FOR IMMEDIATE RELEASE
November 14, 2019
IPFI Applauds SEC’s Actions Fixing the Proxy Advisory Process
The Institute for Pension Fund Integrity welcomes the SEC’s latest proposed rules, which seek to restore trust and accountability to the shareholder voting process by addressing a range of negative practices rampant in proxy advisory services.
Arlington, VA – Last week, the SEC voted 3-2 to propose rules that would remedy the unchecked power of proxy advisory firms for the first time in over twenty-seven years—the longest stretch in the history of solicitation rule updates. This comes on the heels of over a year’s worth of deliberation and input on the current framework governing proxy advisory firms. At last, substantial measures to limit their outsized influence have taken form. These principles inform the latest proposed rules:
- Offer investors a more streamlined system: Proxy advisory firms currently operate under a “patchwork of exemptions” to the Commission’s solicitation requirements. This rule clarifies that these firms’ obligations to investors remain the same across the board.
- Address material conflicts of interest head-on: Information on the basis of proxy advisory firms’ recommendations is notoriously difficult to access. Comprehensive disclosures are especially necessary when proxy advisory firms consult both investors and corporations on how to navigate the shareholder voting process.
- Learn from and improve upon current market practices: The proposal increases the opportunities for issuers to review and correct information that proxy advisory firms use to provide voting recommendations, thereby reducing the amount of circulating inaccuracies.
- Enhance transparency for investors: Pubic pension plan members and retail investors should no longer be in the dark when it comes to fund managers’ “automatic voting” based on proxy advisory firms’ recommendations. The SEC rightly called attention to this issue in the proposed rule, and the SEC should ensure greater accountability and enhance transparency by prohibiting automatic voting.
Public pension plan members and retail investors have a huge stake in these rules’ outcome. Institutional investors manage many kinds of funds, including public pensions, and own as much as 80% of the market value of publicly-traded US companies. The new rules would force proxy advisory firms, who recommend how pension fund and investment managers should vote on proxy proposals, to comply with stricter oversight. Specifically, the SEC’s proposed rules will ensure recommendations are made absent both misinformation and clear conflicts of interest on the proxy advisory firm’s part. The goal should be that proxy advisors make recommendations that will provide investors with the greatest returns on their investment.
IPFI President Christopher Burnham recently wrote in Forbes, “The problem is that politicians and proxy advisory firms have no stake in how our public pension plans perform. They have no skin in the game. Our public plans, politicized, mismanaged and underfunded are a time bomb ticking away.”
IPFI supports the SEC’s actions and plans to continue pushing for what should be investment fund’s top priority–maximizing investment returns.
For more on IPFI’s positions regarding divestment and fiduciary responsibility, see IPFI’s research available on www.ipfiusa.org.
The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer and former Undersecretary General of the United Nations, Christopher B. Burnham.