ISS Files Lawsuit Against SEC Over Proxy Voting Rules

The proxy advisory firm does not want to be lumped in with firms that solicit votes.

U.S. Securities and Exchange Commission headquarters. (Zach Gibson/Bloomberg)

U.S. Securities and Exchange Commission headquarters.

(Zach Gibson/Bloomberg)

Major proxy advisory firm Institutional Shareholder Services has filed a lawsuit against the Securities and Exchange Commission, alleging that guidance issued by the regulator earlier this year went too far.

The SEC’s August 21 guidance misinterprets the purpose of proxy advisory firms, according to the ISS lawsuit filed Thursday in the U.S. District Court in Washington, D.C. The SEC has determined that firms like ISS are groups soliciting proxy votes for clients, rather than firms that offer guidance to their clients’ shareholders on how to vote in proxy contests, according to the complaint.

If proxy advisory firms are considered solicitors, they are subject to more stringent regulations, which ISS alleges in its suit will force it to take on more legal and regulatory costs.

“Whereas a proxy adviser offers independent advice and research to its clients about how to vote their shares based on the proxy voting policy guidelines selected by the client, a person who ‘solicits’ proxies urges shareholders to vote a certain way in order to achieve a specific outcome in a shareholder vote,” the suit said.

ISS is asking for the court to make a declaratory judgment that proxy advisory firms should not be subject to the same rules that proxy solicitation firms are, and an injunction prohibiting the SEC from taking enforcement action against ISS surrounding solicitation.


“We believe litigation to be necessary to prevent the chill of proxy advisers’ protected speech and to ensure the timeliness and independence of the advice that shareholders rely on to make decisions with regards to the governance of their publicly traded portfolio companies,” said ISS chief executive officer and president Gary Retelny in a company statement Thursday.

[II Deep Dive: ISS, SEC Commissioners Push Back Against New Proxy Voting Rules]

ISS acknowledged in its complaint that solicitation poses a “clear risk of abuse” when a person seeks authorization to vote on behalf of shareholders based on false or misleading information.

“ISS has no interest in the outcome of any shareholder vote and is indifferent as to whether its clients ultimately support a proposal, reject a proposal, or abstain from voting altogether,” the complaint said.

A spokesperson for the SEC declined to comment on the lawsuit.