SEC Acting Chair in Industry Address Tackles Proxy Voting

In a speech, Acting SEC Chair Allison Herren Lee focused on proxy voting and securities lending, among other topics affecting the fund industry. The speech hinted at future rules and guidance to reflect current industry trends regarding proxy voting and corporate governance, notably ESG demand and the growth in households that invest in funds. The acting chair called for more transparency and disclosure in proxy voting, particularly in overhauling Form N-PX, so that both retail and institutional investors can have a clearer picture of how votes are cast. Lee stressed that much regulatory work needed to be done. “A new rule could, for example, standardize voting disclosures, structure and tag the data, provide more clarity in the description of issues voted on, provide the number of shares voted versus shares available to vote, and facilitate more timely disclosure so investors can act quickly to reward fund managers that best match their needs and expectations.” She also described  structural voting issues that have posed tremendous challenges to funds, including obtaining a quorum and how funds as voters obtain information about their votes.  “Funds as an issuer community face a unique landscape as their ownership is highly intermediated and diffuse, making it difficult and expensive to identify shareholders. This is coupled with the challenge that funds have in communicating directly with investors,” she said. Lee acknowledged the increased expenses for funds to carry out their regulatory obligations to obtain shareholder approval for items such as a change in a fund’s fundamental investment policy and certain agreements. The acting chair concluded that these challenges for funds and advisers deserve attention as the industry seeks to modernize the proxy voting system.