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ISS, SEC Commissioners Push Back Against New Proxy Voting Rules

New SEC guidance for proxy advisory firms has raised concerns over costs and the ability to provide timely advice.

Institutional Shareholder Services is pushing back against new guidance issued by the Securities and Exchange Commission on proxy voting.  

The SEC is increasing transparency requirements for proxy advisory firms such as ISS and Glass Lewis & Co., according to the updated guidance released August 21 by the regulator. Under the SEC's reinterpretation of the guidance, proxy advisory firms are now subject to an SEC rule prohibiting the sharing of misleading or false information.

“We are deeply concerned that aspects of the guidance may significantly undermine our ability to deliver independent, timely and accurate data, research, insights, and perspectives to aid in the discharge of our clients’ fiduciary duties,” said Gary Retelny, ISS president and chief executive officer, in a emailed statement on August 21. 

ISS says that it very rarely has problems with accuracy when it comes to its proxy voting reports. If there are factual errors, the firm has a system in place to alert its clients immediately before votes are cast, according to ISS.

A spokesperson for Glass Lewis, the other major proxy advisory firm, did not respond to an email seeking comment on the SEC’s new guidance.

According to the SEC, proxy advisory firms may now be required to provide details of the methodology used to formulate their advice and to disclose conflicts of interest. The guidance also suggests that proxy advisors should disclose the source of third-party research and information that it uses to make recommendations.

Not all of the SEC’s commissioners were in agreement with the new guidelines. 

“It introduces increased costs and time pressure into an already byzantine and highly compressed process,” said commissioner Allison Herren Lee in an August 21 statement. “Second, it calls for more issuer involvement in the process despite widespread agreement among institutional investors and investment advisers that greater involvement would undermine the reliability and independence of voting recommendations.” 

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She also noted that the SEC did not consider whether the new guidance would make it more difficult for new proxy advisory firms to succeed in an already highly-concentrated industry, as ISS and Glass Lewis have a stronghold on the market.

Commissioner Robert Jackson Jr. echoed these concerns.  

“I worry that today’s guidance may make it more costly to run a proxy-advisory firm, encouraging even more concentration — rather than new entrants who can give investors more choices about how to vote,” he said in an August 21 statement.

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