SEC Investor Advisory Committee Releases Recommendations on Proxy Voting

In June, the Securities and Exchange Commission’s (SEC) Investor Advisory Committee released recommendations regarding funds as proxy issuers. These recommendations provide a framework that, “improves proxy “plumbing” in the near term and pursues durable, investor-centered reforms through Securities and Exchange Commission staff action and rulemaking…”

Through conversations with industry trades, investor advocates, and other industry experts the Committee reached the conclusion that the proxy process requires updates due to the cost, which is often carried by the shareholder, among other reasons. The Committee made several recommendations, a few of those are highlighted below.

Opt-In Retail Voting: The Committee recommended SEC staff permit retail voting programs that provide shareholders with a clear opt‑in mechanism for standing voting instructions (similar to the process set-forth in the Exxon Mobile No-Action Letter). This process would include the appropriate disclosures and an easy opt‑out option. The recommendations highlight areas where this consent would not be applicable and offers that standing instructions can be overridden by voting at the meeting.

Creation of an Alternative Pathway for Reaching a Quorum: The Committee recommends examining whether a lower quorum requirement paired with a higher affirmative vote threshold may alleviate the cost of attempting to reach the 50% quorum threshold that is currently required for certain actions. The Committee suggests pairing this approach with the requirement with a unanimous approval of the proposed action by the fund’s board.

Shifting Certain Matters to Board-Only Approval: Allow for the fund board to approve certain matters such as changes from diversified to non-diversified status and certain fundamental policy changes so long as advance notice to shareholders is provided. This may be paired with additional investor protections such as requiring a supermajority independent board vote.

The Committee made additional recommendations related to other aspects of proxy voting and also highlighted key data points related to the cost and time of the current proxy framework.

Click here to read the Committee’s recommendations.