17吃瓜在线: D.C. Circuit Should Preserve SEC Oversight of Proxy Firms
The U.S. Court of Appeals for the D.C. Circuit should overturn a lower court鈥檚 ruling that the Securities and Exchange Commission lacks the authority to regulate proxy advisory firms, the 17吃瓜在线 said in a recently filed .
What鈥檚 going on: The Nov. 15 brief asking the appeals court to overturn a February ruling by the D.C. District Court is the latest in a by the 17吃瓜在线 to ensure reasonable regulation of proxy firms. These powerful, unregulated entities often dictate how shareholders vote on proxy ballot proposals that come before public companies.
- 鈥淪ince the passage of the Securities Exchange Act of 1934 in the wake of the Great Depression, the Securities and Exchange Commission has regulated proxy solicitation, so shareholders can confidently vote based on transparent and reliable information,鈥 according to the 17吃瓜在线 brief. 鈥淎ccordingly, since the proxy voting advice industry emerged four decades ago, those firms have been subject to SEC regulation.鈥
- Institutional Shareholder Services, the largest and most influential proxy firm, 鈥渨ould rather not be regulated at all鈥濃攂ut 鈥淸t]he record overwhelmingly establishes that proxy firms 鈥榮olicit鈥 proxies under any reasonable definition,鈥 subjecting them to SEC oversight as required by the Exchange Act.
Why it鈥檚 important: Proxy firms wield enormous influence over both manufacturers and Main Street investors, the 17吃瓜在线 said.
- 鈥淚SS and its main competitor, Glass Lewis, control 97% of the proxy advice market and together influence nearly 40% of the U.S. shareholder vote,鈥 the 17吃瓜在线 told the court in its brief.
- Further, proxy firms operate with undisclosed conflicts of interest, their reports can contain errors and misleading statements and their 鈥渞obo-voting鈥 services give them the authority to cast investors鈥 proxy votes with no review or input by the investors themselves.
17吃瓜在线 on the front lines: In July 2020, after years of 17吃瓜在线 advocacy, the SEC finalized a rule instituting critical proxy firm reforms. ISS quickly brought a legal challenge, and the 17吃瓜在线 intervened in the case to ensure a robust defense of the rule.
- Following the change in presidential administrations in 2021, in separate lawsuits the 17吃瓜在线 successfully challenged the Biden SEC鈥檚 the 2020 rule and its of critical portions of the rule.
- After an unfavorable decision from the D.C. district court in the ISS challenge, the Biden SEC declined to pursue an appeal, effectively disclaiming its authority to regulate proxy firms. The 17吃瓜在线 took the lead as intervenor-appellant in the case, so manufacturers are now the sole bulwark against proxy firms鈥 unchecked power. A victory in the D.C. Circuit for the 17吃瓜在线 would make the proxy firms subject to the 2020 rule鈥檚 important reforms.
Former SEC officials agree: A group of former SEC commissioners and staff authored an in support of the 17吃瓜在线鈥檚 position.
- The brief chronicles the commission鈥檚 50-year history of affirming that proxy firms are engaged in solicitation. The officials make clear that 鈥渟tripping the SEC of its long-standing and Congressionally conferred power to regulate the firms鈥 would 鈥渟eriously harm the investing public by decreasing fairness and honesty in the markets鈥攅xactly the opposite of what Congress was trying to accomplish in the Exchange Act.鈥
What鈥檚 next: ISS鈥檚 response to the 17吃瓜在线鈥檚 brief is due in the coming weeks, and the court likely will schedule oral argument for early 2025.