Experts debated the role of proxy advisory firms and other shareholder voting issues before the U.S. Senate Committee on Banking, Housing and Community Affairs.
Former SEC Commissioner Daniel M. Gallagher advocated for "rein[ing] in" some of the proxy advisory firms' "unfettered power" in shareholder voting. He approved of the SEC's recent withdrawal of the 2004 Egan-Jones and ISS staff no-action letters ("2004 no-action letters") that had provided protection to investment advisers that use proxy advice in formulating their own voting. Mr. Gallagher urged the SEC to:
- revisit what he described as the "special and privileged role" accorded proxy advisers (a deference he described as similar to that granted to rating agencies before the market crash);
- amend Exchange Act Rule 14a-8 to raise the requirements for the consideration of shareholder proposals; and
- authorize blockchain technology in the proxy voting process.
Thomas Quaadman, from the U.S. Chamber of Commerce Center for Capital Markets Competitiveness also approved of the SEC's recent withdrawal of the 2004 no-action letters. Mr. Quaadman advised the SEC to:
- amend the shareholder proposal process under Exchange Act Rule 14a-8 so that, among other things, unpopular proposals are not required to be resubmitted in subsequent years;
- facilitate retail shareholder participation in the proxy process; and
- withdraw its 2016 proposal on universal proxy ballots.
Michael Garland, from the Office of New York City Comptroller stated that the Office of New York City Comptroller generally opposed material changes to the current proxy process. He reported that the advisers to the NYC pension plans rely very heavily on the recommendations made by the two leading proxy advisors. Mr. Garland also opposed any material limitations on the right of shareholders to submit proxies, suggesting that ownership of even a single share of stock should be sufficient to have the right to submit a proxy, and that the fact that a proxy was rejected by shareholder vote should not necessarily prevent the matter from being resubmitted for another vote.
Commentary / Steven Lofchie
This hearing sets the groundwork for more focused attention by the SEC and for a broad range of comment from issuers and investors.
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