WASHINGTON, June 30 Asset managers who use proxy
advisory firms to help them make corporate voting decisions on
behalf of investors should be routinely reviewing their policies
to ensure they are acting in their clients' best interest, U.S.
regulators warned on Monday.
The warning by the U.S. Securities and Exchange Commission
was posted late Monday evening as part of a new legal bulletin
outlining guidance, both for investment advisors that use proxy
advisory firms and for the proxy firms themselves.
The guidance was issued in response to growing concerns in
some circles about the role that proxy advisory firms like Glass
Lewis and Institutional Shareholder Services play in corporate
Critics like the U.S. Chamber of Commerce have said that
proxy advisory firms wield too much influence in corporate
elections and may pose conflicts of interest that are not always
But mutual funds, pension funds and other institutional
investors who often hire proxy firms to help them decide how to
cast votes on critical matters such as executive compensation,
have said the firms provide a valuable service - especially for
smaller funds who lack enough staff to parse through voting
decisions for thousands of companies.
Although the chamber has long been calling for reforms, the
issue started to heat up last year when SEC Republican
Commissioner Daniel Gallagher gave a speech lambasting the role
that proxy advisory firms play in corporate elections.
In particular, Gallagher took aim at prior SEC rules and
other guidance which he said enabled investment advisers to
overly rely on proxy advisory firms for voting recommendations.
This, he said, clashed with federal laws which impose a
fiduciary duty on advisers to act in their clients' best
Since that speech, the SEC's other Republican Commissioner
Michael Piwowar has also called for changes. In response to the
concerns, the SEC held a roundtable on the subject late last
year, and SEC Chair Mary Jo White said in a March speech that
guidance would be issued to address some of the concerns.
That guidance on Monday lays out exactly what
responsibilities investment advisers have when using proxy
advisors. They must, for instance, periodically sample proxy
votes to ensure compliance and review the adequacy of their
proxy voting policies once a year.
In addition, the guidance also lays out steps that proxy
advisory firms should follow, including when they may need to
disclose potential conflicts of interest.
If, for instance, a proxy firm provides consulting services
to a company on a matter at the heart of a voting
recommendation, it must be disclosed if it is deemed a
A copy of the guidance can be found on the SEC's website here
(Editing by Stephen Coates)