October 10, 2018
In anticipation of the upcoming Securities and Exchange Commission (SEC) roundtable on the proxy process, Bernard Sharfman, Chairman of the Main Street Investors’ Coalition Advisory Council, submitted a comment letter to the Commission. The letter refers in particular to two of the topics under consideration at the roundtable, Voting Process and Shareholder Proposals. Specifically, it requests the SEC, in whatever form it deems appropriate, to clarify that investment advisers to mutual funds must disclose (under the Proxy Vote Rule) their policies and procedures. This includes companies disclosing how they will: avoid using their voting power at public companies opportunistically to obtain new business from activists such as public pension funds and investment funds associated with labor unions; eliminate pressures to support the activism of its own shareholders at its portfolio companies; and identify an actual link between support for a shareholder proposal under Rule 14a-8 and the enhancement of shareholder value before voting in favor of any such proposal.
When outlining his recommendations, Mr. Sharfman highlighted multiple issues that MSIC has focused on since its launch.
“lack of connection between shareholder proposals and shareholder wealth maximization is an issue that all retail investors must be concerned about. Shareholder proposals, if implemented subsequent to a shareholder vote or prior to through the process of engagement, while perhaps not reducing shareholder wealth, may at best do nothing to enhance it. If so, then wealth maximizing opportunities may be foregone as finite company resources are devoted to responding to and subsequently implementing these proposals.”
Outsized Influence of Mutual Fund Advisors
“In a proxy voting world where voting is dominated by a handful of extremely large investment advisers, the Commission should provide clarification that mutual fund advisers must disclose in their voting policies, consistent with the Proxy Voting Rule’s requirement that they vote proxies in the best interests of their clients, the procedures they will use to deal with the temptation to use their voting power to retain or acquire more assets under management and to appease activists in their own shareholder base.”
Disclosure of Voting Policies/Maximizing Shareholder Value
“The Commission should provide clarification that mutual fund advisers must disclose, consistent with their fiduciary duties to act in the best interests of their mutual fund clients and their shareholders, how they will deal with these new conflicts in their voting policies. In addition, shareholder proposals are a prime area where this opportunistic use of an adviser’s voting power may be in play. Therefore, the adviser’s voting policy must also explain how voting on these proposals are linked to maximizing shareholder value.”
Mr. Sharfman’s letter is full of interesting insights and sound advice for the Commission. We hope the SEC will take note of his suggestions ahead of the roundtable on the proxy process.
Click here to read the full letter.