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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-89372; File No. S7-22-19]

RIN: 3235-AM50

Exemptions from the Proxy Rules for Proxy Voting Advice

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting

amendments to its rules governing proxy solicitations so that investors who use proxy voting

advice receive more transparent, accurate, and complete information on which to make their

voting decisions, without imposing undue costs or delays that could adversely affect the timely

provision of proxy voting advice. The amendments add conditions to the availability of certain

existing exemptions from the information and filing requirements of the Federal proxy rules that

are commonly used by proxy voting advice businesses. These conditions require compliance with

disclosure and procedural requirements, including conflicts of interest disclosures by proxy voting

advice businesses and two principles-based requirements. In addition, the amendments codify the

Commission’s interpretation that proxy voting advice generally constitutes a solicitation within the

meaning of the Securities Exchange Act of 1934. Finally, the amendments clarify when the

failure to disclose certain information in proxy voting advice may be considered misleading within

the meaning of the antifraud provision of the proxy rules, depending upon the particular facts and

circumstances.

DATES: Effective date: The rules are effective November 2, 2020.

Compliance dates: See Section II.E.

FOR FURTHER INFORMATION CONTACT: Daniel S. Greenspan, Senior Counsel, Office

of Rulemaking, at (202) 551-3430 or Valian Afshar, Special Counsel, Office of Mergers and

Acquisitions, at (202) 551-3440, in the Division of Corporation Finance, U.S. Securities and

Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to 17 CFR 240.14a-1(l)

(“Rule 14a-1(l)”), 17 CFR 240.14a-2 (“Rule 14a-2”), and 17 CFR 240.14a-9 (“Rule 14a-9”) under

the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] (“Exchange Act”). 1

Unless otherwise noted, when we refer to the Exchange Act, or any paragraph of the Exchange Act, we are referring

to 15 U.S.C. 78a of the United States Code, at which the Exchange Act is codified, and when we refer to rules under

the Exchange Act, or any paragraph of these rules, we are referring to title 17, part 240 of the Code of Federal

Regulations [17 CFR 240], in which these rules are published.

TABLE OF CONTENTS

INTRODUCTION ............................................................................................................... 5

II. DISCUSSION OF FINAL AMENDMENTS .................................................................... 22

A. CODIFICATION OF THE COMMISSION’S INTERPRETATION OF

“SOLICITATION” UNDER RULE 14A-1(L) AND SECTION 14(A) ................................... 22

1. Proposed Amendments .................................................................................................... 26

2. Comments Received ........................................................................................................ 28

3. Final Amendments........................................................................................................... 33

AMENDMENTS TO RULE 14A-2(B): CONFLICTS OF INTEREST .......................... 51

1. Proposed Amendments .................................................................................................... 51

2. Comments Received ........................................................................................................ 54

3. Final Amendments........................................................................................................... 58

C. AMENDMENTS TO RULE 14A-2(B): NOTICE OF PROXY VOTING ADVICE AND

RESPONSE ............................................................................................................................... 68

1. Proposed Amendments .................................................................................................... 70

2. Comments Received ........................................................................................................ 73

3. Final Amendments........................................................................................................... 85

AMENDMENTS TO RULE 14A-9................................................................................. 124

1. Proposed Amendments .................................................................................................. 124

2. Comments Received ...................................................................................................... 127

3. Final Amendments......................................................................................................... 131

COMPLIANCE DATES ................................................................................................. 134

III. OTHER MATTERS ........................................................................................................ 136

IV. ECONOMIC ANALYSIS ............................................................................................... 136

INTRODUCTION ........................................................................................................... 137

Overview of Proxy Voting Advice Businesses’ Role in the Proxy Process ..................... 140

Commenter Concerns Regarding the Rule’s Economic Justification .............................. 146

ECONOMIC BASELINE ............................................................................................... 149

Affected Parties and Current Market Practices ............................................................... 149

Current Regulatory Framework ..................................................................................... 167

BENEFITS AND COSTS ................................................................................................ 171

1. Overview of Benefits and Costs and Comments Received ............................................. 171

2. Codification of the Commission’s Interpretation of “Solicitation” Under Rule 14a-1(l) and

Section 14(a) ......................................................................................................................... 175

3. Amendments to Rule 14a-2(b) ....................................................................................... 176

4. Amendments to Rule 14a-(9) ......................................................................................... 197

Effect on Smaller Entities .............................................................................................. 199

EFFECTS ON EFFICIENCY, COMPETITION, AND CAPITAL FORMATION ..... 200

1. Efficiency ...................................................................................................................... 200

2. Competition ................................................................................................................... 204

3. Capital Formation .......................................................................................................... 208

REASONABLE ALTERNATIVES ................................................................................ 209

1. Use a more prescriptive approach in the final amendments ............................................ 209

2. Require proxy voting advice businesses to include full registrant response in the

businesses’ voting advice ...................................................................................................... 209

3. Public disclosure of conflicts of interest ......................................................................... 210

4. Require additional or alternative mandatory disclosures in proxy voting advice ............. 211

5. Require disabling or suspension of pre-populated and automatic submission of votes .... 212

6. Exempt smaller proxy voting advice businesses from the additional conditions to the

exemptions ............................................................................................................................ 214

7. Require a Narrower Scope of Registrant Notice ............................................................. 215

PAPERWORK REDUCTION ACT ............................................................................... 216

BACKGROUND.............................................................................................................. 216

SUMMARY OF COMMENT LETTERS TO PRA ESTIMATES................................ 218

BURDEN AND COST ESTIMATES FOR THE AMENDMENTS .............................. 218

1. Impact on Affected Parties ............................................................................................. 219

2. Aggregate Increase in Burden ........................................................................................ 230

3. Increase in Annual Responses ........................................................................................ 231

4. Incremental Change in Compliance Burden for Collection of Information ..................... 232

5. Program Change and Revised Burden Estimates ............................................................ 233

VI. FINAL REGULATORY FLEXIBILITY ANALYSIS ................................................... 233

NEED FOR, AND OBJECTIVES OF, THE FINAL AMENDMENTS ........................ 234

SIGNIFICANT ISSUES RAISED BY PUBLIC COMMENTS..................................... 234

SMALL ENTITIES SUBJECT TO THE FINAL AMENDMENTS ............................. 236

D. PROJECTED REPORTING, RECORDKEEPING, AND OTHER COMPLIANCE

REQUIREMENTS .................................................................................................................. 237

AGENCY ACTION TO MINIMIZE EFFECT ON SMALL ENTITIES ..................... 240

VII. STATUTORY AUTHORITY ......................................................................................... 242

INTRODUCTION

Annual and special meetings of publicly traded corporations, where shareholders are

provided the opportunity to vote on various matters, are a key component of corporate governance.

The applicable laws are set by the state in which the corporation is incorporated. For various

reasons, including the widely dispersed nature of public share ownership, most shareholders do

not attend these meetings in person. Rather, most shareholders of publicly traded companies

exercise their right to vote on corporate matters through the use of proxies. 2 Congress vested in

the Commission the broad authority to oversee the proxy solicitation process when it originally

enacted the Securities Exchange Act of 1934 (the “Exchange Act”). 3 As the securities markets

have become increasingly more sophisticated and complex, and the intermediation of share

ownership and participation of various market participants has grown in kind, 4 the Commission’s

interest in ensuring fair, honest, and informed markets, underpinned by a properly functioning

proxy system, dictates that we regularly assess whether the system is serving investors as it

should. 5

See Concept Release on the U.S. Proxy System, Release No. 34-62495 (Jul. 14, 2010) [75 FR 42982 (July 22, 2010)]

(“Concept Release”), at 42984.

See Regulation of Communications Among Shareholders, Release No. 34-31326 (Oct. 16, 1992) [57 FR 48276 (Oct.

22, 1992)] (“Communications Among Shareholders Adopting Release”), at 48277 (“Underlying the adoption of

Section 14(a) of the Exchange Act was a Congressional concern that the solicitation of proxy voting authority be

conducted on a fair, honest and informed basis. Therefore, Congress granted the Commission the broad ‘power to

control the conditions under which proxies may be solicited’ . . . .”).

See Concept Release at 42983 (“This complexity stems, in large part, from the nature of share ownership in the

United States, in which the vast majority of shares are held through securities intermediaries such as broker-dealers or

banks . . . .”).

See, e.g., id. at 43020 (“The U.S. proxy system is the fundamental infrastructure of shareholder suffrage since the

corporate proxy is the principal means by which shareholders exercise their voting rights. The development of issuer,

securities intermediary, and shareholder practices over the years, spurred in part by technological advances, has made

the system complex and, as a result, less transparent to shareholders and to issuers. It is our intention that this system

operate with the reliability, accuracy, transparency, and integrity that shareholders and issuers should rightfully

expect.”).

In today’s financial markets, which are characterized by significant intermediation and

institutional investor participation, 6 proxy voting advice businesses 7 have come to play an

important role in the proxy voting process by providing an array of voting services that can help

investment advisers and institutional investor clients manage their substantive and procedural

proxy voting needs. 8 Investment advisers and institutional investors often retain proxy voting

advice businesses to assist them in making their voting determinations on behalf of their own

clients and to handle other aspects of the voting process, which for certain investment advisers has

become increasingly complex and demanding over time. 9 Investment advisers voting on behalf of

clients (including retail investors) and institutional investors, by virtue of their holdings in many

public companies, including as a result of indexing and other broad portfolio management

strategies, must manage the logistics of voting in potentially hundreds, if not thousands, of

See Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice, Release No. 34-87457 (Nov. 5, 2019)

[84 FR 66518 (Dec. 4, 2019)] (“Proposing Release”) at 66519.

For purposes of this release, we refer to firms that advise investment advisers and institutional investors on their

voting determinations, and any person who markets and sells such advice, as “proxy voting advice businesses.”

Unless otherwise indicated, the term “proxy voting advice” as used in this release refers to the voting

recommendations provided by proxy voting advice businesses on specific matters presented at a registrant’s

shareholder meeting, or for which written consents or authorizations from shareholders are sought in lieu of a meeting,

and the analysis and research underlying the voting recommendations that are delivered to the proxy voting advice

business’s clients through any means, such as in a standalone written report or multiple reports, an integrated

electronic voting platform established by the proxy voting advice businesses, or any combination thereof.

The reference to “proxy voting advice,” as used in this release, is not intended to encompass (1) administrative or

ministerial services, (2) data or research that is not used by a proxy voting advice business to formulate its voting

recommendations, or (3) the identity of any of the proxy voting advice business’s clients that receive such advice. To

the extent any data or research underlies a proxy voting advice business’s voting recommendations but is not delivered

to its clients (such as internal work product), such data or research also would not constitute that business’s proxy

voting advice. Further, we recognize that, in formulating its voting recommendations, a proxy voting advice business

may use data and research that was prepared by another party, such as market intelligence and database providers. For

the avoidance of doubt, the fact that a third party’s data and research is used by the proxy voting advice business

would not, by itself, cause such third party to be a proxy voting advice business. However, if a proxy voting advice

business uses a third party’s data and research in formulating its voting recommendations and delivers such data and

research to its clients, then the data and research would constitute part of the proxy voting advice business’s proxy

voting advice.

See Proposing Release at 66520, n.17.

Id. at 66519, n.9.

shareholder meetings and on thousands of proposals that are presented at these meetings each

year, with the significant portion of those voting decisions concentrated in a period of a few

months. 10

Proxy voting advice businesses typically provide investment advisers, institutional

investors, and other clients with a variety of services that relate to the substance of voting

decisions, such as: providing research and analysis regarding the matters subject to a vote;

promulgating their generally applicable benchmark voting policies (a “benchmark policy”) or

specialty voting policies (a “specialty policy”), such as a socially responsible policy, a

sustainability policy, or a Taft-Hartley labor policy, 11 that their clients can use; and making

specific voting recommendations to their clients on matters subject to a shareholder vote, either

based on the proxy voting advice business’s benchmark or specialty policies or based on custom

voting policies that are proprietary to a proxy voting advice business’s clients (“custom policy”). 12

This advice is often an important factor in the clients’ proxy voting decisions. Clients may use the

proxy voting advice business’s recommendations in a variety of ways, including as an alternative

or supplement to their own internal resources in analyzing matters when deciding how to vote.13

Id. at n.8.

For example, the various benchmark and specialty policies of one proxy voting advice business, Institutional

Shareholder Services (ISS), are set forth on the following web page: https://www.issgovernance.com/policygateway/voting-policies/. The various benchmark and specialty policies of another proxy voting advice business,

Egan-Jones, are set forth on the following web page: https://www.ejproxy.com/methodologies/.

See Proposing Release at 66519. As discussed infra Section II.C.3.c.i., we are excluding from the requirements of

new Rule 14a-2(b)(9)(ii) proxy voting advice to the extent that such advice is based on custom policies. Custom

policies would not include the proxy voting advice businesses’ benchmark or specialty policies, even if those

benchmark or specialty policies were to be adopted by proxy voting advice businesses’ clients. See infra note 394 for

a discussion of how a proxy voting advice business may satisfy the requirements of new Rule 14a-2(b)(9)(ii) in

situations in which a client’s custom policy is identical to the benchmark or specialty policies.

Id.

Proxy voting advice businesses may also provide services that assist clients in handling the

administrative tasks of the voting process, typically through an electronic platform that enables

their clients to cast votes more efficiently. 14 In some cases, proxy voting advice businesses are

given authority to execute votes on behalf of their clients in accordance with the clients’ general

guidance or specific instructions. 15

Although estimates vary, each year proxy voting advice businesses provide voting advice

to thousands of clients that exercise voting authority over a sizable number of shares. 16 Because

proxies have become the predominant means by which shareholders of publicly traded companies

exercise their right to vote on corporate matters, 17 and institutional investors hold a significant and

increasing number of shares, proxy voting advice businesses have become uniquely situated in

today’s market to influence, 18 and in many cases directly execute, these investors’ voting

decisions. 19

In recognition of the important and unique role that proxy voting advice businesses play in

the proxy voting process 20 and in the voting decisions of investment advisers and institutional

investors 21 who often vote on behalf of retail investors, the Commission proposed amendments to

the Federal proxy rules in November 2019 to enhance the transparency, accuracy, and

Id.

Id. at 66520, n.18.

Id. at 66518, n.2.

See, e.g., letter from Council of Inst. Investors (Nov. 14, 2019) (“CII I”) (noting that proxy voting advice

businesses’ “recommendations and related analysis” may be “market-moving”).

See also infra note 36 for a discussion of the increased institutional investor holdings in the U.S. markets.

Id. at 66520.

Id.

completeness of the information provided to clients of proxy voting advice businesses in

connection with their voting decisions. 22

Specifically, the Commission proposed amendments to codify its interpretation that proxy

voting advice generally constitutes a solicitation within the meaning of Exchange Act Section

14(a) and therefore is subject to the Federal proxy rules. In addition, the Commission proposed to

condition the availability of certain existing exemptions from the information and filing

requirements of the Federal proxy rules commonly used by proxy voting advice businesses upon

compliance with additional disclosure and procedural requirements. Finally, the Commission

proposed to amend Exchange Act Rule 14a-9, the antifraud provision of the Federal proxy rules,

to clarify that, depending upon the particular facts and circumstances at issue, the failure to

disclose certain information in proxy voting advice may be considered materially misleading

within the meaning of the rule.

We received many comment letters in response to the Proposing Release. 23 After

considering the public comments, we are adopting the proposed rules with certain modifications as

See generally Proposing Release.

