United States: SEC Rescinds Conditions to Proxy Voting Advice Exemptions

By: Jon-Luc Dupuy and Keri Riemer

Update: On 28 July, 2022, the U.S. Chamber of Commerce, Business Roundtable and the Tennessee Chamber of Commerce & Industry sued the SEC, claiming that it did not follow proper procedures under the Administrative Procedure Act or provide adequate justification for its decision to repeal the exemption conditions described below.

On 13 July 2022, the Securities and Exchange Commission (“SEC”) repealed certain aspects of its 2020 reforms for proxy voting advice businesses (“PVABs”).

Section 14(a) of the Securities Exchange Act of 1934 (Exchange Act) generally prohibits the “solicitation of proxies” in connection with certain publicly traded securities in contravention of rules and regulations adopted by the SEC. In 2020, the SEC adopted amendments that codified previous guidance that voting recommendations and advice provided by PVABs were “solicitations” under the federal proxy rules.  These amendments also established certain conditions that PVABs had to be meet in order to rely on the exemptions from filing high cost full proxy solicitation materials.  Less than two years later, the SEC voted to repeal two of those conditions:

• The requirement that a PVAB make available its proxy voting advice to Registrants that are the subject of that advice at or prior to the time that such advice is sent to the PVAB’s clients; and
• The requirement that a PVAB, in a timely manner, provide its clients with a mechanism by which they can reasonably be expected to become aware of any written statements regarding the PVAB’s proxy voting advice by registrants that are the subject of that advice.

In adopting this repeal, the SEC stated that it is “no longer persuaded that the potential benefits of [the] conditions sufficiently justify the risks they pose to the cost, timeliness, and independence of proxy voting advice,” and that, in its view, the latest amendments “strike a better policy balance.”

The SEC also removed certain other 2020 amendments, which included examples of potentially misleading statements or omissions relating to proxy voting advice and rescinded supplemental guidance for investment advisers regarding their proxy voting obligations and use of automated proxy voting tools.

The amendments and the rescission of the guidance are effective September 19, 2022.

Ben Lukas, a summer associate in the K&L Gates Boston office, assisted in drafting this blog post.