I return to blogging after some time off to scuba dive with news of an unfortunate turn of events at the SEC. I have posted several times over the last decade on the multi-year saga of attempts by the SEC and Congress to reign in the proxy voting advice businesses (“PVABs”) such as ISS and Glass Lewis (which control more than 95% of the market), which the SEC voted 3-1 to approve and adopt last July (see: SEC Approves Final Rules to Reign in Proxy Voting Advice Businesses). Today, the SEC’s Division of Corporation Finance took the unusual step of announcing that it will no longer enforce those rules pending its review and likely reversal of the rules.
At the direction of the Chair, we are now considering whether to recommend that the Commission revisit the 2019 Interpretation and Guidance and the 2020 Rule Amendments. In light of this direction, the Division of Corporation Finance has determined that it will not recommend enforcement action to the Commission based on the 2019 Interpretation and Guidance or the 2020 Rule Amendments during the period in which the Commission is considering further regulatory action in this area. In addition, in the event that new regulatory action leaves the 2020 exemption conditions in place with the current December 1, 2021 compliance date, the staff will not recommend any enforcement action based on those conditions for a reasonable period of time after any resumption by Institutional Shareholder Services Inc. of its litigation challenging the 2020 amendments and the 2019 Interpretation and Guidance.
Readers will recognize that I favored reigning in the proxy voting advisory businesses. However, even if you, dear reader, believe that the rules affecting proxy advisory firms were terrible, this is a disturbing development. Once this game of reversing rules and precedents has begun, the rule(s) in question are likely to be reinstated (or any new rules reversed) when a new presidential administration from a different political party comes into power. A similar reversal has occurred four times over the Department of Labor’s position on social investing by retirement plan fiduciaries. Neither side “wins,” except temporarily. And the back and forth creates significant uncertainty for investors and corporations, and their advisers.
Over the last few decades, a handful of federal agencies, including the NLRB and the U.S. Department of Labor, have occasionally taken the approach of reversing policies and precedents 180-degrees with each new presidential administration, creating chaos for employers. However, the SEC had avoided it — until now.
-Mike Melbinger, CompensaionStandards.com June 1, 2021
