity funds.
by type so investors could identify those Four of the five commissioners of the Commissioner Caroline Crenshaw
votes that interest them and compare SEC, including Chairman Gary Gensler, said the proposal addresses “many of the
voting records of asset managers. voted in support of the proposal. gaps under the existing reporting regime,
It also would prescribe how asset Commissioner Hester Peirce voted including fund votes on executive com-
managers organize their voting reports against it. pensation, and provides the informa-
and require them to use a structured In her statement, Peirce said the pro- tion that shareholders can use to hold
data language to make filings easier to posed disclosure requirements would funds “to account, which in turn, could
analyze and require funds to disclose distract fund managers from “doing enhance corporate decision making.”
how their securities lending activ- what was best for the fund,” including Commissioner Elad Roisman
ity affected their proxy votes since they potentially recalling securities out on expressed “strong reservations” about
would have to recall those loans, even loan when the extra revenue might be the proposal that he voted for and
temporarily, to vote on shares. worth more to the fund than exercising said his vote “in no way reflects how
The requirement on funds’ “say-on- a proxy vote. I would vote on a recommendation to
pay” matters, would fulfill one of the In contrast, Commissioner Allison adopt” them. He disagreed with the
remaining rule-making mandates under Herren Lee said the proposed enhanced categorization of votes, especially those
the Dodd-Frank Wall Street Reform disclosure requirements would help regarding environmental, social and
and Consumer Protection Act, which investors understand and evaluate the governance issues.
Congress passed in 2010. role of funds and managers in the capital The new SEC proxy proposal is
The agency will collect public com- markets given their influence. She cited the latest example of the Gensler-led
ments on the proposal for 60 days after a recent study showing that BlackRock, SEC moving away from the policies
its publication in the Federal Register. Vanguard and State Street Global adopted by the agency under former
The new proposal would apply to Advisors cast an average of about 25% of Chairman Jay Clayton. In June, the
over 7,550 asset management firms that the votes at S&P 500 companies, “often SEC announced it would not enforce a
have discretion of almost $40 trillion with the ability to tip the scales on impor- Trump-era rule that restricts the prac- Adobe Stock
in assets. That’s almost twice the gross tant matters of corporate governance.” tices of proxy advisory firms.

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