See generally letters submitted in connection with the Proposing Release, available at

https://www.sec.gov/comments/s7-22-19/s72219.htm. Unless otherwise specified, all references in this release to

comment letters are to those relating to the Proposing Release. In addition, the SEC’s Investment Advisory

Committee adopted recommendations asking the Commission to: prioritize improvements to the proxy system (endto-end vote confirmations, reconciliations, and universal proxies); improve conflict-of-interest disclosure generally;

enhance the discussion about the value of proxy advisors and shareholder proposals, and; expand the economic costbenefit analysis. See U.S. Securities & Exchange Commission Investor Advisory Committee, Recommendation of the

SEC Investor Advisory Committee Relating to SEC Guidance and Rule Proposals on Proxy Advisors and Shareholder

Proposals (Jan. 24, 2020) (“IAC Recommendation”), available at https://www.sec.gov/spotlight/investor-advisorycommittee-2012/sec-guidance-and-rule-proposals-on-proxy-advisors-and-shareholder-proposals.pdf. These

recommendations were not unanimously approved by the members of the Investor Advisory Committee; see letters

from Stephen Holmes (Jan. 27, 2020) (“S. Holmes”); Paul G. Mahoney and J.W. Verret (Jan. 30, 2020) (“P. Mahoney

and J.W. Verret”); Heidi Stam (Jan. 27, 2020). We address the substance of the IAC Recommendation, together with

related public comments, in the discussion that follows. Finally, the 2019 Small Business Forum Report included a

recommendation that the Commission provide “for effective oversight of proxy advisory firms under Rule 14a-2(b),

with a focus on conflicts of interest, accuracy, transparency, and issuer-specific decision making.” This

recommendation was tied for first place in the priority ranking assigned by the participants of the breakout group

session. See Final Report of the 2019 SEC Government-Business Forum on Small Business Capital Formation

(December 2019) (“2019 Small Business Forum”), available at https://www.sec.gov/files/small-business-forumreport-2019.pdf.

described, and for the reasons set forth, below. Consistent with the proposal, we are adhering to—

and adopting an amendment to Rule 14a-1(l) to codify—our longstanding view that proxy voting

advice generally constitutes a “solicitation” under Section 14(a). 24 Absent an applicable

exemption, a person providing such proxy voting advice would be subject to the Federal proxy

rules’ information and filing requirements, including the obligation to file and furnish definitive

proxy statements. For reasons previously stated in the Proposing Release, we believe that proxy

voting advice businesses should be eligible to rely on an exemption from such information and

filing requirements for their proxy voting advice, but only to the extent that such exemption is

appropriately tailored to their unique role in the proxy process and facilitates the transparency,

accuracy, and completeness of the information available to those making voting decisions. As

such, under the new rules that we are adopting, persons furnishing proxy voting advice

constituting a solicitation as defined in new 17 CFR 240.14a-1(l)(1)(iii)(A) (“Rule 14a1(l)(1)(iii)(A)”) will be eligible to rely on the exemptions in 17 CFR 240.14a-2(b)(1) (“Rule 14a2(b)(1)”) and 17 CFR 240.14a-2(b)(3) (“Rule 14a-2(b)(3)”) 25 only upon satisfaction of the

conditions of new 17 CFR 240.14a-2(b)(9) (“Rule 14a-2(b)(9)”).

As described in more detail below, we have modified these conditions in a number of

respects in response to comments received to provide appropriate flexibility to proxy voting

advice businesses to meet the principles that underlie the objectives of the rule, and to avoid

unnecessary potential disruptions to their ability to provide their clients with timely voting advice.

In addition, consistent with the amendments to 17 CFR 240.14a-2(b) (“Rule 14a-2(b)”), we are

amending Rule 14a-1(l) to make clarifying changes to the definition of solicitation as it relates to

See infra Section II.A.3.

Proxy voting advice businesses have typically relied upon the exemptions in Rule 14a-2(b)(1) and (b)(3) to provide

advice without complying with the filing and information requirements of the proxy rules. See Proposing Release at

66525 and n.68.

proxy voting advice and amending Rule 14a-9 to add to the list of examples provided in the Note

to that rule. We are adopting these amendments to Rule 14a-1(l) and Rule 14a-9 substantially in

the form proposed, with certain modifications as described in the discussion that follows.

We recognize that for some shareholders, the services provided by proxy voting advice

businesses can be an important component of the larger proxy voting process and, as such, help

facilitate the participation of shareholders in corporate governance through the exercise of their

voting rights. 26 We are also mindful that the efficacy and effectiveness of the proxy voting system

depend on the ability of shareholders to obtain transparent, accurate, and materially complete

information from an array of relevant parties before making their proxy voting decisions. To

enable shareholders to make informed voting decisions, Congress and the Commission have

placed varying obligations on participants in the proxy voting process, including through

Commission rulemakings pursuant to the broad authority granted by Congress to regulate proxy

solicitation. 27

For example, registrants and others who engage in a proxy solicitation generally must

furnish shareholders with a definitive proxy statement containing numerous specified

disclosures. 28 They must also generally file all of their additional soliciting materials with the

Commission, which ensures that all shareholders and interested parties have access to their

soliciting statements and have an ability to consider such statements as part of their voting

decisions and, in certain situations such as in a proxy contest, respond to them. 29 The

Commission, however, has long recognized that these general requirements applicable to

See Proposing Release at 66525.

See infra notes 55-60 and accompanying text for a discussion of the multifaceted nature of the Federal securities

laws’ security holder voting and ownership disclosure regulatory framework.

17 CFR 240.14a-3; 17 CFR 240.14a-101.

17 CFR 240.14a-6(b).

registrants and others engaged in a proxy solicitation may not be necessary under certain

circumstances and, throughout the years, has tailored the application of these requirements as

needed. For example, shareholders who beneficially own more than $5 million of securities and

who do not seek proxy voting authority are exempt from the requirement to file a definitive proxy

statement when they engage in a solicitation, but they still must publicly file with the Commission

any written soliciting materials sent to security holders and are subject to the antifraud provisions

of Rule 14a-9 with respect to the content of those soliciting materials. 30 Parties conducting certain

other solicitation activities, including the furnishing of proxy voting advice, have relied on other

exemptions from the requirement to file proxy statements. 31 Still other activity has been entirely

exempt from the proxy rules, including Rule 14a-9. 32

The Commission has periodically adjusted the proxy rules in response to market

developments, including to provide shareholders with additional sources of information. 33 In

calibrating the rules and exemptions, the Commission has generally sought to avoid unnecessary

burdens that may deter the expression of views on matters presented for a vote while ensuring that

17 CFR 240.14a-2(b)(1); 17 CFR 240.14a-6(g).

17 CFR 240.14a-2(b). Rules 14a-2(a) and (b) set forth a number of activities that fall within the definition of a

solicitation but for which the requirement to file a definitive proxy statement does not apply. This includes, for

example, the delivery of registrants’ proxy materials by securities intermediaries to their clients and the securities

intermediaries’ request for voting instructions from their clients (Rule 14a-1(a)(1)), solicitations by or on behalf of a

person who does not seek proxy authority (Rule 14a-2(b)(1)), solicitations of no more than ten persons (Rule 14a2(b)(2)), the furnishing of proxy voting advice by advisors to their clients under certain circumstances (Rule 14a2(b)(3)), the publication or distribution by a broker or a dealer of research reports under specified conditions (Rule

14a-2(b)(5)), and the solicitations through electronic shareholder forums by persons who do not seek proxy voting

authority (Rule 14a-2(b)(6)).

17 CFR 240.14a-2(a).

For example, the Commission has recalibrated the exemptions “to provide shareholders with additional sources of

information, opinions and views” to inform their voting decisions, and to remove impediments that it determined

“unduly hindered free discussion” among registrants, shareholders, and other interested parties. Communications

Among Shareholders Adopting Release; see also Concept Release (“The Commission has actively monitored the

proxy process since the 1930s and has made changes when the process was not functioning in a manner that

adequately protected the interests of investors.”).

shareholders have transparent, accurate, and materially complete information upon which to make

their voting decisions. 34 In this regard, the Commission has been guided by the “fundamental

conclusion that the interests of shareholders are best served by more, and not less, discussion of

matters presented for a vote.”35 This same principle guides us again as we update the

Commission’s rules in light of current market practices and circumstances.

As explained in the Proposing Release, proxy voting advice businesses have become an

increasingly important and prominent part of the proxy voting process as institutional investors,

who own a majority of the outstanding shares in today’s market, 36 often retain proxy voting advice

businesses to assist them in making their voting determinations and voting their shares on behalf

of clients. In recent years, registrants, investors, and others have expressed concerns about the

role of proxy voting advice businesses. These concerns include the accuracy and soundness of the

information, and the transparency of the methodologies, used to formulate proxy voting advice

businesses’ recommendations. Concerns have also focused on potential conflicts of interest that

may affect the recommendations made by the proxy voting advice businesses. 37 In addition,

questions have been raised about whether registrants have an adequate opportunity to review and

respond to proxy voting advice before votes, informed by such advice, are cast and whether

shareholders have an adequate opportunity to review the proxy voting advice, including in the

context of any response from the registrant or others, before casting their votes. 38 These concerns

See Communications Among Shareholders Adopting Release (noting concerns about “secret” solicitations, as well

as concerns about the burden on shareholders).

Id.

See, e.g., A. DE LA CRUZ ET AL., OECD, OWNERS OF THE WORLD’S LISTED COMPANIES 22 (2019), available at

https://www.oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.pdf (“In the United States, institutional

investors hold around 72% of the domestic stock market value.”).

See Proposing Release at 66525.

See id. at 66529.

and changing market conditions, as discussed above, prompted the Commission to consider

amendments to the exemptions commonly used by proxy voting advice businesses, which had

been crafted before proxy voting advice businesses played the significant role that they now do in

the proxy voting process and in the voting decisions of investment advisers and institutional

investors.39 A number of the comment letters we received in response to the Proposing Release

continue to express these concerns. 40

In updating our rules to facilitate better informed proxy voting, we do not believe that it is

necessary to subject proxy voting advice businesses to the Federal proxy rules’ information and

filing requirements applicable to registrants and certain others, such as the filing and furnishing of

definitive proxy statements, as long as they satisfy certain requirements tailored to their role in the

proxy process. In particular, we believe that concerns raised regarding the increase in

intermediation and complexity in the market and the increased dependence on proxy voting advice

can be addressed, and the goal of ensuring that shareholders receive more transparent, accurate,

and complete information can be furthered, without the full set of disclosures that would be

required with a definitive proxy statement. We also recognize that a requirement to publicly file

proxy voting advice with the Commission and disseminate proxy materials to the shareholders of

See id. at 66519-21.

See, e.g., letters from Mark A. Bloomfield, President and CEO, American Council for Capital Formation (Jan. 27,

2020) (“ACCF”); Kyle Isakower, Senior Vice Pres. of Reg. & Energy Policy, American Council for Capital

Formation (July 7, 2020) (“ACCF II”); Cameron Arterton, Vice President, Biotechnology Innovation Organization

(Feb. 3, 2020) (“BIO”); Business Roundtable (Feb. 3, 2020) (“BRT”); Tom Quaadman, Vice President, U.S. Chamber

of Commerce Center for Capital Markets Competitiveness (Jan. 31, 2020) (“CCMC”); Henry D. Eickelberg, Chief

Operating Officer, Center on Executive Compensation (Feb. 3, 2020) (“CEC”); Corporate Governance Coalition for

Investor Value (Feb. 3, 2020) (“CGC”); Neil A. Hanson, Vice President, Investor Relations and Secretary, Exxon

Mobil Corporation (Feb. 3, 2020) (“Exxon Mobil”); Rick E. Hansen, Assistant General Counsel and Corporate

Secretary, General Motors Company (Feb. 25, 2020) (“GM”); Clifton A. Pemble, President and CEO, Garmin

International, Inc. (Jan. 27, 2020) (“Garmin”); Brian S. Roman, Global General Counsel (Feb. 3, 2020) (“Mylan”);

Chris Netram, Vice President, Tax & Domestic Economic Policy, National Association of Manufacturers (Feb. 3,

2020) (“NAM”); Tony M. Edwards, Senior Executive Vice President, and Victoria P. Rostow, Senior Vice President

& Deputy General Counsel (Feb. 3, 2020) (“Nareit”); John A. Zecca, Executive Vice President, Chief Legal and

Regulatory Officer, Nasdaq, Inc. (Feb. 3, 2020) (“Nasdaq”); Gary A. LaBranche, President & CEO, National Investor

Relations Institute (Feb. 3, 2020) (“NIRI”); Darla Stuckey, President and CEO, Society for Corporate Governance

(Feb. 3, 2020) (“SCG”) .

every registrant covered by the advice could result in the addition of significant substantive and

procedural changes in the current operations of proxy voting advice businesses and could

adversely impact their business models. For example, such a requirement would effectively allow

investment advisers, institutional investors, and other investors who do not subscribe to the

services of proxy voting advice businesses to obtain certain proxy voting advice services free of

charge.

For these reasons, we believe that as a general matter these businesses should continue to

be eligible for the benefits of conditional, tailored exemptions from the information and filing

requirements of the Federal proxy rules generally applicable to registrants and others. In light of

the significant role proxy voting advice plays in the voting decisions of institutional investors and

others, however, we also believe that the exemptions need to be fashioned both to elicit adequate

disclosure and to enable proxy voting advice businesses’ clients to have reasonable and timely

access to transparent, accurate, and complete information material to matters presented for a

vote—thereby ensuring that the continued use of the exemptions facilitates informed voting

decisions and does not undermine the purposes of the Federal proxy rules.

Some commenters argued that the Investment Advisers Act of 1940 (the “Advisers Act”) is

the proper regulatory regime for proxy voting advice businesses, and that the Advisers Act and an

investment adviser’s fiduciary duty already address the stated objectives of the proposed rules. 41

We disagree. The Advisers Act and Section 14(a) serve distinct, though overlapping, regulatory

purposes. The Advisers Act is a principles-based regulatory framework, at the center of which is a

federal fiduciary duty to clients that is based on equitable common law principles. 42 Section 14(a)

See, e.g., letter from Gary Retelny, CEO, Institutional Shareholder Services, Inc. (Jan. 31, 2020) (“ISS”).

See Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Release No. IA-5248 at 6

(June 5, 2019), 84 FR 33669, 33670 (July 12, 2019) (“Standard of Conduct for Investment Advisers”); SEC v. Capital

Gains Research Bureau, Inc., 375 U.S. 180, 194 (1963) (noting that the Advisers Act “reflects a congressional

recognition ‘of the delicate fiduciary nature of an investment advisory relationship,’ as well as a congressional intent

grants the Commission broad power to adopt rules to control the conditions under which proxies

may be solicited in order to address a Congressional concern that the solicitation of proxy voting

authority be conducted on a fair, honest, and informed basis. 43

As a preliminary matter, we note that proxy voting advice businesses differ as to whether

they believe they fall within the definition of an investment adviser under the Advisers Act and

should be registered as investment advisers. The Commission has stated previously that when

proxy voting advice businesses provide certain services, they meet the definition of investment

adviser under the Advisers Act and thus are subject to regulation under the Act. 44 Specifically, a

person is an “investment adviser” if the person, for compensation, engages in the business of

providing advice to others as to the value of securities, whether to invest in, purchase, or sell

securities, or issues reports or analyses concerning securities. 45 Proxy voting advice businesses

provide analyses of shareholder proposals, director candidacies, or corporate actions and provide

advice concerning particular votes in a manner designed to assist their institutional clients to

achieve their investment goals with respect to the voting of securities they hold. 46 In other words,

proxy voting advice businesses, for compensation, engage in the business of issuing reports or

analyses concerning securities and providing advice to others as to the value of securities and

would therefore meet the definition of an investment adviser unless an exclusion applies. 47

to eliminate, or at least to expose, all conflicts of interest which might incline an investment adviser -- consciously or

unconsciously -- to render advice which was not disinterested”).

See Communications Among Shareholders Adopting Release at 48277; Proposing Release at n.3.

See Concept Release at 43010.

Advisers Act Section 202(a)(11) [15 U.S.C. § 80b-2(a)(11)]. Sections 202(a)(11)(A) through (G) of the Advisers

Act address exclusions to the definition of the term “investment adviser.” [15 U.S.C. 80b-2(a)(11)(A) through (G)].

See Concept Release at 43010.

Id.

One such exclusion from the definition of an investment adviser under the Advisers Act is

the “publisher’s exclusion.” Specifically, Section 202(a)(11)(D) of the Advisers Act excludes

from the definition of an investment adviser a “publisher of any bona fide newspaper, news

magazine or business or financial publication of general and regular circulation.” 48 At least one

large proxy voting advice business has taken the position that if it was deemed to be an investment

adviser, it could rely on the exclusion for publishers contained in Section 202(a)(11)(D) of the

Advisers Act. 49

Regardless of the applicability of the Advisers Act, however, we believe the concerns

motivating the rules we are adopting are squarely subject to, and appropriately addressed through,

regulation under Section 14(a). 50 As we noted in the Proposing Release, proxy voting advice

businesses provide voting advice to clients that exercise voting authority over a sizable number of

Lowe v. SEC, 472 U.S. 181 (1985). The U.S. Supreme Court has interpreted the “publisher’s exclusion” to include

publications that offer impersonal investment advice to the general public on a regular basis. To qualify for the section

202(a)(11)(D) exclusion, the publication must be: (1) of a general and impersonal nature, in that the advice provided is

not adapted to any specific portfolio or any client’s particular needs; (2) “bona fide” or genuine, in that it contains

disinterested commentary and analysis as opposed to promotional material; and (3) of general and regular circulation,

in that it is not timed to specific market activity or to events affecting, or having the ability to affect, the securities

industry.

