The US stock market regulator has abandoned a key plank of its proposal to limit the power of shareholder advisory firms over corporate decision making, handing a win to Daniel Loeb, Paul Singer and other hedge fund activists who have fought to stop the new rules.
The Securities and Exchange Commission has scrapped the portion of the proposal that would have forced proxy advisers — led by Institutional Shareholder Services and Glass Lewis — to submit their voting recommendations to companies for checking before distributing them to investors in advance of shareholder meetings.
Sources familiar with the matter said the SEC had shifted its focus instead to a “speed bump” that would make it less likely shareholders would blindly follow the proxy advisers’ recommendations, which cover votes on everything from executive pay and director elections to merger and acquisition activity.
Business lobby groups such as the US Business Roundtable and the National Association of Manufacturers have argued that proxy advisers wield too much influence in corporate governance battles, and the SEC under chairman Jay Clayton has made several efforts to reduce their power.
Activists including Mr Singer’s hedge fund Elliott Management and Mr Loeb’s Third Point — who court proxy advisers’ support when fighting for board seats — joined with several traditional asset managers to denounce the most recent of the SEC’s proposals, which was published in November.
The proposal aimed to give companies two chances to see proxy advisers’ reports before they are finalised and sent to investors. Asset managers such as T Rowe Price said in submissions on the plan that the reviews would give companies too much influence over the independent research proxy advisers provide.
The SEC said the agency’s “staff is considering all comments received as it prepares recommendations” to the regulator’s four commissioners. People familiar with the discussions cautioned that the rulemaking is in flux and could change in the weeks ahead.
“We are encouraged that the commission seems to have moved away from the proposal to grant companies pre-review of independent proxy advice,” said Nichol Garzon-Mitchell, general counsel for Glass Lewis. “Nonetheless, we remain concerned about some of the alternatives the SEC may be considering.”
The reworked proposal would outlaw “robo-voting”, under which the proxy advisers automatically submit shareholders’ votes to companies based on their recommendations. The delay would give companies time after publication to rebut a recommendation they do not like.
In a speech last month, SEC commissioner Elad Roisman floated the idea of a speed bump, saying proxy advisers “would have to disable any automatic submission features”.
The idea was not addressed in the SEC’s initial request for comments, however, and adopting the change “would raise a serious question” about the final rule’s legality, activist hedge fund Elliott Management claimed in a March 30 letter to the SEC. It said such major changes require the regulator to begin the rulemaking process again — something that would mean it could be halted if there was a change in administration after November’s US elections.
Mr Roisman and the pro-business groups advocating for the regulation of proxy advisers have said the speed bump idea was included in the SEC’s proposal.
“A speed bump would be a welcome but not sufficient reform,” said Charles Crain, an official at the NAM, whose members include ExxonMobil. There is “absolutely, definitively” no need for the SEC to repropose the rule, he said.