Friends Fiduciary joined other investors on a letter by the Council of Institutional Investors as part of their effort to preserve investor participation with and using proxy advisory firms. The SEC has issued new guidance and interpretations on proxy voting advice without seeking stakeholder input through a public comments period. Proxy advisors are entities that work with shareholders and investment managers to ensure that individual and institutional shareholders are involved in the decision-making processes of publicly traded companies. Proxy advisors fulfil their duties by issuing independent recommendations on the items on a company’s proxy – including both company and shareholder resolutions. Their role is crucial in representing investor interests in the decision-making process.
Proxy advisor recommendations have frequently held management teams and boards to a higher degree of accountability. As a result, companies and their trade associations have been lobbying for the regulation of proxy advisors as a means of reducing their influence on company accountability. With the new SEC guidance, proxy advisors will be legally obliged to submit their recommendations to the issuers in advance of publishing a recommendation. This may hinder the independence and objectivity of proxy advisors and present a clear conflict of interest.
Under the SEC’s proposed guidelines and regulations, both retail and institutional investors could lose independent advice on important corporate governance issues if their ability to rely on proxy advisors is compromised. The SEC is ultimately an organization that was formed to protect investor interests and we believe their proposed regulation of proxy advisors is therefore misaligned with their core purpose. Read the letter here.