See letter from Katherine Rabin, CEO, Glass Lewis & Co., LLC (Nov. 14, 2018), available at

https://www.glasslewis.com/wp-content/uploads/2018/11/GL-SEC-Roundtable-Statement-111418.pdf. The

Government Accountability Office in its Report about proxy advisory firms to the Committee on Banking, Housing,

and Urban Affairs of the U.S. Senate in 2016 also took note of the differences in registration status of proxy advisory

firms. The Report observed that one large proxy voting advice business is not registered with the SEC as an

investment adviser, while another is, and a third is registered as a nationally recognized statistical rating organization.

See Report to the Chairman, Subcommittee on Economic Policy, Committee on Banking, Housing, and Urban Affairs,

U.S. Senate, Corporate Shareholder Meetings, Proxy Advisory Firms’ Role in Voting and Corporate Governance

Practices from the U.S. Government Accountability Office (Nov. 2016), available at

https://www.gao.gov/assets/690/681050.pdf.

Whether an entity meets the definition of an investment adviser or is eligible for an exclusion does not impact the

analysis of whether it is engaged in “solicitation” for purposes of Section 14(a). Relatedly, the retention of a proxy

voting advice business does not relieve an investment adviser of its obligations under the Advisers Act to its clients.

See Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Release No. IA-5325,

pp. 5-6 (Aug. 21, 2019) [84 FR 47420, 42421 (Sept. 10, 2019)] (“Commission Guidance on Proxy Voting

Responsibilities”), Question No. 2 at 12, 84 FR 47423 (discussing steps that an investment adviser that has assumed

the authority to vote proxies on behalf of clients could take to demonstrate that it is making voting determinations in a

client’s best interest); see also Supplement to Commission Guidance Regarding Proxy Voting Responsibilities of

Investment Advisers, Release No. IA-5547 (July 22, 2020) (“Supplemental Proxy Voting Guidance”).

shares that are voted annually, and these businesses are uniquely situated in today’s market to

influence investors’ voting decisions. 51 This advice also implicates interests beyond those of the

clients who utilize it when voting. Because these clients vote shares they hold on behalf of

thousands of retail investors, this advice affects the interests of these underlying investors.

Further, in light of proxy voting advice businesses’ clients’ ability to affect the outcome of the

vote on a particular matter through their voting power, the proxy voting advice guiding the clients’

votes potentially affects the interests of all shareholders 52 of the registrant, the registrant, and the

proxy system in general. 53

In the areas of proxy voting, proxy solicitation, and related activities, the Advisers Act,

Section 14(a), and various other statutes and Commission rules do not operate independently from

each other and are not mutually exclusive. Rather, depending on the activity and status of the

person involved, more than one statutory provision and related rules may apply, with the various

provisions complementing each other. For example, Section 13(d) of the Exchange Act and the

related rules 54 are designed to ensure that market participants are informed when any shareholder

(or group of shareholders) acquires more than five percent of a class of equity securities registered

under Exchange Act Section 12. 55 Section 13(d) and the related rules generally require these

holders to disclose publicly their ownership and other information mandated by the Commission,

such as any plans that the holders may have to change the board of directors or management or to

See Proposing Release at 66520.

See supra note 18.

Cf. J. I. Case Co. v. Borak, 377 U.S. 426, 432 (1964) (“The injury which a stockholder suffers from corporate

action pursuant to a deceptive proxy solicitation ordinarily flows from the damage done the corporation, rather than

from the damage inflicted directly upon the stockholder. The damage suffered results not from the deceit practiced on

him alone but rather from the deceit practiced on the stockholders as a group.”).

17 CFR 240.13d-1 through 13d-102 (“Rules 13d-1 through 13d-102”).

15 U.S.C. 78m(d).

engage in extraordinary transactions (such as mergers or material asset sales), for so long as the

holdings exceed the five percent threshold as well as any material changes to these disclosures. 56

These mandated disclosures, which are provided in Schedule 13D, along with the short-form

Schedule 13G adopted pursuant to Exchange Act Section 13(g), 57 have proven important to

investor protection by providing public notice of significant accumulations of securities by a

person that may affect the control of the company and, ultimately, the interests of all security

holders in the company, including in the context of proxy voting.

Yet, the obligation for a shareholder to file Schedules 13D or 13G does not obviate the

shareholder’s obligation to comply with Section 14(a) and the Federal proxy rules to the extent

that the shareholder engages in activities that constitute a proxy solicitation. For example, a

dissident shareholder seeking to solicit proxy authority to elect its own director nominees to a

registrant’s board in a contested election must still file and furnish a definitive proxy statement

even though the dissident shareholder may have previously disclosed in its Schedule 13D the plan

to change the board of directors. This is the result of Congress establishing these two separate

statutory provisions with different purposes, with Section 13(d) focused on providing notice about

concentration of voting power and the use of that power, including to change or influence the

control of the issuer, and Section 14(a) focused on providing information needed for informed

shareholder voting, and the fact that a shareholder may engage in an activity that triggers

obligations under both provisions.

The two statutory obligations often complement each other. For example, Exchange Act

Rule 13d-1 provides certain shareholders, including many classes of institutional shareholders,

17 CFR 240.13d-101.

15 U.S.C. 78m(g).

with a tailored, conditional exemption from the general requirements of Section 13(d) if the

shareholder has acquired the securities “in the ordinary course of business and not with the

purpose nor with the effect of changing or influencing the control of the issuer.” 58 In various

circumstances where shareholders are voting by proxy, and solicitation activity is ongoing—for

example, the election of directors or the approval of an extraordinary corporate transaction—the

information required to be disclosed publicly by Section 13(d) may be material to a voting

decision and, accordingly, important to the regulation of the proxy voting process. Similarly, the

Commission—noting that Section 13(d) already sets forth the circumstances for when public

disclosures of such plans, proposals, or agreements are needed—adopted the Rule 14a-2(b)(1)

exemption despite concerns from some commenters that proxy filings are needed for disclosure of

a shareholder’s plans or proposals regarding the registrant or shareholders’ voting agreements on a

particular matter. 59 At the same time, the exemption is not available for solicitations by any

person who, while not seeking proxy authority, is nevertheless required to file a Schedule 13D or

has disclosed in the Schedule 13D an intent (or reserved the right) to engage in a change of control

17 CFR 240.13d-1(b)(1)(i).

See Communications Among Shareholders Adopting Release at 48278 (“When and under what circumstances a

large shareholder, or group of shareholders acting together, must reveal to the SEC, the company, other shareholders,

and the market its plans and proposals regarding the company has been addressed by Congress, but not through the

provisions governing proxy solicitations. Section 13(d) of the Exchange Act, as implemented by the Commission in

its regulations adopted thereunder, sets forth the circumstances when public disclosure of plans and proposals by

significant shareholders, as well as agreements among shareholders to act together with respect to voting matters,

must be disclosed to the market.”). See also Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854 (Jan. 16, 1998)]

(stating the Commission’s views on when a significant shareholder’s proxy soliciting activities and communications

could be viewed as having the purpose or effect of changing or influencing control of the company and thereby

triggering the obligation to file a Schedule 13D).

Under Section 13(d) and Section 13(g), a “group” is formed when two or more persons act together for the purpose of

acquiring, holding, voting or disposing of the securities. Congress created the “group” concept to prevent persons

who seek to pool their voting or other interests in the securities of an issuer from evading the Section 13(d) or 13(g)

obligations because no one person owns more than five percent of the securities. Use of a proxy voting advice

business by investors as a vehicle for the purpose of coordinating their voting decisions regarding an issuer’s

securities without complying with the filing obligations of Section 13(d) or 13(g) would raise compliance concerns

under the beneficial ownership reporting requirements.

transaction or a contested director election, given the heightened need for the proxy disclosures

from a person contemplating such transformative transactions or contests.

Other statutes that often play an important and complementary role in furthering all aspects

of the Commission’s mission in the context of proxy voting and proxy solicitation include

Sections 5, 11, and 12 of the Securities Act of 1933 (the “Securities Act”), in particular in

circumstances where the vote being solicited is in connection with a significant transaction, such

as a merger, in which new securities may be issued to the shareholders who are voting on the

transaction. In such a situation, both the registration and prospectus requirements of Securities

Act Section 5 and the proxy solicitation requirements of Exchange Act Section 14(a) apply, with

public companies often filing a joint proxy statement/prospectus to fulfill both statutory

obligations.

This framework—complementary and overlapping statutes and rules that are based on

principles, facts and circumstances, and each participant’s actions as well as status—applies

similarly in other key areas of the Commission’s mandate, including the offer and sale of

securities in both the public and private markets, securities trading, and the provision of

investment advice to retail and institutional investors. Moreover, this framework is consistent

with Congressional intent as reflected in the enactment of the Securities Act, the Exchange Act,

the Advisers Act, and various other key statutes, including Section 14(a), and has proven to be an

effective and efficient means to regulate an important, multi-faceted and ever-evolving aspect of

commerce. Accordingly, given the importance of a properly functioning proxy system to

investors and the capital markets, even if other provisions of the federal securities laws may apply

to certain of their activities, it is appropriate for voting advice furnished by proxy voting advice

businesses to be subject to the rules under Section 14(a), which are designed specifically to

enhance the transparency and integrity of the proxy voting process, with the ultimate aim of

facilitating informed voting decisions. 60

II.

DISCUSSION OF FINAL AMENDMENTS

A. Codification of the Commission’s Interpretation of “Solicitation” Under Rule 14a1(l) and Section 14(a)

Exchange Act Section 14(a) 61 makes it unlawful for any person to “solicit” any proxy with

respect to any security registered under Exchange Act Section 12 in contravention of such rules

and regulations prescribed by the Commission. 62 The purpose of Section 14(a) is to prevent

“deceptive or inadequate disclosure” from being made to shareholders in a proxy solicitation. 63

Section 14(a) grants the Commission broad authority to establish rules and regulations to govern

proxy solicitations “as necessary or appropriate in the public interest or for the protection of

investors.”64

The Exchange Act does not define what constitutes a “solicitation” for purposes of Section

14(a) and the Commission’s proxy rules. Accordingly, the Commission has exercised its

rulemaking authority over the years to define what communications are solicitations and to

prescribe rules and regulations when necessary and appropriate in the public interest and to protect

See Proposing Release at 66520.

15 U.S.C. 78n(a).

Registrants only reporting pursuant to Exchange Act Section 15(d) are not subject to the federal proxy rules, while

foreign private issuers are exempt from the requirements of Section 14(a). 17 CFR 240.3a12-3(b).

Borak, 377 U.S. at 432; see S. Rep. No. 1455, 73d Cong., 2d Sess., 74 (1934) (“In order that the stockholder may

have adequate knowledge as to the manner in which his interests are being served, it is essential that he be enlightened

not only as to the financial condition of the corporation, but also as to the major questions of policy, which are decided

at stockholders’ meetings.”); Communications Among Shareholders Adopting Release at 48277.

15 U.S.C. 78n(a); see Borak, 377 U.S. at 432 (noting the “broad remedial purposes” evidenced by the language of

Section 14(a)).

investors in the proxy voting process. 65 The Commission first promulgated rules in 1935 to define

a solicitation to include any request for a proxy, consent, or authorization or the furnishing of a

proxy, consent, or authorization to security holders. 66 Since then, the Commission has amended

the definition as needed to respond to new and changing market practices that have raised the

concerns underlying Section 14(a). 67

In particular, the Commission expanded the definition of a solicitation in 1956 to include

not only requests for proxies, but also any “communication to security holders under

circumstances reasonably calculated to result in the procurement, execution, or revocation of a

proxy.” 68 This expanded definition was prompted by recognition that some market participants

were distributing written communications designed to affect shareholders’ voting decisions well in

advance of any formal request for a proxy that would have triggered the filing and information

requirements of the federal proxy rules. 69

Since 1956, the Commission has recognized that its definition of a solicitation was broad

and applicable regardless of whether persons communicating with shareholders were seeking

proxy authority for themselves. 70 In light of the breadth of this definition, the Commission

See 15 U.S.C. 78n(a); 78c(b); 78w.

See Order Execution Obligations, Release No. 34-378 (Sept. 24, 1935) 1935 WL 29270.

The Commission revised the definition in 1938 to include any request for a proxy, regardless of whether the request

is accompanied by or included in a written form of proxy. See Release No. 34-1823 (Aug. 11, 1938) [3 FR 1991

(Aug. 13, 1938)], at 1992. It subsequently revised the definition in 1942 to include “any request to revoke or not

execute a proxy.” See Release No. 34-3347 (Dec. 18, 1942) [7 FR 10653 (Dec. 22, 1942)], at 10656. Courts have

also taken a broad view of solicitation. See infra notes 141-146 and accompanying text.

17 CFR 240.14a-1(l)(1)(iii); see Adoption of Amendments to Proxy Rules, Release No. 34-5276 (Jan. 17, 1956) [21

FR 577 (Jan. 26, 1956)], at 577; see also Broker-Dealer Participation in Proxy Solicitations, Release No. 34-7208

(Jan. 7, 1964) [29 FR 341 (Jan. 15, 1964)] (“Broker-Dealer Release”), at 341 (“Section 14 and the proxy rules apply to

any person—not just management, or the opposition. This coverage is necessary in order to assure that all materials

specifically directed to stockholders and which are related to, and influence their voting will meet the standards of the

rules.”).

See generally Communications Among Shareholders Adopting Release.

Id. at 48276 (adopting Exchange Act Rule 14a-2(b)(1)).

adopted an exemption from the information and filing requirements of the Federal proxy rules for

communications by persons not seeking proxy authority, but continued to include such

communications within the definition of a “solicitation.” 71 The Commission also adopted another

exemption from the information and filing requirements for proxy voting advice given by advisors

to their clients under certain circumstances, but likewise continued to include such advice within

the definition of “solicitation,” subject to an exception discussed below. 72 By adopting these

tailored exemptions, the Commission removed certain filing and other requirements that were

considered unnecessary for such solicitations in order to facilitate shareholder access to more

sources of information when voting, though the antifraud provisions of the proxy rules continued

to apply.

The Commission has previously observed that the definition of a solicitation for purposes

of Section 14(a) may result in proxy voting advice businesses being subject to the Federal proxy

rules because they provide recommendations that are reasonably calculated to result in the

procurement, withholding, or revocation of a proxy and thus, as a general matter, the furnishing of

proxy voting advice constitutes a solicitation. 73 In 2019, the Commission issued an interpretative

release regarding the application of the Federal proxy rules to proxy voting advice. 74 As the

Commission explained in that release, the determination of whether a communication is a

solicitation for purposes of Section 14(a) depends upon both the specific nature, content, and

See id.

See Shareholder Communications, Shareholder Participation in Corporate Electoral Process and Corporate

Governance Generally, Release No. 34-16356 (Nov. 21, 1979) [44 FR 68764 (Nov. 29, 1979)] (“1979 Adopting

Release”), at 68766.

See Concept Release at 43009. See also Proposing Release at 66522; Broker-Dealer Release at 341.

Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting

Advice, Release No. 34-86721 (Aug. 21, 2019) [84 FR 47416 (Sept. 10, 2019)] (“Commission Interpretation on

Proxy Voting Advice”).

timing of the communication and the circumstances under which the communication is

transmitted. 75 The Commission noted several factors that indicate proxy voting advice businesses

generally engage in solicitations when they provide proxy voting advice to their clients, including:

•

The proxy voting advice generally describes the specific proposals that will be presented at

the registrant’s upcoming meeting and presents a “vote recommendation” for each

proposal that indicates how the client should vote;

•

Proxy voting advice businesses market their expertise in researching and analyzing matters

that are subject to a proxy vote for the purpose of assisting their clients in making voting

decisions;

•

Many clients of proxy voting advice businesses retain and pay a fee to these firms to

provide detailed analyses of various issues, including advice regarding how the clients

should vote through their proxies on the proposals to be considered at the registrant’s

upcoming meeting or on matters for which shareholder approval is sought; and

•

Proxy voting advice businesses typically provide their recommendations shortly before a

shareholder meeting or authorization vote,76 enhancing the likelihood that their

recommendations will influence their clients’ voting determinations. 77

The Commission observed that where these or other significant factors (or a significant subset of

See Commission Interpretation on Proxy Voting Advice at 47417. See also Proposing Release at 66522; Concept

Release at 43009 n.244.

