On September 13, 2018, the staff (the "Staff") of the Division of Investment Management of the Securities and Exchange Commission (the "SEC") issued a statement announcing that, effective immediately, the Staff was withdrawing two widely-followed no-action letters issued in 2004 to two proxy advisory firms.1 These letters had been viewed by some commentators as having led to an overreliance on recommendations made by proxy advisory firms, such as Institutional Shareholder Services ("ISS"), without sufficient consideration of potential conflicts of interest by such proxy advisory firms in issuing voting recommendations.
In its announcement, the Staff indicated that the withdrawal of these no-action letters is meant to "facilitate the discussion" at a previously-announced SEC Roundtable on the Proxy Process, expected to be held in November 2018 (the "Roundtable"). While it is impossible to predict whether the Roundtable will result in any proposed rulemaking by the SEC or legislation addressing the role of proxy advisory firms, the withdrawal of these two letters is welcomed by the issuer community and may be indicative of renewed commitment to proxy advisory firm reform by the SEC and Congress.2
Download >> Proxy Advisory Firm Guidance Withdrawn by the SEC
Footnotes
1 Available at https://www.sec.gov/news/public-statement/statement-regarding-staff-proxy-advisory-letters.
2 According to the Wall Street Journal, the SEC's withdrawal "came after a letter from six Republican senators asking the Government Accountability Office last month to rule whether the SEC overreached in issuing the letters." https://www.wsj.com/articles/public-companies-score-a-win-in-fight-to-limit-reach-of-proxy-advisers-1536862260.
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