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Investors rail against SEC proxy adviser reforms

This post was originally published by The Financial Times on November 16, 2019.

Investors have stepped up their fight against America Inc and the US financial regulator as large shareholders battle against proposed rules they claim will be burdensome and costly.

The Council of Institutional Investors, which represents investors with close to $40tn in assets, said it was “very troubled” after the Securities and Exchange Commission this month proposed controversial requirements for proxy advisers, which are used by shareholders when voting at corporate meetings.

The SEC voted 3-2 for the proposals, which will force proxy advisers to let listed companies review their advice twice before it goes to investors.

The vote handed a victory to big businesses in the US, which have lobbied hard for more stringent scrutiny of proxy advisers, the biggest of which are Institutional Shareholder Services and Glass Lewis.

Ken Bertsch, executive director at the CII, described the proposals as “over the top”.

“It seems designed to bias the reports towards management,” he said. “The basic proposals are just unworkable.”

The CII has written to the SEC requesting more information, particularly around some of the analysis used by the regulator as part of its decision. The Washington-based non-profit and more than 70 investors have also called on the SEC to grant an extension to the 60-day consultation period, arguing that there is not sufficient time to thoroughly answer the questions the SEC has sought more information on.

The US Chamber of Commerce and the Business Roundtable have led lobbying efforts on behalf of public companies. They claim that proxy advisers issue blanket recommendations for annual meetings, they are error prone and have conflicts of interest.

Tom Quaadmann, executive vice-president for the chamber’s Center for Capital Markets Competitiveness, welcomed the SEC vote. “This is all about making sure investors have appropriate information so that they can make informed choices.”

But Mr Bertsch said that if proxy advisers had to share reports with the companies they analysed ahead of corporate meetings, it would delay investors receiving the reports — leaving shareholders less time to scrutinise the advice, carry out their own analysis and vote their shares.

Euan Stirling, head of stewardship at Aberdeen Standard Investments, said the proposed rules would make the job of holding companies to account “more difficult and add costs”, questioning who would pick up this extra expense.

Another senior figure at a big global investor also criticised the plans, arguing that US business was “trying to make out that [ISS and Glass Lewis] are the villains”.

Last month, ISS, the biggest proxy adviser, filed a lawsuit against the SEC, claiming that its rights to free speech had been infringed.


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