See, e.g., letter from Maria Ghazal, Senior Vice President and Counsel, Business Roundtable (June 3, 2019) at 9

(“[R]ecent survey results support the contention that a spike in voting follows adverse voting recommendations by ISS

during the three-business day period immediately after the release of the recommendation.”); Transcript of Roundtable

on the Proxy Process, at 242 (Nov. 15, 2018), available at https://www.sec.gov/files/proxy-round-table-transcript111518.pdf; Frank Placenti, Are Proxy Advisors Really A Problem?, AMERICAN COUNCIL FOR CAPITAL FORMATION 3

(Oct. 2018), http://accfcorpgov.org/wp-content/uploads/2018/10/ACCF_ProxyProblemReport_FINAL.pdf.

Commission Interpretation on Proxy Voting Advice at 47418. See also Proposing Release at 66522.

these or other factors) are present,78 the proxy voting advice businesses’ voting advice generally

would constitute a solicitation subject to the Commission’s proxy rules because such advice would

be “a communication to security holders under circumstances reasonably calculated to result in the

procurement, withholding or revocation of a proxy.” 79 Furthermore, the Commission explained

that such advice generally would be a solicitation even if the proxy voting advice business is

providing recommendations based on the client’s own custom policies, and even if the client

chooses not to follow the advice. 80 In addition, the fact that proxy voting advice businesses may

provide additional services, such as consulting services to investment advisers and issuers and

general market commentary, does not diminish their role in the proxy solicitation process.

1. Proposed Amendments

In the Proposing Release, the Commission proposed to amend 17 CFR 240.14a-1(l)(1)(iii)

(“Rule 14a-1(l)(1)(iii)”) to add paragraph (A) to make clear that the terms “solicit” and

“solicitation” include any proxy voting advice that makes a recommendation to a shareholder as to

its vote, consent, or authorization on a specific matter for which shareholder approval is solicited,

and that is furnished by a person who markets its expertise as a provider of such advice, separately

from other forms of investment advice, and sells such advice for a fee. 81 The proposed

amendment would codify the long-held Commission view that the furnishing of proxy voting

advice generally constitutes a solicitation governed by the federal proxy rules.

In connection with the proposed amendment to Rule 14a-1(l)(1)(iii), the Commission

recognized that the major proxy voting advice businesses may use more than one voting policy or

Such other factors may include the fact that many proxy voting advice businesses’ recommendations are typically

distributed broadly.

See Commission Interpretation on Proxy Voting Advice at 47418. See also Proposing Release at 66522.

Proposing Release at 66522, 66557.

set of guidelines in formulating their voting recommendations on a particular matter to be voted at

a shareholder meeting (or for which written consents or authorizations are sought in lieu of a

meeting). For example, a proxy voting advice business may offer differing voting

recommendations on a matter based on the application of its benchmark policy or various specialty

policies. Under the proposal, the voting recommendations formulated under the benchmark policy

and each of the specialty policies would be considered to be a separate communication of proxy

voting advice under proposed Rule 14a-1(l)(1)(iii)(A). In addition to voting recommendations

formulated pursuant to a proxy voting advice business’s benchmark and specialty policies, the

Commission also proposed to include voting recommendations formulated pursuant to a proxy

voting advice business’s client’s own custom policies within the scope of the term “solicitation,”

consistent with its prior interpretation. 82

Lastly, the Commission proposed to amend Rule 14a-1(l)(2), which currently lists

activities and communications that do not constitute a solicitation, to add paragraph (v) to make

clear that the terms “solicit” and “solicitation” exclude any proxy voting advice furnished by a

person who furnishes such advice only in response to an unprompted request.83 Doing so would

codify the Commission’s historical view that such a communication should not be regarded as a

solicitation subject to the proxy rules. 84

Proposing Release at 66522.

Id. at 66523, 66557.

Commission Interpretation on Proxy Voting Advice at 47419 (“We view these services provided by proxy advisory

firms as distinct from advice prompted by unsolicited inquiries from clients to their financial advisors or brokers on

how they should vote their proxies, which remains outside the definition of solicitation.”); 1979 Adopting Release at

68766. See also Broker-Dealer Release at 341 (setting forth the opinion of the SEC’s General Counsel that a broker is

not engaging in a “solicitation” if it is merely responding to his customer’s request for advice and “not actively

initiating the communication”).

2. Comments Received

Commenters expressed a mix of views on the Commission’s proposed amendments to the

definitions of “solicit” and “solicitation” in 17 CFR 240.14a-1(l)(1) (“Rule 14a-1(l)(1)”). A

number of commenters supported codifying the Commission’s interpretation of those definitions

as proposed. 85 Some of these commenters described the proposed amendments as consistent with

the Commission’s existing interpretation of the term “solicitation” 86 and noted that the advice

provided by proxy voting advice businesses is the kind of information that Congress intended

Section 14(a) to address. 87 Two commenters agreed with the Commission’s position that the

definition of “solicitation” should not be limited to a request to obtain proxy authority or to obtain

shareholder support for a preferred outcome. 88 Those two commenters also agreed with the

Commission’s view that each voting recommendation formulated pursuant to a benchmark policy

or a specialty policy should be considered a separate “solicitation.” 89 Other commenters added

that the analysis of what constitutes a “solicitation” should not turn on whether the proxy voting

advice business’s voting recommendations are based on an investor’s custom policy or the proxy

voting advice business’s benchmark policy. 90 Finally, a few commenters that supported the

proposed amendments recommended that the Commission include in the definition of

See letters from BIO; BRT; CCMC; CEC; CGC; Michael McCormick, Executive Vice President, General Counsel

Secretary, Ecolab Inc. (Feb. 3, 2020) (“Ecolab”); Exxon Mobil; Dennis E. Nixon, President, International Bancshares

Corporation (Jan. 23, 2020) (“IBC”); NAM; Nareit; Nasdaq; David Dixon, President, and David L. Dragics,

Advocacy Ambassador, NIRI Capital Area Chapter (Feb. 6, 2020) (“NIRI-Capital”); Phil Gramm (Feb. 3, 2020) (“P.

Gramm”); Niels Holch, Executive Director, Shareholder Communications Coalition (Feb. 3, 2020) (“SCC I”); SCG;

Stakeholders Empowerment Service (Jan. 31, 2020) (“SES”).

See letters from BRT; CCMC; NAM; Nasdaq; NIRI-Capital.

See letters from BRT; CCMC; Exxon Mobil; NAM; Nareit; SCC I.

See letters from NAM; SCG.

See letters from Exxon Mobil; NAM; SCG.

“solicitation” any reports and ratings by environmental, social, and governance ratings firms or

environmental and sustainability rating firms. 91

Other commenters opposed codifying the Commission’s interpretation of “solicit” and

“solicitation.” 92 Some commenters asserted that the Commission does not have the authority to

regulate proxy voting advice businesses under Section 14(a) 93 or other provisions of the Exchange

Act. 94 Some described the proposal as inconsistent with the Commission’s historical treatment of

Section 14(a). 95 Some commenters added that proxy voting advice differs from proxy solicitation

See letters from Exxon Mobil; Garmin; NAM.

See letters from Anat Admati, George G.C. Parker Professor of Finance and Economics, Stanford Graduate School

of Business, et al. (Jan. 15, 2020) (“62 Professors”); Brandon Rees, Deputy Director, Corporations at Capital Markets,

AFL-CIO (Feb. 3, 2020) (“AFL-CIO II”); Robert Arnold and Matthew Aquiline, Trustees, Bricklayers & Trowel

Trades International Pension Fund (Jan. 31, 2020) (“Bricklayers”); Marcie Frost, Chief Executive Officer, CalPERS

(Feb. 3, 2020) (“CalPERS”); Aeisha Mastagni, Portfolio Manager, California State Teachers’ Retirement System

(Feb. 3, 2020) (“CalSTRS”); Marcia Moffat, Board Chair, Canadian Coalition for Good Governance (Feb. 3, 2020)

(“Canadian Governance Coalition”); James Allen, Head, and Matt Orsagh, Senior Director, Capital Markets Policy,

CFA Institute (Feb. 3, 2020) (“CFA Institute I”); Kenneth A. Bertsch, Executive Director, and Jeffrey P. Mahoney,

General Counsel, Council of Institutional Investors (Jan. 30, 2020) (“CII IV”); Rob Collins, Council for Investor

Rights and Corporate Accountability (Feb. 3, 2020) (“CIRCA”); Ron Baker, Executive Director, Colorado Public

Employees’ Retirement Association (Feb. 3, 2020) (“Colorado Retirement”); Duane Roberts, Director of Equities,

Dana Investment Advisors (Dec. 5, 2019) (“Dana”); Richard B. Zabel, General Counsel and Chief Legal Officer,

Elliott Management Corporation (Jan. 31, 2020) (“Elliott I”); Hans-Christoph Hirt, Executive Director and Head,

Hermes Equity Ownership Services Limited (Feb. 3, 2020) (“Hermes”); ISS, Josh Zinner, CEO, Interfait Center on

Corporate Responsibility (Feb. 3, 2020) (“Interfaith Center II”); Kevin Cameron, Executive Chair, Glass Lewis (Feb.

3, 2020) (“Glass Lewis II”); Jonathan Grabel, Chief Investment Officer, LACERA (Feb. 3, 2020) (“LA Retirement”),

Sarah Wilson, CEO, Minerva Analytics (Jan. 2, 2020) (“Minerva I”); Thomas P. DiNapoli, New York State

Comptroller (Feb. 3, 2020) (“New York Comptroller II”); Karen Carraher, Executive Director, and Patti Brammer,

Corporate Governance Officer, Ohio Public Employees Retirement System (Feb. 3, 2020) (“Ohio Public

Retirement”); PIRC, on behalf of Local Authority Pension Fund Form (LAPFF) (Feb. 3, 2020) (“PIRC”); Fiona

Reynolds, Chief Executive Officer, Principles for Responsible Investment (Feb. 3, 2020) (“PRI II”); Konstantinos

Sergakis, Professor of Capital Markets Law and Corporate Governance, University of Glasgow (Dec. 26, 2019)

(“Prof. Sergakis”); Craig M. Rosenberg, President, ProxyVote Plus, LLC (Feb. 3, 2020) (“ProxyVote II”); Hank Kim,

Executive Director & Counsel, National Conference of Public Employee Retirement Systems (Feb. 3, 2020) (“Public

Retirement Systems”); Maureen O’Brien, Vice President, Corporate Governance Director, Segal Margo Advisors

(Feb. 3, 2020) (“Segal Marco II”); Andrew E. Oster, CFP, AIF, President & CCO, Triton Wealth Advisors LLC (Feb.

22, 2020) (“Triton”); Nell Minow, Vice Chair, ValueEdge (Jan. 31, 2020) (“ValueEdge I”); Theresa Whitmarsh,

Executive Director, Washington State Investment Board (Jan. 22, 2020) (“Washington State Investment”).

See letters from AFL-CIO II; CII IV; Elliott I; Glass Lewis II; ISS; Richard A. Kirby and Beth-ann Roth, RK Invest

Law, PBC (Feb. 3, 2020) (“RK Invest Law”); ProxyVote II.

See letter from ISS.

See letters from CalPERS; CII IV; Elliott I; Glass Lewis II; ISS; ProxyVote II.

and should not be treated as such under the proxy rules. 96 Specifically, these commenters asserted

that proxy solicitation differs from proxy advice in that proxy solicitors play an advocacy role on

behalf of an interested party, whereas proxy voting advice businesses are independent third

parties, hired by shareholders to provide objective advice that the recipients are not required to

follow. 97 One commenter also asserted that the proposal incorrectly equates proxy voting advice

with the right to vote on another’s behalf and in a manner that would benefit a particular party. 98

Two other commenters, which were identified as proxy voting advice businesses in the Proposing

Release, 99 asserted that even if the Commission amends the definition of “solicitation” as

proposed, their activities will not constitute “solicitations” under the revised definition because

they vote on behalf of their clients rather than providing them with research reports and voting

recommendations. 100

In addition, some commenters stated that the proposed codification of “solicitation” would

increase proxy voting advice businesses’ costs 101 or interfere with their ability to provide services

to their clients. 102 Specifically, these commenters asserted that the proposed amendments would

See letters from Bricklayers; CalPERS; CII IV; CIRCA; Elliott I; Glass Lewis II; ISS; New York Comptroller II;

Segal Marco II.

See letters from Bricklayers; CII IV; CIRCA; Glass Lewis II; ISS; New York Comptroller II; Segal Marco II.

See letter from CalPERS.

See Proposing Release at 66542, n.190.

See letters from ProxyVote II; Segal Marco II. Similarly, another commenter noted that it executes votes directly

on behalf of—but does not provide voting recommendations to—its clients. See letter from Mary Beth Gallagher,

Executive Director, Investor Advocates for Social Justice (Feb. 3, 2020) (“IASJ”). See also letters from Sean P.

Bannon, Chief Financial Officer, Felician Sisters of North America (Feb. 3, 2020) (“Felician Sisters II”); Toni

Palamar, Province Business Administrator, Sisters of the Good Shepherd (Feb. 3, 2020) (“Good Shepherd”); Interfaith

Center II; Patricia A. Daly, Corporate Responsibility Representative, Sisters of St. Dominic of Caldwell (Feb. 3, 2020)

(“St. Dominic of Caldwell”).

100

See letters from 62 Professors; CalSTRS; Elliott I; Interfaith Center II; New York Comptroller II; Public

Retirement Systems; Washington State Investment.

101

See letters from CalSTRS; CIRCA; Elliott I; Interfaith Center II; New York Comptroller II; Ohio Public

Retirement; Prof. Sergakis; Public Retirement Systems.

102

increase litigation risks facing proxy voting advice businesses 103 and interfere with the relationship

between investors and proxy voting advice businesses in a way that would increase costs and

complexity and bias voting recommendations in favor of corporate management. 104 Two

commenters further expressed concern that treating proxy advice as a solicitation could have a

chilling effect on shareholder communication. 105

Some commenters asserted that the Commission has not provided reliable evidence that

existing communications between proxy voting advice businesses and their institutional investor

clients present a significant risk to investor protection to justify the proposed amendment.106

Several commenters expressed concern that the Commission disregarded the findings and views of

its 2018 Roundtable on the Proxy Process, the Office of Investor Advocate, and the Investor

Advisory Committee and called into question the legitimacy of other comment letters.107 One

commenter requested that the Commission clarify the benefits of treating proxy advice as a

solicitation. 108 Two commenters also expressed concern that the proposal would overlap with

regulations that proxy voting advice businesses are already subject to, including as “investment

advisers” under the Advisers Act and as fiduciaries under the Employee Retirement Income

Security Act of 1974. 109

103

See letters from CIRCA; Elliott I; New York Comptroller II; Ohio Public Retirement; PRI II.

104

See letters from New York Comptroller II; PRI II.

105

See letters from CalPERS; Washington State Investment.

106

See letters from CII IV; Elliott I.

107

See letters from CII IV; Elliott I; Glass Lewis II; ISS.

108

See letter from CalPERS.

109

See letters from ISS; ProxyVote II.

Finally, some commenters that generally opposed the proposal recommended that, if the

Commission ultimately decides to amend Rule 14a-1(l), it should make the following revisions to

narrow the scope of the proposals: 110

•

Clarify whether “proxy voting advice” under Rule 14a-1(l)(1)(iii)(A) would include

data and research that may inform a proxy analysis or be described in a proxy research

report but that is marketed separately to investors;111

•

Exclude advice based on investors’ custom policies from the definition of

“solicitation”; 112

•

Modify the proposal to recognize the difference between proxy voting advice

businesses and proxy voting agent businesses, the latter of which “vote solely on behalf

of clients, in accordance with such clients’ preset voting guidelines, based upon thirdparty research” and should not be subject to regulation as a proxy voting advice

business; 113 and

•

Clarify that the reference to “other forms of investment advice” in Proposed Rule 14a1(l)(1)(iii)(A) is not intended to exclude only advice from an “investment adviser” and

thereby sweep into the scope of the term “solicitation” communications made in the

normal course of business by other professionals (e.g., management-consulting firms,

lawyers, accountants, broker-dealers, etc.). 114

110

See letters from CII IV; ISS; New York Comptroller II; PRI II; ProxyVote II; Segal Marco II.

See letter from ISS. The commenter further opined that the inclusion of such data and research in the scope of

“proxy voting advice” would be “highly inappropriate.” Id.

111

112

See letters from ISS; New York Comptroller II; Matthew DiGuiseppe, Head of Asset Stewardship, Americas, and

Benjamin Colton, Head of Asset Stewardship, Asia Pacific, State Street Global Advisors (Feb. 3, 2020) (“State

Street”).

