SEC Takes First Step on Proxy Reform: SEC Issues Proxy Voting Guidance and Interpretation (1) Confirming Proxy Voting Responsibilities of Investment Advisers, Including That Advisers Are not Required to Vote all Client Securities and That Voting Must Place Client Interests Ahead of the Adviser’s Own Interests and (2) Clarifying That Federal Proxy Rules Apply to Proxy Voting Advice; SEC Staff Continues to Consider Further Rulemaking

Sullivan & Cromwell LLP - August 26, 2019

On August 21, 2019, the SEC took the first step in implementing its agenda for proxy reform, issuing guidance and interpretive advice in two separate releases that will be effective upon publication in the Federal Register.  The first release confirms that the existing rules accommodate a variety of voting arrangements agreed by an investment adviser and its client (including not voting all client securities) but that in all cases any voting by an investment adviser must be in its client’s best interest (and the adviser must not place its own interests ahead of the interests of the client).  In a second release, the SEC clarifies that proxy voting advice issued by proxy advisory firms generally constitutes a “solicitation” under Exchange Act Rule 14a-1(l) and that the antifraud provisions in Exchange Act Rule 14a-9 apply to proxy voting advice.  Both releases were approved by a 3-to-2 vote, with Commissioners Jackson and Lee dissenting.  As next steps, the SEC staff is considering potential recommendations to amend Rule 14a-2(b), which provides exemptions from the information and filing requirements of the federal proxy rules and other amendments to the federal proxy rules.