Submission in advance of Staff Roundtable on the Proxy Process (Proxy Advisors)

This submission is in response to Chairman Clayton’s July 30 press release announcing a staff roundtable on the proxy process and calling for submissions from interested parties. It refers in particular to proxy advisory firms and is distinguished from my Oct. 8, 2018 comment letter that focused on additional disclosures by investment advisers to mutual funds.

Specifically, this submission requests the Securities and Exchange Commission (“SEC” or “Commission”) to modify its rules, policies and guidelines to the extent that:

• When making a voting recommendation, the proxy advisor should be held to the standard of an information trader. If a proxy advisor cannot attest to the use of that standard when generating a voting recommendation, then the proxy advisor must abstain from making that recommendation to its clients. Making a recommendation that does not meet this standard would be a breach of a proxy advisor’s fiduciary duty under the Advisers Act.
• The SEC, as well as the Department of Labor (“DOL”), should clarify that an institutional investor, as an alternative to using the voting recommendations of a proxy advisor, can meet its fiduciary voting duties by utilizing the voting recommendations provided by the board of directors.
• Consistent with the prior recommendation and assuming that technical issues can be overcome, retail investors who invest in voting stock indirectly through the use of investment advisers and beneficiaries of public pension funds should have the option of transmitting voting instructions to their institutional investor informing it that their pro-rata investment in voting stock must be voted in conformity with the voting recommendations of the board of directors of each company held in portfolio.