Daniel R. Kinel

Daniel R. Kinel

  585.231.1186

  dkinel@hselaw.com

LEGALcurrents®

On July 22, 2020, the Securities and Exchange Commission (the “SEC”) adopted final rules regarding proxy voting advisors by a vote of three to one.  Although the final rules do not include the process for company review prior to the issuance of the proxy voting advice that was part of the proposed rules issued in November of 2019, the final rules do provide for companies to have access to the advice at or before the time that the advice is provided to the proxy voting advisor’s clients, and include a mechanism for companies to respond to the advice. 

In light of the final rules, the SEC also released supplemental guidance regarding the proxy voting responsibilities of investment advisors.

Final Rules

The final rules codify the SEC’s longstanding position that proxy voting advice generally constitutes a solicitation for purposes of the proxy rules.  However, the final rules provide an exception for proxy voting advisors to the information and filing requirements of the proxy rules if two requirements are met:

  • First, the proxy voting advisor must provide specified conflicts of interest disclosure in its proxy voting advice or in an electronic medium used to deliver the proxy voting advice; and
  • Second, the proxy voting advisor must have adopted and publicly disclosed written policies and procedures reasonably designed to ensure that:

    1. The companies that are the subject of the voting advice have access to the advice at or before the time that the advice is disseminated to the proxy voting advisor’s client; and

      • The final rules contain a non-exclusive safe harbor that provides that a proxy voting advisor will be deemed to satisfy this requirement if its written policies and procedures are reasonably designed to provide companies with a copy of its proxy voting advice, at no charge, no later than the time it is disseminated to the proxy voting advisor’s clients.
      • The safe harbor also provides that a proxy voting advisor’s policies and procedures may include conditions requiring companies to (i) file their definitive proxy statement at least 40 calendar days before the company’s shareholder meeting, and (ii) expressly acknowledge that the company will only use the proxy voting advice for their internal purposes and/or in connection with the solicitation and will not publish or otherwise share the proxy voting advice except with the company’s employees or advisers.
    2. The proxy voting advisor provides its clients with a mechanism by which they can reasonably expect to become aware of any written statements regarding its advice by the company that is the subject of the advice, in a timely manner before the company’s shareholder meeting.

      • The final rules contain a non-exclusive safe harbor that provides that a proxy voting advisor will be deemed to satisfy this requirement if its written policies and procedures are reasonably designed to provide notice on its electronic client platform or through email or other electronic means that the company has filed, or has informed the proxy voting advisor that it intends to file, additional soliciting materials setting forth the company’s statement regarding the advice (and include an active hyperlink to those materials on EDGAR when available).

The final rules will be effective 60 days after their publication in the Federal Register, but proxy voting advisors will not be required to comply with them until December 1, 2021.

Supplemental Guidance

The supplemental guidance addresses investment advisors that utilize a proxy voting advisor’s electronic vote management system that “pre-populates” the investment advisor’s ballot with the proxy voting advisor’s vote recommendations and automatically votes the investment advisor’s shares.  Specifically, the supplemental guidance provides that investment advisors should consider whether its policies and procedures address circumstances where the investment advisor has become aware that a company intends to file or has filed additional soliciting materials with the SEC after the investment advisor has received the proxy voting advisor’s voting recommendation, but before the submission deadline.

If you have any questions on how the final rules or supplemental guidance may impact your business, please reach out to a member of our Securities and Capital Markets team. 


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