Highlight Reel: Today’s SEC Roundtable

November 15, 2018

Today’s roundtable on the proxy process, hosted by the Securities and Exchange Commission (SEC), presented a rare opportunity for market participants to debate the proxy process in front of those who regulate the proxy industry. During the three panels, a variety of issues within the proxy process were discussed, with panelists offering up their suggestions for how the system can be improved. SEC Chairman Jay Clayton kicked off the day on a high note by immediately noting the importance advocating for retail investors as the SEC explores improvements:

“The question on the table is: can we improve the [financial] system and for whom? I believe the answer is long-term, main street investors – those who put 50, 100, 200 dollars away a month.”

The issue of proxy advisors received bipartisan focus, with Commissioner Kara Stein asking:

“Should proxy advisors be regulated and, if so, how? How would this help or harm investors of all sizes?”

Throughout the day, panelists and Commissioners alike advocated for retail investors and noted that their participation in the proxy process is vital. Many of the panelists championed the priorities of the Main Street Investors Coalition. Below is a round-up of some of the day’s best insights.

Retail Investor Participation

“We have to make use of technology” in increasing retail participation in proxy voting” –  Robert Schifellite, President, Investor Communication Solutions, Broadridge Financial Solutions

“Sometimes we allow a small number of shareholders to act as agents of others despite differences in the idiosyncrasies and ideology.” – SEC Commissioner Hester Pierce

Transparency and Conflicts of Interest

“We’ve heard the frequent calls for more transparency and the concerns over conflict of interest at proxy advisors.” – William Hinman, Director of the Division of Corporation Finance at the SEC

“I cannot defend the indefensible. There are conflicts that arise from consulting in the proxy business.” – Sean Egan, President and Founding Partner, Egan-Jones Proxy Services

“We have for multiple years brought up issues with regards to strengthening their [proxy advisors] conflicts disclosure”- Rakhi Kumar, Senior Managing Director, Head of ESG Investments and Asset Stewardship, State Street Global Advisors

“ISS Corporate Solutions is not consulting. It’s a data centric offering with an advisory element”– Gary Retelny, President and Chief Executive Officer, Institutional Shareholder Services Inc.

“If you follow a proxy advisor, you get a safe harbor from fiduciary duty. Nobody should be exempt from fiduciary duties.” Former Senator Phil Gramm, Visiting Scholar, American Enterprise Institute

Informed, Non-Politicized Voting Advice

“I don’t want someone else playing politics with my money and I want the SEC to protect me.”- Phil Gramm, Visiting Scholar, American Enterprise Institute

“Main Street investors want to know that they are making an informed company specific voting decision when their fund managers vote on proxies. “ – SEC Chairman Jay Clayton

Robo-Voting

“Once a report is issued, it is an uphill battle from a public company perspective, where correcting the record is very difficult.”

“When a proxy advisory report comes out, 30% to 40% of our share capital is voted within 24 to 48 hours. – Adam Kokas, Executive Vice President, General Counsel, and Secretary, Atlas Air Worldwide

Accuracy

“When certain institutions vote directly based on a recommendation, I think it’s imperative that issuers get the opportunity to review the report to make sure it’s correct.”- Adam Kokas, Executive Vice President, General Counsel, and Secretary, Atlas Air Worldwide

“If investors are relying heavily on proxy advisor information and recommendations, it’s important to ensure their reports are fully accurate.” – SEC Commissioner Elad Roisman

Zombie Proposals

“We have a high number of zombie proposals that continue to kick around despite low and declining levels of support, which clog up communication channels and impose costs.” – Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce

 

Chairman Clayton concluded the first panel of the day saying: “Hopefully this is not the last meeting for groups like this”

We at the Main Street Investors Coalition could not agree more. Today’s roundtable leaves us optimistic about the possibility of meaningful reforms of the proxy process. Stayed tuned for our full breakdown of the roundtable – coming tomorrow morning!

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