Are Proxy Improvements on the Way for Main Street Investors?

August 1, 2018

On Monday, the Securities and Exchange Commission (SEC) Chairman Jay Clayton announced his intention to hold a roundtable on the proxy process:

“Shareholder engagement is a hallmark of our public capital markets, and the proxy process is a fundamental component of that engagement. In 2010, the Commission issued a concept release seeking public comment on whether the U.S. proxy system as a whole operates with the accuracy, reliability, transparency, accountability, and integrity that shareholders and companies should expect. In light of the many changes in our markets, technology, and how companies operate since then, SEC staff will host a roundtable this fall to hear from investors, issuers, and other market participants about whether the SEC’s proxy rules should be refined.”

Potential topics of discussion include the voting process, retail shareholder participation, shareholder proposals, proxy advisory firms, and technology and innovation. Here at the Main Street Investors Coalition, we especially look forward to discussing issues highlighted in a report by the American Council on Capital Formation that explored the conflicted and outsized role proxy advisory firms wield on the proxy process. ACCF’s findings highlighted the troublesome conflicts of interest that often exist between proxy advisory firms and their clients, and the general lack of oversight that exists within the industry. Barron’s also noted the importance of the topic after previously reporting on issues with the current proxy process:

“Areas that may warrant particular attention include the potential for over-voting and under-voting of securities by broker-dealers, and difficulties in confirming whether an investor’s shares have been voted in accordance with the investor’s instructions. The challenges could be attributable to the number of participants that may be involved in the process, including issuers, transfer agents, third-party administrators, vote tabulators, securities intermediaries, and proxy service providers. These are areas Barron’s highlighted as problematic.”

The SEC roundtable is another promising development for retail investors following Chairman Clayton’s previous remarks on the influence of proxy advisory firms:

“I share the concern that a few very large and powerful shareholders have a great deal of influence on any vote that takes place in corporate America,” Clayton remarked in response to a question about his opinion on how major asset managers and proxy firms wield outsized influence. “And I also hear corporate boards when they say that they feel ISS and Glass Lewis and other advisory services have too much influence, and a lot of influence.”

Those of us on Main Street will be watching closely to see how this roundtable progresses, and we applaud Chairman Clayton for seeking feedback and improvements in this important area.

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