113

See letter from Segal Marco II.

114

See letter from Hermes.

With respect to the proposed amendment to Rule 14a-1(l)(2), some commenters supported

the proposal to exclude from the definition of a “solicitation” any proxy voting advice furnished

by a person only in response to an unprompted request. 115 Another commenter, however, opposed

the proposal, asserting that it would be unworkable because investment advisers and brokerdealers may be hesitant to announce a willingness to provide voting advice out of concern that the

Commission would determine they had “invited and encouraged” their clients to ask for advice. 116

This commenter added that the proposed amendment would be counterproductive to investor

protection goals because the Commission would be regulating experts with proxy advice-related

skills and resources (i.e., proxy voting advice businesses), but would not regulate parties with no

relevant expertise who engage in the same activities (i.e., any person that furnishes proxy voting

advice in response to an unprompted request). 117 Finally, one commenter recommended that the

Commission narrow the proposed exclusion to cover only proxy voting advice provided pursuant

to an unprompted request “and not for compensation.” 118

3. Final Amendments

We are adopting the amendments to Rule 14a-1(l)(1)(iii) and 17 CFR 240.14a-1(l)(2)

(“Rule 14a-1(l)(2)”) as proposed, with some minor changes to the proposed amendment to Rule

14a-1(l)(1)(iii).

115

See letters from Andrew Cave, Head of Governance and Sustainability, Baillie Gifford & Co (Feb. 3, 2020)

(“Baillie Gifford”); BRT; CCMC; Exxon Mobil; IBC.

116

See letter from ISS.

117

Id.

118

See letter from Exxon Mobil.

With respect to Rule 14a-1(l)(1)(iii), consistent with the Proposing Release, we are adding

paragraph (A) 119 to make clear that the terms “solicit” and “solicitation” include any proxy voting

advice 120 that makes a recommendation to a shareholder as to its vote, consent, or authorization on

a specific matter for which shareholder approval is solicited, and that is furnished by a person who

markets its expertise as a provider of such advice, separately from other forms of investment

advice, and sells such advice for a fee.

As noted above, the determination of whether a communication is a solicitation ultimately

depends on the specific nature, content, and timing of the communication and the circumstances

under which the communication is transmitted.121 A number of factors illuminate that

determination, and, as set forth above, application of those factors indicate that the advice that

proxy voting advice businesses provide to their clients generally constitutes a “solicitation.” 122

This amendment, therefore, codifies the Commission’s interpretation that proxy voting advice

generally constitutes a “solicitation” under Rule 14a-1(l). 123 As we noted in the Proposing

The amendment is intended to make clear that proxy voting advice provided under the specified circumstances

constitutes a solicitation under current Rule 14a-1(l)(1)(iii). It is not intended to amend, limit, or otherwise affect the

scope of Rule 14a-1(l)(1)(iii).

119

As noted above, one commenter requested clarification as to whether the term “proxy voting advice” would include

data and research that may inform a proxy analysis or be described in a proxy research report but that is marketed

separately to investors. See supra note 111 and accompanying text. We have clarified the scope of that term.

Compare supra note 7, with Proposing Release at 66519 & n.11.

120

121

See supra note 75 and accompanying text.

122

See supra notes 75-79 and accompanying text; see also infra note 144.

As noted above, some commenters expressed concern that the amendments are not supported by the relevant

evidence and that the Commission may have disregarded the findings and views of more reliable observers, and called

into question the legitimacy of other comments. See supra notes 106-107 and accompanying text. Very shortly after

learning of the concerns raised about these comment letters, the Chairman referred the matter to the SEC’s Office of

Inspector General to investigate. That investigation is ongoing. We have now learned that some of the commenters

who submitted certain of the letters appear to have signed declarations provided to Members of Congress regarding

the authenticity of those letters. Our decision to adopt the amendments to Rule 14a-1(l), is not predicated upon the

input we received with respect to the quality of the services provided by proxy voting advice businesses or the

independence thereof. Rather, these amendments largely codify the Commission’s longstanding interpretations of the

scope of the terms “solicit” and “solicitation,” which, as discussed below, are based on an assessment of the text,

structure, history, and purpose of Section 14(a) of the Exchange Act, as well as judicial precedent. See infra notes

132-156 and accompanying text. Moreover, although certain members of the Commission may have cited some of the

123

Release, we believe the furnishing of proxy voting advice by a person who has decided to offer

such advice, separately from other forms of investment advice, to shareholders for a fee, with the

expectation that its advice will be part of the shareholders’ voting decision-making process, is

conducting the type of activity that raises the concerns about inadequate or materially misleading

disclosures that Section 14(a) and the Commission’s proxy rules are intended to address. 124 We

also believe that the regulatory framework of Section 14(a) and the Commission’s proxy rules,

with their focus on the information received by shareholders as part of the voting process, are

well-suited to enhancing the quality and availability of the information that clients of proxy voting

advice businesses are likely to consider as part of their voting determinations. 125

In addition, we are aware of at least two proxy voting advice businesses, ISS and EganJones, that use more than one proprietary voting policy or set of guidelines—oftentimes, a

letters described above during the Commission’s open meeting at which the amendments discussed herein were

proposed, neither the Commission’s interpretations of the scope of the terms “solicit” and “solicitation,” nor our

decision to adopt the other amendments herein, rest on those letters or their validity. Further, as discussed below, the

Commission’s interpretations of the scope of the terms “solicit” and “solicitation” are longstanding and far predate the

cited comment letters. See infra notes 150-154 and accompanying text.

We understand that investment advisers may discuss their views on proxy voting with clients or prospective clients

as part of their portfolio management services or other common investment advisory services. Such discussions could

be unprompted or prompted (such as in the case of a client or prospective client that has asked the adviser for its views

on a particular transaction). For example, a mutual fund board may request that a prospective subadviser discuss its

views on proxy voting, including votes on particular types of transactions such as mergers or corporate governance.

As noted in the Proposing Release, the amendment is not intended to include these types of communications as

solicitations for purposes of Section 14(a). In response to certain comments we received, we also are clarifying the

amendment is not intended to include communications made in the normal course of business by other professionals

to their clients that may relate to proxy voting. Instead, the amendment is intended to apply to entities that market

their proxy voting advice as a service that is separate from other forms of investment advice to clients or prospective

clients and sell such advice for a fee.

124

We understand that a proxy voting advice business might, if applicable requirements are met, be registered as an

investment adviser and subject to additional regulation under the Advisers Act, including 17 CFR part 275. However

it is not unusual for a registrant under one provision of the securities laws to be subject to other provisions of the

securities laws when engaging in conduct that falls within the other provisions. Given the focus of Section 14(a) and

the Commission’s proxy rules on protecting investors who receive communications regarding their proxy votes, it is

appropriate that proxy voting advice businesses be subject to applicable rules under Section 14(a) when they provide

proxy voting advice. See supra notes 41-60 and accompanying text for a discussion of why we believe Section 14(a),

together with the Commission’s proxy rules, is an appropriate regulatory regime for such communications by proxy

voting advice businesses, regardless of whether they are registered under the Advisers Act.

125

benchmark policy and one or more specialty policies—in formulating proxy voting advice as to a

particular matter to be voted on at a shareholder meeting (or for which written consents or

authorizations are sought in lieu of a meeting). 126 Consistent with the Proposing Release, we view

the proxy voting advice formulated pursuant to each separate policy or set of guidelines as distinct

solicitations under Rule 14a-1(l)(1)(iii)(A). Similarly, as discussed in more detail below, 127 proxy

voting advice formulated pursuant to a custom policy constitutes a distinct solicitation under the

final rule as well.

We recognize that some commenters opposed our amendments to Rule 14a-1(l)(1). As

noted above, some commenters stated that the Commission is not authorized to regulate proxy

voting advice as a “solicitation” under the Exchange Act.128 One commenter specifically asserted

that the amendments would be contrary to (1) the legislative history of Section 14(a), (2) the case

law that has construed the terms “solicit” and “solicitation” under Section 14(a) and Rule 14a-1(l),

and (3) the plain meaning of the term “solicit.” 129 According to some opposing commenters, the

scope of Section 14(a) is limited to soliciting activities by management, other corporate insiders,

dissident shareholders seeking to take control of a company, or parties otherwise having an

interest in the outcome of a shareholder vote. These commenters asserted, therefore, that as a

matter of statutory interpretation, Section 14(a) cannot extend to communications or activities by

persons who do not have an interest in the outcome of the matter being voted upon at the

shareholder meeting or who do not seek proxy authority for themselves. 130 These commenters

126

See supra note 11 and accompanying text.

127

See infra notes 165-169 and accompanying text.

128

See supra notes 93-94 and accompanying text.

129

See letter from ISS.

130

See, e.g., supra notes 96-97 and accompanying text.

further assert that, as a matter of fact, proxy voting advice businesses satisfy both of these criteria

(i.e., no interest in the outcome of a vote and no request for authority to vote). 131

We reject this narrow interpretation of Section 14(a). The Commission’s longstanding

view that a “solicitation” includes any communication reasonably calculated to result in the

procurement, withholding, or revocation of a proxy—and that this encompasses the furnishing of

proxy voting advice—accords with the text, history, and structure of Section 14(a) of the

Exchange Act, as well as judicial precedent and our own rules.

The structure of Section 14(a) grants the Commission broad authority. It authorizes the

Commission to prescribe rules and regulations to govern proxy solicitations “as necessary or

appropriate in the public interest or for the protection of investors,” and it makes it unlawful for

any person to “solicit any proxy” with respect to any security registered under Section 12 of the

Exchange Act in contravention of such rules and regulations. 132 Furthermore, rather than defining

what constitutes a proxy solicitation, the Exchange Act leaves those terms undefined, while at the

same time specifically empowering the Commission to define such terms consistent with the Act’s

“provisions and purposes” 133 and, more broadly, to make rules and regulations, including rules

that classify “transactions, statements, applications, reports, and other materials.” 134

In light of that context, the phrase “solicit any proxy” is not as narrow or mechanical as

some commenters have claimed. Citing a dictionary definition, one commenter suggested that the

131

Id.

See S. Rep. No. 73-792, 2d Sess., at 12 (1934) (“The committee recommends that the solicitation and issuance of

proxies be left to regulation by the Commission.”); H.R. Rep. No. 1383, 73d Cong., 2d Sess., 14 (1934) (explaining

the intention to give the Commission the “power to control the conditions under which proxies may be solicited”).

132

133

15 U.S.C. 78c(b).

134

15 U.S.C. 78w(a)(1).

ordinary meaning of the term “solicit” is “to endeavor to obtain.” 135 Under this definition, what

matters is the subjective intent of the person engaging in the solicitation, and thus no person would

be soliciting a proxy unless they intend to obtain proxy authority. Some commenters likewise

claimed that no person would be soliciting a proxy unless they intend to obtain a shareholder’s

support for a preferred outcome. 136 However, dictionaries at the time Section 14(a) was enacted

indicate that the term “solicit” had other meanings that did not depend on the interest or subjective

intent of the person engaging in the solicitation. The term “solicit” also meant “[t]o move to

action.” 137 Under this definition, what matters is not the subjective intent to obtain a proxy, but

rather the effect on a recipient’s proxy vote. A person solicits a proxy by influencing a

shareholder to act. As between these two meanings, we view the latter as more consistent with

Section 14(a)’s provisions and purposes, as any inducement that may move a shareholder to vote a

proxy in a certain way implicates the Commission’s charge to ensure that necessary and

appropriate regulations are in place for the protection of investors. That is why the Commission

has recognized since 1956 that persons who do not seek proxy authority themselves nevertheless

engage in solicitation when they communicate with shareholders in a manner reasonably

calculated to “result” in a proxy vote.

The context and history of Section 14(a) accord with this conclusion. Congress considered

different versions of the Exchange Act that set forth the applicable proxy standards with more

specificity in the analog to Section 14(a) and rejected them in favor of the broad authority granted

135

See letter from ISS.

See, e.g., supra notes 96-97 and accompanying text. In arguing that the plain meaning of “solicit” supports its

view, one commenter relied on the dictionary definition “to endeavor to obtain,” even though the commenter

elsewhere acknowledged that Section 14(a) has long been understood to encompass communications that do not seek

to obtain a proxy—and thus would not meet that narrow definition. See letter from ISS.

136

See WEBSTER’S NEW INTERNATIONAL DICTIONARY (2d ed. 1934) (providing multiple definitions of the term

“solicit,” including “[t]o move to action” or “[t]o urge” or “insist upon”).

137

to the Commission in Section 14(a), as enacted. 138 While Congress may have been motivated to

enact Section 14(a) in 1934 due to the particular abuses by corporate insiders or dissident

shareholders that occurred during that time, nothing in either the text or legislative history of

Section 14(a) indicates that Congress intended to limit its scope to solicitations conducted by those

parties. Rather, where Congress intended to exempt certain classes of market participants,

transactions, or activities from the statutory provisions of the Securities Act and the Exchange Act

(as enacted in 1933 and 1934, respectively) or limit the Commission’s rulemaking authority with

regard to those market participants, transactions or activities, it generally did so by expressly

including language in the relevant statutory provision. 139 Indeed, Section 14(a) itself excludes any

“exempted security” from its scope, but otherwise facially applies to “any person” without carving

out any class of market participants. 140

Nor does the case law construing Section 14(a) mandate that a party must have an

“interest” in the outcome of a shareholder vote in order for a solicitation to occur, as certain

See LOUIS LOSS ET. AL., SECURITIES REGULATION, § 6.C.2 (6th ed. 2018) (“In §14(a) of the Exchange Act,

Congress, abandoning the more specific standards of the original bills, left the solicitation of proxies to the SEC under

broad public interest standards.”) (citing S. 2693, H.R. 7852, 73d Cong., 2d Sess. § 13(a) (1934)).

138

See, e.g., Securities Exchange Act of 1934, Pub. L. No. 73-291, 48 Stat. 881, § 3(a)(4) (1934) (“Exchange Act (as

enacted in 1934)”) (stating that the definition of the term “broker” “does not include a bank”); Exchange Act (as

enacted in 1934) § 3(a)(5) (stating that the definition of the term “dealer” “does not include a bank, or any person

insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as

part of a regular business”); Exchange Act (as enacted in 1934) § 3(a)(10) (defining the term “security” but expressly

stating that the term “shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has

a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the

maturity of which is likewise limited”); Exchange Act (as enacted in 1934) § 15(l) (restricting broker-dealers’ overthe-counter market activity, but expressly exempting from these restrictions certain exempt securities, commercial

paper, and other instruments); Exchange Act (as enacted in 1934) § 24(a) (limiting the Commission’s authority to

require the “revealing of trade secrets or processes in any application, report, or document filed with the Commission

under this title”); Securities Act of 1933, Pub. L. No. 73-22, 48 Stat. 74, § 2(a)(10) (1933) (“Securities Act (as enacted

in 1933)”) (defining the term “prospectus” and expressly excluding certain written communications from this

definition); Securities Act (as enacted in 1933) § 2(a)(11) (carving out from the statutory definition of “underwriter”

any “person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and

customary distributors’ or sellers’ commission”); Securities Act (as enacted in 1933) § 2(a)(3) (carving out from the

statutory definition of the terms “sale”, “sell”, “offer to sell”, and “offer for sale” “preliminary negotiations or

agreements between an issuer and any underwriter”).

139

140

See 15 U.S.C. 78n(a).

commenters contended. 141 Courts have articulated a broad definition of the term “solicit” such

that the proxy rules “apply not only to direct requests to furnish, revoke, or withhold proxies, but

also to communications which may indirectly accomplish such a result or constitute a step in the

chain of communications ultimately designed to accomplish such a result.” 142 Moreover, relying

on the “subjective intent of the person furnishing the communication” to determine whether a

particular communication constitutes a solicitation “is at odds with the plain and unambiguous

meaning of the regulation.” 143 Instead, the phrase “reasonably calculated to result in the

procurement, withholding or revocation of a proxy” in Rule 14a-1(l)(1)(iii) requires an objective

inquiry that focuses “on the manner in which the communicator attempted to influence a

shareholder’s proxy decision from the perspective of the shareholder who received the

material.” 144 Courts also have broadly understood a “solicitation” to encompass “communications

See, e.g., letter from ISS. Although we do not believe that Section 14(a) requires that a party have an interest in the

outcome of a vote, we also do not accept commenters’ assertion that, as a matter of fact, proxy voting advice

businesses necessarily do not have an interest in the outcome of matters being voted upon at shareholder meetings or

do not seek proxy authority for themselves. While this may be true in many instances, we do not think this is always

the case. See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-17-47, REPORT TO THE CHAIRMAN, SUBCOMMITTEE ON

ECONOMIC POLICY, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, U.S. SENATE, CORPORATE

SHAREHOLDER MEETINGS: PROXY ADVISORY FIRMS’ ROLE IN VOTING AND CORPORATE GOVERNANCE PRACTICES, 18

(2016), available at https://www.gao.gov/assets/690/681050.pdf (“2016 GAO Report”) (“Officials from one proxy

advisory firm with whom we spoke stated that they agree that proxy advisory firms have influence on corporate

governance practices. . . . They noted that such influence is good and ultimately they want to have a positive influence

on their clients because they view that as part of their responsibility—to promote good governance.”); Kevin E.

