Examining the SEC's Proxy Advisor Rule

Report for U.S. Chamber of Commerce, November 2020

Ohio State Legal Studies Research Paper No. 576

47 Pages Posted: 16 Nov 2020 Last revised: 17 Nov 2020

See all articles by Paul Rose

Paul Rose

Ohio State University - Moritz College of Law; Bocconi University - BAFFI Center on International Markets, Money, and Regulation; Tufts University - The Fletcher School of Law and Diplomacy; Fundación Instituto de Empresa, S.L. - IE Business School

Christopher J. Walker

Ohio State University (OSU) - Michael E. Moritz College of Law

Date Written: November 9, 2020

Abstract

Proxy advisors, which provide advice on corporate voting matters for institutional investor clients, are an increasingly important fixture in modern corporate governance. As proxy advisors have taken on greater visibility and importance in markets in the United States and around the world, scrutiny of the power and influence of proxy advisors has increased commensurately. After a decade-long review and analysis of the role and regulation of proxy advisory businesses, the Securities and Exchange Commission (SEC) promulgated a new rule in July 2020 that is designed to increase the transparency, accuracy, and completeness of the information proxy advisors provide to investors making proxy voting decisions (Final Rule).

This Report for the U.S. Chamber of Commerce examines the SEC’s rulemaking process that led to the Final Rule and how the SEC responded to concerns aired during the public comment period to narrow the scope of the Proposed Rule and shift the regulatory approach to a more flexible, principles-based framework. In Part I, we briefly describe the history of the proxy advisory industry in the United States, as well as the criticisms that have accompanied its rise in significance. Part II turns to the SEC’s efforts to address these criticisms through the Proposed Rule noticed in November 2019. Part III discusses the intense response to this rulemaking from both supporters and critics of the proxy advisory industry. Part IV outlines the various modifications the SEC made in the Final Rule, adopted after careful review of the many comments on the Proposed Rule. Finally, Part V surveys the potential legal challenges to the Final Rule.

The Report concludes that the SEC’s Final Rule is a step in the right direction to address deficiencies of the proxy advisory system. Due to the SEC’s decision to embrace a middle-ground regulatory approach, the strong proponents and strong opponents to the Proposed Rule are likely both dissatisfied with the Final Rule as a matter of policy. As a matter of law, however, it is difficult to argue that the SEC failed to engage in reasoned decisionmaking or otherwise acted outside its statutory mandate in promulgating the Final Rule.

Keywords: SEC, financial regulation, proxy advisor, administrative law

Suggested Citation

Rose, Paul and Walker, Christopher J., Examining the SEC's Proxy Advisor Rule (November 9, 2020). Report for U.S. Chamber of Commerce, November 2020, Ohio State Legal Studies Research Paper No. 576, Available at SSRN: https://ssrn.com/abstract=3728163

Paul Rose

Ohio State University - Moritz College of Law ( email )

55 West 12th Avenue
Columbus, OH 43210
United States

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Tufts University - The Fletcher School of Law and Diplomacy ( email )

Medford, MA 02155
United States

Fundación Instituto de Empresa, S.L. - IE Business School ( email )

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006
Spain

Christopher J. Walker (Contact Author)

Ohio State University (OSU) - Michael E. Moritz College of Law ( email )

55 West 12th Avenue
Columbus, OH 43210
United States
614-247-1898 (Phone)

HOME PAGE: http://www.chrisjwalker.com

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