GPW Blowback

GPW Highlights SEC Blowback

GPW (Global Proxy Watch) discussed selected comments from investors to the SEC concerning two proposed rules in an article entitled Blowback, reproduced below with permission. GPW normally runs two pages, summarzing weekly developments on governance and stewardship from Stephen Davis and Aaron Bernstein. Blowback took almost a page.

Also of possible interest How Facebook is helping bring down liberal democracy, by Jon Hale of Morningstar, which also discusses some of the comments.  Additionally, Brandon J. Rees (AFL-CIO) on Shareholder Proposals and on Proxy Advisors. James McRitchie on Shareholder Proposals: 2/2/2020, 1/27/2020, 1/21/2020, 12/29/2019, 12/28/2019, 11/5/2019.  On Proxy Advisors: 2/3/2020, 1/22/2020, 12/28/2019, 11/5/2019.

GPW, VOL 24 NO 06, Feb 7 2020a: Blowback

Irate investors roundly rejected the US SEC proposal on proxy advisors and slammed its AGM thresholds proposal as the comment period closed Monday (GPW XXIV-05):

Investors 1

The two proposals “are the most significant SEC attempt to limit shareholder rights since the Commission was created” and should be withdrawn, said the Council of Institutional Investors.  “The question is not how many people file shareholder proposals; the issue is how many shareholders support those proposals, and those levels show that Chairman (Jay) Clayton’s implication that these proposals are somehow tangential or distracting or otherwise not in the interest of shareholders is incorrect,” writes Nell Minow of ValueEdge.

Investors 2

The most striking contrarian position came from BlackRock, which offered no opposition to either proposal and referred to the support for similar measures it has offered in the past (GPW XXIII-07). Expect critics to level more charges of hypocrisy after CEO Larry Fink’s headline-grabbing CEO letter vowing more AGM votes for climate proposals, which would be undercut by both rules (GPW XXIV-03). In stark contrast, SSGA rejected corporate claims of widespread proxy advisor inaccuracies and said the remedies were unneeded and inappropriate. T. Rowe Price  said the advisor proposal “appears to be a solution in search of a problem” while Neuberger Berman questioned “why services for which we pay are subject to review by those who neither compensate anyone for those services nor have responsibility to diligence the product.”

Proxy advisors

The proposal infringes on advisor 1st Amendment free speech rights by requiring them to include issuer criticism in vote recommendations and on their 5th Amendment property rights by forcing them to give corporates their intellectual property, writes ISS, expanding on the lawsuit it agreed to put on hold against initial guidance the agency published prior to proposing the rule change  (GPW XXIV-04). Glass Lewis says the rule would introduce “unmanageable delays into the already compressed annual meeting time frame,” fleshing out a request that the OMB strike it down as a violation of federal rules on burdensome regulations (GPW XXIV-03).

Retail 1

More than 18,000 people signed a petition by Green America and other advocacy groups protesting the threshold proposal’s negative impacts on individual investors. See the petition as a rebuttal of Clayton’s repeated assertion that both proposals aim to help retail investors. His claim was undermined by fake letters he cited that were crafted by corporate advocates, which were discussed at a Congressional hearing yesterday (GPW XXIV-03). Another pro-corporate  effort to counteract that damage came in a survey released last month by wealth management firm Spectrem to update an initial one last April, both purporting to show retail backing for the proposals (GPW XXIII-14). Each employed loaded language about proxy advisor “robo-voting” drawn up by conservative George Mason University scholar J.W. Verret, a member of the SEC’s Investor Advisory Committee who voted against its rejection of the proposals last week (GPWXXIV-05).

Retail 2

The threshold proposal fails to include credible economic analysis, points out Harvard’s Lucian Bebchuk. And it ignores the history of small shareowners submitting AGM proposals backed by giant funds that avoid filing resolutions themselves, Among the most successful: those requiring annual director elections, which were adopted by 100-plus US issuers after proposals spurred by the Shareholder Rights Project he led (GPW XIX-38).

Corporate advocates of regulation are running ads claiming the rules they support would help retail investors. But their SEC submissions adopt a different emphasis: that proxy advisors and shareholder resolutions hurt issuers. That was the argument put by the Business Roundtable, Nasdaq, the US Chamber, NIRI and the Shareholder Communications Coalition, which was created by NIRI and the Society for Corporate Governance.

Commissioners. GOP commissioner Elad Roisman, the architect of the proxy advisor rule, said he is “open to changing my mind on anything and everything the Commission has proposed,” even as he dismissed investor complaints as founded on “myths.”


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