McManus, CEO Compensation was a Joke Before Covid-19, Now It is Just Obnoxious, EGAN-JONES PROXY SERVICES

(June 11, 2020), https://www.ejproxy.com/weekly-wreck/36/ceo-compensation-was-joke-covid-19-now-it-justobnoxious/ (criticizing executive compensation at certain registrants and making policy-based recommendations to

regulate executive compensation). See also infra Section II.B.1. (noting examples of circumstances where the

interests of a proxy voting advice business may diverge materially from the interests of the clients who utilize their

advice, including a proxy voting advice business providing advice on a matter in which its affiliates or one of its

clients has a material interest, such as a business transaction or a shareholder proposal put forward by or actively

supported by that client).

141

Long Island Lighting Co. v. Barbash, 779 F.2d 793, 796 (2d Cir. 1985) (emphasis added); see also Capital Real

Estate Inv'rs Tax Exempt Fund Ltd. P'ship v. Schwartzberg, 917 F.Supp. 1050, 1059 (S.D.N.Y. 1996).

142

143

Gas Natural Inc. v. Osbourne, 624 Fed. Appx. 944, 950 (6th Cir. 2015) (unpublished).

Id. (citing Broker-Dealer Release at 342 (noting that communications from broker-dealers to shareholders “may

constitute a solicitation requiring compliance with the proxy rules” depending “upon the content of the material, upon

the conditions under which it is transmitted, and upon surrounding circumstances”)). See also Long Island Lighting

Co., 779 F.2d at 796 (“Determination of the purpose of the communication depends upon the nature of the

communication and the circumstances under which it was distributed.”); Sargent v. Genesco, Inc., 492 F.2d 750, 767

144

which may indirectly [result in a proxy being furnished, revoked or withheld],” 145 an interpretation

that does not, by its terms, require inquiry into the speakers’ interest or subjective intention. To

inject a subjective element into the test of whether a communication is a “solicitation” under Rule

14a-1(l)(1)(iii) as argued by one commenter (i.e., determining whether the speaker is “completely

indifferent to the outcome of the matter as to which shareholder approval was sought” 146) runs

counter to this case law.

Relying on its broad rulemaking authority, the Commission has since 1956 defined a

solicitation to include any “communication to security holders under circumstances reasonably

calculated to result in the procurement, execution, or revocation of a proxy.” 147 This definition

advances Section 14(a)’s overarching purpose of ensuring that communications to shareholders

about their proxy voting decisions contain materially complete and accurate information. 148 It

(5th Cir. 1974) (“Whether or not a particular communication is a solicitation within the meaning of 14(a) is a question

of fact dependent upon the nature of the communication and the circumstances under which it is transmitted.”); Dyer

v. SEC, 291 F.2d 774, 777-78 (8th Cir. 1961) (indicating that the determination of whether a communication

constitutes a solicitation depends on the “nature and circumstances” of a communication and whether it can be

rationally inferred that the speaker “knew or could be expected to foresee that the things which he said might on their

implication and innuendo affect the action of a stockholder in his granting of proxy authority,” regardless of

“whatever [the speaker] may have had in his mind”); Schwartzberg, 929 F.Supp. at 113-14 (noting that if a statement

“presents the transaction in a manner objectively likely to predispose security holders toward or against it . . . it must

comply with the proxy rules”).

Among the factors relevant to the objective inquiry into whether a communication constitutes a “solicitation” are (1)

“the contents of the communication,” (2) “the conditions under which the communication is distributed,” and (3)

“[t]he timing of the communication in relation to the relevant surrounding circumstances.” Gas Natural Inc., 624 Fed.

Appx. at 950. As described above, the proxy voting advice that proxy voting advice businesses send their clients

generally constitutes “solicitations” under each of those three factors. See supra notes 75-79 and accompanying text.

145

Long Island Lighting Co., 779 F.2d at 796.

146

See letter from ISS.

147

17 CFR 240.14a-1(l)(1)(iii).

Borak, 377 U.S. at 432; see also S. Rep. No. 1455, 73d Cong., 2d Sess., 74 (1934) (“In order that the stockholder

may have adequate knowledge as to the manner in which his interests are being served, it is essential that he be

enlightened not only as to the financial condition of the corporation, but also as to the major questions of policy,

which are decided at stockholders’ meetings.”); H.R. Rep. No. 1383, 73d Cong., 2d Sess., 14 (1934) (explaining the

need for “adequate disclosure” and “explanation”); Communications Among Shareholders Adopting Release at

48277.

148

would be inconsistent with that goal if a person whose business is to offer and sell voting advice

broadly to large numbers of shareholders, with the expectation that their advice will factor into

shareholders’ voting decisions, were beyond the reach of Section 14(a). The fact that shareholders

may retain providers of proxy voting advice to advance their own interests does not obviate these

concerns.

As described above, some commenters also asserted that the proposed amendment to Rule

14a-1(l)(1)(iii) conflicts with well-established practice in the proxy voting advice business

industry and the Commission’s historical treatment thereof. 149 As an initial matter, and as noted in

the Interpretive Release and the Proposing Release, the amendment to Rule 14a-1(l)(1)(iii) is in

accordance with, and represents a codification of, the Commission’s longstanding view that proxy

voting advice generally constitutes a “solicitation.” This view was originally set forth in a 1964

release 150 and reiterated by the Commission in 1979 151 and 2010. 152 The cited releases did not

limit the scope of the term “solicitation” so as to exclude proxy voting advice provided by

“disinterested persons.” Instead, the Commission articulated its view that proxy voting advice

generally constitutes a “solicitation,” without reference to a particular class of market participants

that must be providing such advice. 153 Any suggestion otherwise requires reading into the releases

149

See supra note 95 and accompanying text.

See Broker-Dealer Release at 341 (“Material distributed during a period while proxy solicitation is in progress,

which comments upon the issues to be voted on or which suggests how the stockholder should vote, would

constitute soliciting material.”).

150

See 1979 Adopting Release at 68766; Shareholder Communications, Shareholder Participation in the Corporate

Electoral Process and Corporate Governance Generally, Release No. 34-16104 (Aug. 13, 1979) [44 FR 48938 (Aug.

20, 1979)], at 48941 n.25.

151

Concept Release at 43009 (“As a general matter, the furnishing of proxy voting advice constitutes a ‘solicitation’

subject to the information and filing requirements in the proxy rules.”).

152

Although the Commission’s view was originally articulated in the context of an opinion by its General Counsel

regarding participation by broker-dealer firms in proxy solicitations, nothing in the language of that release indicates

that its position could not also be extended to other independent, disinterested parties engaged in the same activity.

See Broker-Dealer Release.

153

an additional qualification that the Commission did not articulate. 154

We further note that these commenters’ position is inconsistent with the treatment of other

disinterested parties under the current proxy regulatory scheme. Shareholders today exercise their

voting rights through an intricate proxy process involving numerous intermediaries, such as

broker-dealers, that each play an important role. Most shareholders own their securities in “street

name,” with their broker-dealers and banks generally holding the securities in their name on behalf

of their customers and possessing the legal authority to vote those shares. Under the current proxy

process and rules, these broker-dealers and banks must forward a company’s proxy materials to

their customers and seek voting instructions (often called “voting instruction forms”) from the

customers on whose behalf they hold those shares. These activities are currently treated as

solicitations under the proxy rules, with the Commission generally exempting them from the

informational and filing requirements, despite the fact that the broker-dealers and banks have no

interest in the outcome of the matters being presented for a vote and no involvement in the

preparation of the materials being sent to the customers. 155 Those who have considered the issue,

The commenters also cite the 1979 and 1992 releases as evidence that the Commission intended to narrow the

scope of the term “solicitation” so as to avoid including communications by disinterested fiduciaries. See, e.g., letter

from ISS (citing Communications Among Shareholders Adopting Release; 1979 Adopting Release). However, those

releases reinforced the Commission’s view of the breadth of the term by creating additional exemptions from the

proxy filing rules. See Communications Among Shareholders Adopting Release at 48278 (creating an exemption

from the proxy filing rules for solicitations by persons not seeking proxy authority who do not have a substantial

interest in the matter subject to a vote); 1979 Adopting Release at 68766-67 (creating an exemption from the proxy

filing rules for voting advice provided to persons with whom a financial advisor has a business relationship). In other

words, the Commission recognized that certain classes of market participants were conducting activities that

constituted “solicitations,” but sought to grant them relief from the proxy filing rules by adopting applicable

exemptions. Had the Commission interpreted the term “solicitation” as not applying to those market participants’

activities, no such exemption from the proxy filing rules would have been necessary in the first place. Also, had the

Commission intended to narrow the scope of the term “solicitation” to avoid its application to those classes of market

participants, it would have amended the definition thereof in Rule 14a-1(l) appropriately. In fact, in the 1992 release,

the Commission acknowledged that even though it considered (but did not ultimately adopt) proposed amendments

exempting from the proxy filing rules all communications by “‘disinterested’ persons who are not seeking proxy

authority,” such communications under that proposal would still have constituted “solicitations” and “remained

subject to antifraud standards.” Communications Among Shareholders Adopting Release at 48278.

154

See 17 CFR 240.14a-2(a)(1); see also Jill E. Fisch, Standing Voting Instructions: Empowering the Excluded Retail

Investor, 120 MINN. L. REV. 11, 40-41 (2017) (noting that broker-dealers’ requests for voting instructions from their

155

including at least one court, have recognized that the forwarding of a company’s proxy materials

and requests for voting instructions by broker-dealers constitute a form of soliciting activity

subject to the Commission’s rules. 156

In addition, market observers, including proxy voting advice businesses themselves, have

long recognized that the provision of proxy voting advice may constitute a “solicitation” subject to

the proxy rules. 157 Notably, one proxy voting advice business that now argues that the

Commission lacks authority to regulate proxy voting advice as a “solicitation” submitted a letter to

the Division of Corporation Finance in 1988 requesting no-action relief from the Commission’s

proxy filing rules. 158 The proxy voting advice business did not request relief on the basis that its

proxy voting advice should not be considered a “solicitation.” Instead, the letter appears to

customers “fall[] within the SEC’s definition of a proxy solicitation” and that Rule 14a-2(a)(1) “exempts the broker

from the filing requirements and the obligation to furnish a proxy statement”).

See, e.g., Walsh & Levine v. The Peoria & E. R. Co., 222 F.Supp. 516, 518-19 (S.D.N.Y. 1963) (“[I]f brokers

transmit some but not all proxy solicitations to those for whose benefit they hold in street name, they are acting in

contravention of the Commission rules if they fail to fulfill the duties required of active proxy solicitors.”); BrokerDealer Release at 342 (“[I]t is quite clear . . . that the transmission to customers of proxy material furnished by the

issuer or any other person who is soliciting a proxy, is clearly itself the solicitation of a proxy, since the material is

transmitted under circumstances reasonably calculated to result in the procurement, withholding or revocation of a

proxy.”); Fisch, supra note 155 at 40; Council of Institutional Investors, Client Directed Voting: Selected Issues and

Design Perspectives (August 2010) (“Rule 14a-(l) under the Exchange Act defines solicitation to include the

‘furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated

to result in the procurement, withholding or revocation of a proxy,’ subject to certain exceptions. Communications

sent by brokers to encourage participation in a [client directed voting] model would appear to fall within this

definition absent an exemption, and the SEC staff agrees with this conclusion. As such, brokers would have to

comply with the proxy solicitation rules, including principally the disclosure and SEC filing requirements applicable

to proxy materials.”).

156

See, e.g., Sagiv Edelman, Proxy Advisory Firms: A Guide for Regulatory Reform, 62 EMORY L.J. 1369, 1378

(2013) (“Due to the expansive definition of solicitation, proxy advisory firms would be subject to federal proxy rules

if not for the exemption found in Exchange Act Rule 14a-2(b)(3).”); Douglas G. Smith, A Comparative Analysis of the

Proxy Machinery in Germany, Japan, and the United States: Implications for the Political Theory of American

Corporate Finance, 58 U. PITT. L. REV. 145, 201 n.284 (1996) (“Furnishing of proxy voting advice by an investment

advisor is exempt [from the proxy filing rules] under certain circumstances.”); John C. Coffee, Jr., Liquidity Versus

Control: The Institutional Investor as Corporate Monitor, 91 COLUM. L. REV. 1277, 1358 (1991) (“The legal issue is

whether the provision of proxy advice amounts to a proxy ‘solicitation’ under SEC Rule 14a-1. Clearly, the definition

of solicitation reaches this far . . . .”); Bernard S. Black, Shareholder Passivity Reexamined, 89 MICH. L. REV. 520,

530 (1990) (“Nor are the Proxy Rules limited to communications by the contestants. A third party who proffers voting

advice is ‘soliciting’ votes.”). See also infra notes 158-161 and accompanying text.

157

158

Institutional Shareholder Services, Inc., 1991 SEC No-Act. LEXIS 17 (Dec. 15, 1988).

implicitly assume that such advice could be a “solicitation” by requesting relief from the proxy

filing rules under the predecessor exemption to current Rule 14a-2(b)(3) on the basis that its proxy

voting advice was provided to persons with whom it had a business relationship. 159 Further, as

recently as 2016, the CEO of another proxy voting advice business testified that “[p]roxy advisory

firms also are subject to the Securities and Exchange Commission’s proxy solicitation rules under

the [Exchange Act].”160 The CEO further testified that “proxy voting advisors operating today . . .

are generally deemed by the SEC as qualifying for the exemptions based on rules 14a-2(b)(1) and

14a-2(b)(3).”161 These statements suggest that the proxy voting advice business industry has

understood for over 30 years that its proxy voting advice constitutes a “solicitation” under Rule

14a-1(l), or at least that the Commission may consider their proxy voting advice to constitute a

“solicitation.”

Some commenters also asserted that our amendments to Rule 14a-1(l)(1)(iii) will increase

proxy voting advice businesses’ costs or interfere with their ability to provide services to their

clients. Specifically, commenters indicated that the amendments could increase litigation risks for

proxy voting advice businesses or have a chilling effect on shareholder communications. 162

Although we acknowledge that compliance with the new conditions we are adopting to the

exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3) may increase the resources that proxy voting

advice businesses apply to ensuring compliance with applicable law and regulation, 163 we disagree

159

See id.

Katherine H. Rabin, Chief Executive Officer, Glass, Lewis & Co., Statement to the U.S. House of Representatives

Committee on Financial Services: Markup of H.R. 5983, the “Financial CHOICE Act of 2016,” at 3 (September 13,

2016), available at https://www.glasslewis.com/wp-content/uploads/2016/09/2016_0912_Glass-Lewis-Statement-reH.R.-5983_final.pdf.

160

161

Id.

162

See supra notes 101-105 and accompanying text.

163

See infra Section IV.

that our amendments to Rule 14a-1(l)(1)(iii), taken in isolation, will have a material impact on the

operation of a proxy voting advice business. 164 To the contrary, the fact that both the Commission

and the market generally, including proxy voting advice businesses, have long recognized that

proxy voting advice generally constitutes a “solicitation” indicates that any impact from codifying

this aspect of the definition of a solicitation likely is already reflected in the manner in which

proxy voting advice businesses’ provide their services and the pricing thereof.

Finally, in the Interpretive Release, we stated our view that proxy voting advice based on a

proxy voting advice business’s application of custom policies generally should be considered a

“solicitation” under Rule 14a-1(l). 165 We continue to hold that view for the reasons stated in the

Interpretive Release. As a result, such proxy voting advice is subject to Rule 14a-9, and persons

who provide such advice in reliance on the exemptions in either Rule 14a-2(b)(1) or (b)(3) must

comply with the conflicts of interest disclosure requirements set forth in new 17 CFR 240.14a2(b)(9)(i) (“Rule 14a-2(b)(9)(i)”). 166 Some commenters recommended that we amend Rule 14a1(l) to exclude from the definitions of “solicit” and “solicitation” proxy voting advice that is based

on investors’ custom policies. 167 These commenters’ concerns, however, focused largely on

subjecting investors’ custom policies, and the proxy voting advice that is based thereon, to the

To the extent that some proxy voting advice businesses did not previously understand their proxy voting advice to

constitute a solicitation and thus subject to Rule 14a-9 liability, it is possible that the codification of the Commission’s

longstanding view could have some economic effects. See infra Section IV.B.

