SEC’s Piwowar eyes proxy adviser registration

Proxy advisory firms could have to cross a number of regulatory hurdles if a member of the SEC has his way.

Commissioner Michael Piwowar told delegates at the Society for Corporate Governance’s national conference in San Francisco last week that proxy advisers have an ‘outsized influence’ and should operate within a ‘robust regulatory regime.’

According to Piwowar, proxy advisers should have to:

• Register with the SEC as investment advisers
• Implement policies and procedures to ensure their reports are accurate
• Implement policies and procedures to ensure issuers have time to respond to reports so they can point out any inaccuracies before a report is published.

At a minimum, the commissioner said, the agency needs to address ‘conflicts of interest’ in the proxy advisory industry by prohibiting all ancillary services and applying ownership limits. Firms should also be subject to a fiduciary duty, he added.

Glass Lewis CEO Katherine Rabin in a statement sent last September to the House of Representatives Committee on Financial Services notes that all proxy advisory firms are subject to the anti-fraud provisions of the federal securities laws and the SEC’s proxy solicitation rules. She adds that ‘investor clients at all times retain control of and responsibility for their voting decisions.’

Among other things, she says the SEC has stated that investment advisers using a proxy adviser are expected to assess ‘the adequacy and quality of the proxy advisory firm’s staffing and personnel; the robustness of its policies and procedures regarding its ability to: (i) ensure that its proxy voting recommendations are based on current and accurate information; and (ii) identify and address any conflicts of interest.’

UNIVERSAL PROXY
In other comments during his public appearance at the conference, Piwowar described ESG ratings and scorecards as being in the early stages as development and as not having an ‘undue influence yet,’ adding that they differ widely and present very mixed research.

Asked about the SEC’s universal proxy rule proposal, the commissioner said he ‘hope[d] it’s dead,’ though he acknowledged that that outcome had not been determined yet. He also expressed a preference for Congress to repeal the agency’s pay ratio rule, which he described as ‘solely about naming and shaming’ and nothing to do with protecting investors. In the meantime, he wants to look at how to make the rule ‘less burdensome.’

Companies have been preparing to comply with the rule, which is scheduled to go into effect next year. Piwowar, while acting SEC chair earlier this year, ordered a reconsideration of the reform. The rule would require public companies to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the CEO.