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The SEC Proposes Changes to the Proxy Solicitation Rules

January 31st | 2020



On November 5, 2019, the Securities and Exchange Commission (“SEC”) proposed amendments to Rules 14a-1, 14a-2, and 14a-3 (the “Proxy Solicitation Rules”) under the Securities Exchange Act of 1934 (“Exchange Act”). The proposed amendments follow two SEC releases issued on August 21, 2019, the first of which discussed proxy voting advisor recommendations and antifraud provisions of Rule 14a-9 under the Exchange Act, and the second of which discussed the obligations of investment advisers in connection with their use of proxy voting advisors.


The proposed changes to Rule 14a-1 seek to codify guidance provided in August by amending the current definitions of “solicit” and “solicitation” to include a proxy voting advisor’s furnishing of proxy voting advice, provided, that voting advice given in response to an unprompted request would not constitute a “solicitation.” Contemporaneously, the proposed changes to Rule 14a-2—a frequently relied-upon rule by proxy voting advisors exempting them from certain filing and information requirements under proxy rules—will require proxy voting advisors to: disclose material conflicts of interest when providing proxy voting advice; provide an opportunity to registrants and soliciting persons to review and provide feedback on advice before it is issued; and, allow registrants and soliciting parties to provide electronic access to a written statement that sets forth the registrant’s or soliciting person’s views on the advice provided, in the advice to be issued. Finally, the proposed changes to Rule 14a-9 would augment the current rule to include examples where the failure to disclose certain information in proxy voting advice could be considered misleading within the meaning of the rule.


With the proposed changes, the SEC aims to improve the transparency and accuracy of proxy voting advice by requiring disclosures, a feedback period allowing for the correction of errors in advice, and foster more constructive shareholder-issuer engagement. However, the language and substance of the proposed amendments have already served as quite the source of controversy. Prominent figures have spoken out against the proposed amendments, and some have even challenged the preceding interpretive release that the changes seek to formalize. Commissioner Jackson has opined that the rule changes could limit public-company investors’ ability to hold corporate insiders accountable; critics of the changes have said that this arrangement could allow corporations to interfere with proxy advisors’ research efforts; and on October 31, 2019, Institutional Shareholder Services, a proxy voting advisor, filed suit against the SEC, alleging that the release was contrary to the Exchange Act, arbitrary and capricious, and failed to follow certain notice and comment procedures required by the Administrative Procedure Act.


These proposed rule changes are subject to a 60-day public comment period. The full text of the proposed release may be viewed at https://www.sec.gov/news/press-release/2019-231.

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