164

Commission Interpretation on Proxy Voting Advice at 47418. For a description of the services that one major

proxy voting advice business offers in connection with its clients’ custom policies, see ISS, CUSTOM POL’Y & RES.,

available at https://www.issgovernance.com/solutions/governance-advisory-services/custom-policy-research/ (last

visited Jun. 19 2020).

165

See infra Section II.D. for a discussion of the amendments we are adopting to Rule 14a-9 and Section II.B infra for

a discussion of new Rule 14a-2(b)(9)(i).

166

167

See supra note 112 and accompanying text.

proposed review and response mechanism outlined in the Proposing Release. 168 As discussed in

more detail below, new 17 CFR 240.14a(b)(9)(v) (“Rule 14a-2(b)(9)(v)”) excludes from the notice

requirement of new 17 CFR 240.14a-2(b)(9)(ii) (“Rule 14a-2(b)(9)(ii)”) proxy voting advice to the

extent such advice is based on custom policies. 169 As such, notwithstanding the fact that we are

not excluding from the definitions of “solicit” and “solicitation” proxy voting advice that is based

on custom policies, we believe that we have appropriately taken into account the substance of

these commenters’ concerns.

As noted above, one commenter asserted that proxy voting agent businesses should not be

subject to the same regulations as proxy voting advice businesses. 170 The commenter’s position

that its services differ from a proxy voting advice business’s and should not be considered a

“solicitation” appears to be based, in part, on the fact that it only votes its clients’ shares in

accordance with its clients’ custom policies. 171 As with any other person, including any proxy

voting advice business, to the extent a business is providing proxy voting advice to a client—

regardless of whether such advice is based on its proprietary benchmark or specialty policies or its

client’s custom policies—such advice will constitute a “solicitation” under Rule 14a1(l)(1)(iii)(A). However, the commenter and another commenter—both of which are investment

advisers and were identified as proxy voting advice businesses in the Proposing Release—also

asserted that their activities do not constitute “solicitations” because they vote their clients’ shares

See, e.g., letter from ISS (expressing concern about disclosing “clients’ proprietary custom voting policies and the

recommendations based thereon” and doubt as to the “investor protection to be gained by allowing issuers to vet the

methodologies and assumptions institutional investors choose to implement for their own portfolios”).

168

169

See infra Section II.C.3.c.i.

170

See supra note 113 and accompanying text.

171

See letter from Segal Marco II.

on behalf of their clients rather than providing them with voting recommendations. 172 We agree

that to the extent a business that provides proxy voting services is not providing any voting

recommendations and is instead exercising delegated voting authority on behalf of its clients, such

services generally will not constitute “proxy voting advice”—and, therefore, not be a

“solicitation”—under Rule 14a-1(l)(1)(iii)(A). 173

With respect to Rule 14a-1(l)(2), we are also amending this provision as proposed to add

paragraph (v) to make clear that the terms “solicit” and “solicitation” do not include any proxy

voting advice provided by a person who furnishes such advice only in response to an unprompted

request. This amendment codifies the Commission’s historical view that such a communication

should not be regarded as a solicitation subject to the proxy rules. 174 As we explained in the

Proposing Release, we believe that a proxy voting advice business providing voting advice to a

client where the client’s request for the advice has been invited and encouraged by such business’s

marketing, offering, and selling, such advice should be distinguished from advice provided by a

person only in response to an unprompted request from its client. In our view, the information and

filing requirements of the proxy rules (including the filing and furnishing of a proxy statement

with information about the registrant and proxy cards with means for casting votes) or compliance

with the new conditions we are adopting to the exemptions described below, are appropriate for a

person who chooses to actively market and sell its proxy voting advice as that person’s actions are

reasonably designed to result in the procurement, withholding, or revocation of a proxy. Those

requirements, however, are ill-suited for a person who receives an unprompted request from a

172

See supra notes 99-100 and accompanying text.

Separately, we note that the Commission has provided guidance to investment advisers which discusses how the

fiduciary duty and rule 206(4)-6 under the Advisers Act relate to an investment adviser’s exercise of voting

authority. See infra note 400.

173

174

See supra note 84.

client for its views on an upcoming matter to be presented for shareholder approval. For example,

a person who does not sell voting advice as a business and who provides such advice only in

response to an unprompted request from its client is unlikely to anticipate the need to establish the

internal processes necessary to comply with the new conditions we are adopting to the exemptions

in Rules 14a-2(b)(1) and 14a-2(b)(3).

We also believe, based on our understanding of the dynamics of the proxy voting advice

market as it currently operates, that a person that provides proxy voting advice only in response to

unprompted requests and does not market its expertise in such services is less likely to present an

investor protection or market integrity concern. For example, we believe such one-off advice to

individual clients lacks the system-wide significance of advice provided by proxy voting advice

businesses who, as described above, have come to occupy a unique and important position in that

process. 175 Although one commenter recommended that 17 CFR 240.14a-1(l)(2)(v) (“Rule 14a1(l)(2)(v)”) be narrowed to exclude only proxy voting advice furnished pursuant to an unprompted

request if such advice is also provided “not for compensation,” 176 we consider that amendment

unnecessary. In our view, any compensation that may be received for such unprompted proxy

voting advice does not present the same investor protection or regulatory concerns because such

persons are less likely to engage in widespread marketing of their expertise in providing proxy

voting advice.

As noted above, one commenter opposed the amendment to Rule 14a-1(l)(2) on the basis

that investment advisers and broker-dealers may avoid announcing their willingness to provide

voting advice on Forms ADV and CRS out of concern that they would fall outside the scope of

175

See supra notes 6-10 and accompanying text.

176

See letter from Exxon Mobil.

new Rule 14a-1(l)(2)(v) and be deemed to be prompting a request for proxy voting advice. 177 We

believe, however, that the text of new Rule 14a-1(l)(1)(iii)(A) is sufficiently precise to avoid this

concern. Where an investment adviser or broker-dealer is describing the services it provides to its

clients or customers, which may include proxy voting advice, we believe that such investment

adviser or broker-dealer should not be deemed to be “market[ing] its expertise as a provider of

such proxy voting advice, separately from other forms of investment advice, and sell[ing] such

proxy voting advice for a fee.” 178 This same commenter also expressed concern that the

amendment to Rule 14a-1(l)(2) could be counterproductive from an investor protection standpoint

as the proxy rules would apply to experts with proxy advice-related skills and resources but not to

individuals with less relevant expertise who engage in the same activities. 179 We disagree. As we

noted in the Proposing Release, 180 we believe that those persons providing voting advice in

response to unprompted requests likely will be furnishing such advice to a client with whom there

is an existing business relationship. As noted above, proxy voting advice provided under these

circumstances does not present the same investor protection or regulatory concerns as proxy

voting advice businesses engaged in widespread marketing and sale of proxy voting advice to

large numbers of investment advisers and institutional investors who are often voting on behalf of

other investors.181

177

See letter from ISS.

178

17 CFR 240.14a-1(l)(1)(iii)(A); see also supra notes 124-125.

179

See supra note 117 and accompanying text.

180

See Proposing Release at 66523.

181

See supra text accompanying note 176.

B. Amendments to Rule 14a-2(b): Conflicts of Interest

1. Proposed Amendments

Over the years, many observers have noted that some proxy voting advice businesses

engage in activities or have relationships that could reasonably be expected to affect the

objectivity or reliability of their advice. 182 Examples of circumstances where the interests of a

proxy voting advice business may diverge materially from the interests of the clients who utilize

their advice include:

•

A proxy voting advice business providing voting advice to its clients on proposals to be

considered at the annual meeting of a registrant while the proxy voting advice business

also earns fees (or is seeking to earn fees) from that registrant for providing advice on

corporate governance and compensation policies; 183

•

A proxy voting advice business providing voting advice on a matter in which its

affiliates or one or more of its clients has a material interest, such as a business

transaction or a shareholder proposal put forward by or actively supported by that

client or group of clients;

•

A proxy voting advice business providing ratings to institutional investors of

registrants’ corporate governance practices while at the same time consulting for, or

seeking to consult with, registrants that are the subject of the ratings for a fee to help

increase their corporate governance scores;

•

A proxy voting advice business providing voting advice with respect to a registrant’s

shareholder meeting while affiliates of the proxy voting advice business hold a

significant ownership interest in the registrant, sit on the registrant’s board of directors,

182

See Proposing Release at 66525 n.73.

183

See id. at n.74.

or have relationships with a shareholder presenting a proposal covered by the proxy

voting advice; and

•

A proxy voting advice business providing voting advice on a matter on which it or its

affiliates have provided advice to a registrant, a proponent, or other party regarding

how to structure or present the matter or the business terms to be offered in such

matter.

These and similar types of circumstances create a risk that the proxy voting advice

business’s voting advice could be influenced by the business’s own interests, which may call into

question the objectivity and independence of its advice. 184 The clients of the proxy voting advice

business would generally need to be informed of such activities and relationships in order to be in

a position to reasonably assess the impact and materiality of any actual or potential conflicts of

interest with respect to the proxy voting advice they receive. 185 If they do not have access to

sufficiently detailed disclosure about the full extent and nature of any conflicts that are relevant to

the voting advice, and any measures taken to mitigate such conflicts, these clients may not have

sufficient information to reasonably understand and adequately assess these potential conflicts and

remedial measures when they evaluate the voting advice and make their voting determinations. 186

A range of proxy voting advice business clients may find it important to have sufficient

information to support their understanding and assessment, including, for example, investment

advisers that undertake proxy voting duties on a client’s behalf. 187

184

See id. at n.75.

185

See id. at n.72.

186

See id. at 66526 n.78 and infra note 193.

Commission Guidance on Proxy Voting Responsibilities at 47425 (“[A]n investment adviser’s decision regarding

whether to retain a proxy advisory firm should also include a reasonable review of the proxy advisory firm’s policies

and procedures regarding how it identifies and addresses conflicts of interest.”).

187

In light of these concerns, the Commission proposed amendments to further ensure that

sufficient information about material conflicts of interest would be provided consistently across

proxy voting advice businesses and in a manner readily accessible to the clients of the proxy

voting advice businesses. Accordingly, the proposed amendments included a requirement that

persons who provide proxy voting advice, 188 in order to rely on the exemptions contained in Rule

14a-2(b)(1) and (b)(3), must include in such advice (and in any electronic medium used to deliver

the advice) the following disclosures specifically tailored to proxy voting advice businesses and

the nature of their conflicts of interest:

•

Any material interests, direct or indirect, of the proxy voting advice business (or its

affiliates 189) in the matter or parties concerning which it is providing the advice;

•

Any material transaction or relationship between the proxy voting advice business

(or its affiliates) and (i) the registrant (or any of the registrant’s affiliates 190), (ii)

another soliciting person (or its affiliates), or (iii) a shareholder proponent (or its

affiliates), in connection with the matter covered by the proxy voting advice;

•

Any other information regarding the interest, transaction, or relationship of the

proxy voting advice business (or its affiliates) that is material to assessing the

Consistent with the Commission’s proposed amendments to the definition of solicitation under the proxy rules, the

requirement would apply only to proxy voting advice falling within the scope of amended Rule 14a-1(l)(1)(iii)(A).

See supra Section II.A., “Codification of Commission’s Interpretation of Solicitation.”

188

189

The term “affiliate,” as used in proposed Rule 14a-2(b)(9)(i), would have the meaning specified in Exchange Act

Rule 12b-2.

The Commission recognized that proxy voting advice businesses may not necessarily have access to the

information needed to determine whether an entity is an affiliate of a registrant, another soliciting person, or the

shareholder proponent. Therefore, as proposed, proxy voting advice businesses would only be required to use

publicly-available information to determine whether an entity is an affiliate of registrants, other soliciting persons, or

shareholder proponents.

190

objectivity of the proxy voting advice in light of the circumstances of the particular

interest, transaction, or relationship; and

•

Any policies and procedures used to identify, as well as the steps taken to address,

any such material conflicts of interest arising from such interest, transaction, or

relationship. 191

In the Proposing Release, the Commission stated that the disclosures provided under these

provisions should be sufficiently detailed so that clients of proxy voting advice businesses could

understand the nature and scope of the interest, transaction, or relationship to appropriately assess

the objectivity and reliability of the proxy voting advice they receive. 192 This might include, for

example, the identities of the parties or affiliates involved in the interest, transaction, or

relationship triggering the proposed disclosure requirement and, when necessary for the client to

adequately assess the potential effects of the conflict of interest, the approximate dollar amount

involved in the interest, transaction, or relationship. Boilerplate language, including language

stating that “such relationships or interests may or may not exist,” would be insufficient for

purposes of satisfying this condition to the exemptions.

2. Comments Received

Many commenters agreed with the general principle that providing clients of proxy voting

advice businesses with adequate conflicts of interest disclosure helps to ensure transparency and

fairness in the voting process and is vital to the clients’ ability to make informed voting

decisions. 193 Some commenters expressed the view that proxy voting advice businesses currently

This would include a description of the material features of the policies and procedures that are necessary to

understand and evaluate them. Examples include the types of transactions or relationships covered by the policies and

procedures and the persons responsible for administering these policies and procedures.

191

192

Proposing Release at 66526.

See letters from commenters generally opposed to the proposals, e.g., CalSTRS (“We agree that conflict of interest

disclosure is important for a well-functioning and unbiased proxy voting system. Investors should be informed when

193

do not satisfactorily mitigate the risk that conflicts of interest may impair their objectivity and,

consequently, that their ability to provide impartial voting advice is often undermined by the

prevalence of conflicts. 194

Some commenters opposed the proposed amendments, 195 asserting that additional conflict

disclosure requirements were not justified 196 and, therefore, would impose unnecessary additional

costs and burdens on proxy voting advice businesses and their clients. 197 These commenters

there may be potential conflicts of interest that could affect proxy advisor recommendations. Investors need

confidence that the research being considered when voting is unbiased and fact based….”); CFA Institute I; CII IV;

ISS; and the IAC Recommendation. See also letters from commenters generally supporting the proposals, e.g., ACCF

(“Investors need to be fully informed of the biases and conflicts inherent in [the] powerful vote recommendations [of

proxy voting advice businesses].”); BRT (“…conflicts of interest that may arise for proxy advisors should be

disclosed in order for their clients to assess for themselves the effect and materiality of any actual or potential conflicts

of interest with respect to a voting recommendation …We agree with the Commission’s assessment that institutional

investors and investment advisers who rely on proxy advisors for voting guidance cannot identify potential risks if

they do not have access to sufficiently detailed disclosure about the full extent and nature of any conflicts that are

relevant to the voting advice they receive.”); Exxon Mobil Corp., (Feb. 3, 2020) (“ExxonMobil”); Tao Li, Ph.D.,

Assistant Professor of Finance, University of Florida (Jan. 30, 2020) (“Prof. Li”) (“…it remains imperative that

market participants are aware of any potential conflicts of interest within the industry and whether those conflicts are

impeding the role of proxy advisors as independent providers of information and recommendations.”); NAM; Nareit;

Nasdaq; SCG; CCMC.

See, e.g., letters from ACCF (citing its May 2018 research paper: “The Conflicted Role of Proxy Advisors”); BIO;

BRT; CEC; CCMC; ExxonMobil; Jason Ward, Managing Partner, Amrop Industrial Search LLC (Feb. 3, 2020) (“J.

Ward”); NAM; Nareit; Nasdaq; SCG. To substantiate their claims that conflicts of interest are pervasive in proxy

voting advice, several commenters pointed to the results of various opinion surveys of selected companies and

individuals reflecting significant concerns about conflicts of interest. See, e.g., letters from CCMC; Ashley Baker,

Director of Public Policy, The Committee for Justice, (Feb. 3, 2020) (“Committee for Justice”); J. Ward; Nareit;

Nasdaq; P. Mahoney and J.W. Verret; SCG; Seven Corners Capital Management, LLC (Apr. 8, 2020) (“Seven

Corners”).

