May 24, 2019
Following months of debate, the Securities and Exchange Commission has officially added proxy advisory firms and shareholder proposal submission thresholds as topics to its agenda. Released May 22, the semi-annual agenda outlines 40 topics for agency action over the next year. While the agenda gives no indication what concrete actions the Commission will take, recent remarks from Commissioners Elad Roisman and Hester Peirce and Chairman Jay Clayton clearly indicate that the SEC is ready to regulate the sector.
How can the SEC improve the proxy process?
The members of the Main Street Investors Coalition have a few ideas. In a nutshell, making sure recommendations are devoid of errors, increasing the transparency of the proxy advisors, and rooting out conflicts of interest will best help ensure maximization of returns – the number one priority of retail investors who rely on institutional investors and investment advisors.
How can the SEC improve shareholder thresholds?
The SEC’s current thresholds for the amount of support needed to resubmit a failed proposal are staggeringly low. This results in proposals being eligible for resubmission for years. Research shows that proxy advisory firms help keep these “zombies” alive and kicking, even when the proposals get consistently low levels of support among shareholders. A study by the Council on Institutional Investors found that the current thresholds exclude so few proposals that even significant increases to the thresholds will still allow the resubmission of many proposals – directly contracting the claims of critics who argue that this action would silence small shareholders.
A long time coming
The process began with last November’s roundtable on the proxy process is now finally wrapping up. The SEC has clearly been mulling the issue, with Chairman Jay Clayton alluding to the SEC’s interest half a dozen times, most recently during a hearing in front of the Senate Appropriations Committee on May 9. Now, an official conversation is scheduled to take place.
In the meantime, calls for change continue to pour in from all corners of the world of corporate governance: on the SEC’s proxy process docket; from hundreds of companies, trade groups, and retail investors; in panels and events hosted by think tanks, and in hearings on Capitol Hill, experts across the sector have expressed widespread criticisms of the current system. The SEC is showing that it hears these calls and is finally moving to action.