194

See, e.g., letters from CalPERS; Canadian Governance Coalition; CII IV; JoAnn Hanson, President and CEO,

Church Investment Group (Jan. 29, 2020) (“Church Investment Group”); Colorado PERA; Henry Beck, Maine State

Treasurer, et al., Democratic Treasurers Association (Jan. 30, 2020) (“DTA”); Holly A. Testa, Director, Shareowner

Engagement, First Affirmative Financial Network (Jan. 3, 2020) (“First Affirmative”); Jeffery W. Perkins, Executive

Director, Friends Fiduciary Corporation (Feb. 2, 2020) (“Friends”); Glass Lewis II; ISS; Interfaith Center II; J. Coates,

Professor of Law and Economics, Harvard Law School, and Barbara Roper, Consumer Federation of America (Jan.

30, 2020) (“Prof. Coates”); New York Comptroller II; PIAC II; Public Retirement Systems; ValueEdge I.

195

See, e.g., letters from Colorado PERA (“PERA utilizes research reports from Glass Lewis and ISS to assist with its

evaluation of items on a proxy ballot. PERA has analyzed each firm’s disclosures and management of conflicts of

interest. We concluded that the potential conflicts are harmless to the independence of the research, would not sway

an investor’s opinion, and the existing firewalls to prevent contamination of objectivity -- where applicable to specific

proxy advisors -- are sufficient”); CalSTRS; Glass Lewis II; ISS.

196

See, e.g., letters from CalPERS; Canadian Governance Coalition; CII IV; Church Investment Group; DTA; First

Affirmative; Friends; Glass Lewis II; ISS; Interfaith Center II; New York Comptroller II; Colorado PERA; PIAC II;

Prof. Coates; Public Retirement Systems; ValueEdge I.

197

challenged, among other things, the claims that proxy voting advice businesses’ conflicts of

interest disclosures were materially deficient, 198 and contended that the businesses’ existing

policies and procedures (such as their disclosure practices and maintenance of internal firewalls to

guard against conflicts) adequately addressed the risk of conflicts. 199 In support of this view,

commenters noted that the predominant opinion among the businesses’ own clients was that the

measures taken to mitigate conflicts of interest were satisfactory. 200 Moreover, commenters

argued that adding new disclosure requirements to the proxy rules was unnecessary in light of

existing provisions in the Advisers Act and in Rule 14a-2(b) under the Exchange Act that already

address conflicts of interest, as well as inappropriate because the Advisers Act generally governs

the activities of investment advisers, including proxy voting advice businesses. 201 In addition,

some commenters believed that the proposed conflicts disclosure requirements would likely

compromise the internal firewalls designed by proxy voting advice businesses to mitigate their

See, e.g., letters from CalPERS (“We see no evidence that conflicts of interest with proxy advisors have led to

voting advice that conflicts with our voting policies … It is not clear to what extent the SEC has reviewed all of the

disclosures that proxy voting advice businesses already provide.”); CalSTRS; CII IV; Glass Lewis II; ISS; New York

Comptroller II; Colorado PERA; PIAC II; ValueEdge I.

198

See, e.g., letters from CalSTRS (stating that while it is generally supportive of conflict of interest disclosure, it does

“not believe the SEC needs to create a new regulatory structure to enforce such [conflict of interest] disclosure” and

its general belief “that proxy advisors are currently providing adequate disclosures that meet the needs of investors,

and any modifications to disclosures can be enforced through existing SEC authority.”); ISS; Glass Lewis II;

CalPERS; New York Comptroller II.

199

See, e.g., letters from ISS (“…the fact that the most vocal critics of ISS in this area [regarding conflicts of interest]

are those who speak on behalf of corporate management, and not the investors who rely on ISS’ research and vote

recommendations, indicates that ISS is managing this potential conflict extremely well.”); CalPERS; CalSTRS; Glass

Lewis II; New York Comptroller II.

200

See, e.g., letter from ISS (asserting that “the proposal ignores the relevance of the Advisers Act regime and makes

no attempt to explain why this framework is inadequate to address the Commission’s purported concerns about proxy

advice”). As noted above, it is not unusual for a registrant under one provision of the securities laws to be subject to

other provisions of the securities laws when engaging in conduct that falls within the other provisions. See supra

notes 41 through 60 and accompanying text for a discussion of why we believe it is appropriate that proxy voting

advice businesses be subject to applicable rules under Section 14(a) when they provide proxy voting advice,

regardless of whether they are registered under the Advisers Act.

201

risk of conflicts, 202 and could have a detrimental effect on competition in an industry that is

already cost-prohibitive for new entrants. 203

Both those supporting and those opposing the proposed Rule 14a-2(b)(9)(i) recommended

modifications to the proposed new disclosure requirements, 204 ranging from very specific

suggestions intended to standardize the presentation of conflicts disclosures, 205 expand the breadth

of required disclosure, 206 and capture certain detailed information, 207 to those that were less

prescriptive and leaned toward a more principles-based approach, 208 with an emphasis on

For example, according to ISS, it maintains a firewall between ISS Global Research, its core institutional business,

and ISS Corporate Solutions, Inc. (“ICS”), a subsidiary which provides governance tools and services to corporate

issuer clients. In its comment letter, ISS states that “a key goal of the firewall is to keep the ISS Global Research team

from knowing the identity of ICS’ clients,” which could be jeopardized by disclosure of the details of ICS’ business

and potentially result in vote recommendations that are biased in favor of corporate management. As part of its

conflicts of interest policies, Glass Lewis blocks its research analysts from any access to the holdings, custom policies

and/or voting activity of its two co-owners, the Ontario Teachers’ Pension Plan Board and Alberta Investment

Management Corp. See e.g., letters from CII IV; Glass Lewis II; ISS. See also IAC Recommendation.

202

See, e.g., letters from CalPERS; CII IV; ISS; PERA (“This disclosure of … anything that may potentially be

deemed a conflict of interest could result in advisors losing their competitive advantage.”); and the IAC

Recommendation. See also letter from CFA Institute I (“We do not object to such increased transparency as long as

these further disclosures do not compromise the competitiveness of a proxy adviser by forcing them to divulge trade

secrets or other proprietary information, the disclosure of which would be deleterious to the specific adviser”).

203

See, e.g., letters from Lynette C. Fallon, EVP HR/Legal and General Counsel, Axcelis Technologies, Inc. (Jan. 20,

2020) (“Axcelis”); Baillie Gifford; BRT; CEC; CII IV; CIRCA; Exxon Mobil; Garmin; Glass Lewis II; ISS; Jonathan

Chanis, New Tide Asset Management, LLC (Jan. 30, 2020) (“J. Chanis”); Mylan; Ann McGinnis, Co-President et al.,

Los Angeles Chapter, National Investor Relations Institute, Los Angeles Chapter (Feb. 3, 2020) (“NIRI-LA”); David

Erickson, President, et. al., National Investor Relations Institute, Orange County Chapter (Feb. 4, 2020) (“NIRI-OC”);

June M. Vecellio, President, and James B. Bragg, Advocacy Ambassador, National Investor Relations Institute,

Connecticut/Westchester County Chapter (Feb. 6, 2020) (“NIRI-Westchester”); Nasdaq; Prof. Li; SCG; Seven

Corners; SES; Linda Moore, President and CEO, TechNet, (Feb. 3, 2020) (“TechNet”).

204

See, e.g., letters from Nasdaq; NIRI-LA; NIRI-OC; NIRI-WC; TechNet (calling for conflicts of interest to be

disclosed on the front page of proxy voting advice).

205

See, e.g., letters from ExxonMobil (supporting a requirement for specific disclosures about proxy voting advice

businesses’ specialty reports that are driven by goals other than maximizing shareholder value); SCG (recommending

that proxy voting advice businesses be required to disclose “any interest, transaction or relationship that may present a

conflict of interest, and the dollar amount thereof”).

206

See, e.g., letters from ExxonMobil (recommending that required conflict disclosures cover details similar to the

requirements of Item 404(a) of Regulation S-K and enumerating a list of specific items that should be addressed by

disclosure); PIRC (suggesting that disclosure of specific amounts of compensation received from various clients could

be helpful).

207

See, e.g., letters from Baillie Gifford (cautioning that requiring disclosure of policies and procedures would lead to

boilerplate disclosure); CII IV (asserting that allowing proxy voting advice businesses to choose the vehicle by which

208

materiality. 209 Other commenters recommended certain substantive changes that would have

widened the scope of the proposed amendments beyond conflicts disclosure. 210

3. Final Amendments

We are adopting amendments to Rule 14a-2(b) to require that persons who provide proxy

voting advice in reliance on the exemptions in either Rule 14a-2(b)(1) or (b)(3) must include in

their voting advice to clients the conflicts of interest disclosure specified in new Rule 14a2(b)(9)(i). The Commission is adopting these amendments substantially as proposed, but with

certain modifications as discussed below, to clarify and streamline the rule in response to

commenters’ concerns and suggestions.

As adopted, Rule 14a-2(b)(9)(i) establishes a principles-based requirement, based on a

standard of materiality, that will apply to all proxy voting advice that is provided in reliance on the

exemptions in Rules 14a-2(b)(1) and (b)(3). Contrary to the views of some commenters, we do

not see this requirement as imposing an entirely new regulatory regime or structure. 211 Rather, we

view Rule 14a-2(b)(9)(i) as enhancing the existing conflicts of interest disclosures that proxy

voting advice businesses currently provide in order to rely on the exemptions from the proxy

rules’ information and filing requirements. By articulating a standard for disclosure that focuses

they disclose conflicts of interest would mitigate the widespread distribution of information that could affect

competitive or other concerns); CIRCA (stating that a principles-based approach “would prevent proxy advisors from

giving boilerplate disclosures … without creating unprecedented and excessive burdens.”); ISS (stating that “there is

no reason to treat conflict disclosure by proxy advisers any differently from the way conflict disclosure by portfolio

managers or any other type of investment adviser is treated.”); S. Holmes.

209

See, e.g., letter from Baillie Gifford.

See, e.g., letters from Garmin (recommending that the Commission require proxy voting advice businesses to

separate their proxy advisory businesses from their consulting businesses); J. Chanis (recommending that the

Commission prohibit proxy voting advice businesses from also providing consulting services to companies that are

the subject of their proxy voting advice).

210

See, e.g., letters from CalSTRS ([W]e do not believe the SEC needs to create a new regulatory structure to enforce

such disclosure.”); Glass Lewis II (“Accordingly, this issue [of conflicts of interest disclosure] does not present a basis

for a wholesale new and burdensome regulatory regime….”).

211

on information that would be material to assessing the objectivity of the proxy voting advice, the

new rule is expected to result in disclosure that is more tailored and comprehensive than would be

required under either Rule 14a-2(b)(1) or (b)(3). 212 Given the significant role played by proxy

voting advice businesses in the voting process, we believe that the articulation of clear minimum

disclosure standards is appropriate to better ensure transparency, accuracy, and completeness in

the information provided, as well as the integrity of the proxy voting process. Rule 14a-2(b)(9)(i)

is intended to harmonize the conflicts of interest disclosure that proxy voting advice businesses

provide to their clients, helping to ensure that sufficient information about material conflicts of

interest is disclosed more consistently across proxy voting advice businesses and in a manner

readily accessible to the clients of such businesses. As a consequence, we believe the rule will

enable clients of proxy voting advice businesses to make more informed voting decisions,

including with regard to how proxy voting advice businesses identify and address conflicts of

interest on a business-specific and relative basis and help in Commission oversight of the proxy

voting process. 213

Although some proxy voting advice businesses and others have asserted that the

businesses’ existing practices and procedures adequately address conflicts of interest concerns, 214

The exemption in Rule 14a-2(b)(1) does not currently require conflicts of interest disclosure, while Rule 14a2(b)(3)(ii) requires disclosure of “any significant relationship with the registrant or any of its affiliates, or a security

holder proponent of the matter on which advice is given, as well as any material interests in such matter.” 17 CFR

240.14a-2(b)(3)(ii). It should be noted that both exemptions were adopted by the Commission before proxy voting

advice businesses played the significant role that they now do in the proxy voting process and in the voting decisions

of investment advisers and institutional investors.

212

Currently, proxy voting advice businesses differ in how they disclose their conflicts of interest. For example, ISS

discloses the details of its potential conflicts of interest, such as the identities of the parties and the amounts involved,

through its ProxyExchange platform, while Glass Lewis states that its disclosures appear on the front cover of the

report with its proxy voting advice. See ISS, FAQS REGARDING RECENT GUIDANCE FROM THE U.S. SECURITIES AND

EXCHANGE COMMISSION REGARDING PROXY VOTING RESPONSIBILITIES OF INVESTMENT ADVISERS (2019) (“ISS

FAQs”), available at https://www.issgovernance.com/file/faq/ISS_Guidance_FAQ_Document.pdf. See also

Proposing Release at 66527, n. 90; letter from Glass Lewis II.

213

214

See supra note 200 and Proposing Release at 66544 n.226.

we believe that the absence of a disclosure requirement specifically contemplating the conflicts of

interest that can arise for proxy voting advice businesses in relation to proxy voting advice means

that there has not been a sufficient standard against which clients may assess the quality of the

conflicts disclosures they receive. Conditioning the exemptions in Rules 14a-2(b)(1) and (3) for

proxy voting advice on the proxy voting advice business’s adherence to a set of minimum,

principles-based disclosure standards will make clear what constitutes basic information regarding

conflicts of interest that all parties can expect when receiving voting advice and will bolster the

completeness and consistency of such disclosure by making it a regulatory requirement. This

should in turn foster greater confidence in the services proxy voting advice businesses offer to

their clients and provide greater assurance to market participants that shareholders’ interests are

being properly considered through a well-functioning proxy system. 215

To that end, Rule 14a-2(b)(9)(i) sets forth a concise framework that applies to any person

providing proxy voting advice within the scope of proposed Rule 14a-1(l)(1)(iii)(A) who wishes to

utilize the exemption in either Rule 14a-2(b)(1) or (b)(3). Such persons must include in their

voting advice (or in any electronic medium used to deliver the advice) prominent disclosure of:

• Any information regarding an interest, transaction, or relationship 216 of the proxy

voting advice business (or its affiliates) that is material to assessing the objectivity of

215

See infra Section IV.A.

Such information may include disclosure about certain business practices in which the proxy voting advice

business engages that might reasonably be expected to call into question its objectivity and the independence of its

advice. For example, it may be appropriate in some circumstances under the rule for a proxy voting advice business

to disclose its practice of selectively consulting with certain clients before issuing its benchmark voting

recommendation on a specific matter (e.g., a contested director election or merger). This may particularly be the case

in situations in which the clients with whom the proxy voting advice business consults are not directly involved as a

party to the specific matter but are expected to receive proxy voting advice on the matter. Such a practice could allow

for those consulted clients’ voting preferences to influence recommendations given to other clients that were not

consulted and importantly, without the knowledge of those clients not consulted.

216

the proxy voting advice in light of the circumstances of the particular interest,

transaction, or relationship; 217 and

• Any policies and procedures used to identify, as well as the steps taken to address, any

such material conflicts of interest arising from such interest, transaction, or

relationship. 218

The rule, as adopted, reflects our intent to avoid an overly prescriptive disclosure

requirement with specific monetary thresholds, in favor of a more principles-based rule that is

sufficiently flexible to encompass a wide variety of circumstances that may not fall within predetermined parameters but nevertheless could materially impact a client’s assessment of the proxy

voting advice business’s objectivity. This approach also is consistent with the views of several

commenters who favored a principles-based disclosure requirement that could more easily

accommodate a variety of different facts and circumstances. 219 As such, Rule 14a-2(b)(9)(i)

establishes a general standard for conflicts of interest disclosure, but allows the proxy voting

advice business to apply its judgment and unique knowledge of the facts to determine the

materiality of conflicts that might pose a risk to the objectivity of its advice.

The final rule also gives the proxy voting advice business flexibility to determine the

precise level of detail needed about any identified conflicts of interest, 220 or whether a relationship

217

Rule 14a-2(b)(9)(i)(A).

218

Rule 14a-2(b)(9)(i)(B).

See, e.g., letters from Baillie Gifford; CII IV; CIRCA, Glass Lewis II; ISS (“Proxy advisers should be governed by

a principles-based regulatory regime. For this reason, the Commission should not require such firms to disclose

specific qualitative or quantitative information or impose prescriptive standards regarding the method of conflict

disclosure.”).

219

For example, the proxy voting advice business would have the discretion, on a case-by-case basis, to determine

whether specific monetary amounts related to any potential and/or actual conflicts identified should be disclosed. See

letter from CII IV (“We do not believe that proxy voting advice businesses should be required to disclose the specific

amounts that they receive from the relationsh

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