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Canadian investor advocate challenges new US rules on proxy advisors, shareholder proposals

SHARE has written to the US Securities Exchange Commission with concerns about proposed rules that will disenfranchise smaller and main street investors by limiting shareholder proposals 

TORONTO – The Shareholder Association for Research & Education (SHARE) has written to the US Securities Exchange Commission (SEC), asking that it scrap proposals to alter the rules governing proxy advisory firms and limit the right of shareholders to file resolutions at companies they own.

The proposed rules for proxy advisors will require firms that provide shareholder voting advice to institutional investor clients to share that advice with corporate management prior to providing it to their clients, potentially affecting the independence of those advisors.

The proposed rules for shareholder proposals will explicitly limit the filing of proposals from smaller shareholders and limit the re-consideration of proposals at subsequent annual meetings.

“There is no significant evidence of faulty advice,” says Kevin Thomas, CEO of SHARE. “The Commission cites 17 alleged “factual errors” cited by companies in 2018, out of tens of thousands of data points covered. For this, the SEC proposes to impose massive costs on proxy advisors, and ultimately on investors and pension beneficiaries, on the basis of an unexamined claim of a statistically insignificant level of alleged errors.”

“The new rules on shareholder proposals will disenfranchise smaller and main street investors,” he said. “Disenfranchising smaller investors, whether retail or institutional, responds only to the desire by some corporate CEOs and their lobbyists to be less accountable to shareholders overall. There is no evidence that the concerns raised by smaller shareholders are less relevant, material, or valuable than those of larger shareholders. The proposed changes to the minimum ownership thresholds for filing proposals are arbitrary and incomprehensible.”

“Our own experience as filers of multiple constructive shareholder proposals on behalf of our institutional investor clients tells us that proposals which started with low levels of shareholder support often become accepted wisdom amongst boards, shareholders and regulators, given time,” Thomas said. “Our proposals result in positive changes in corporate governance and behavior that mitigate risks for our clients and contribute to outperformance. Cutting that process short by allowing companies to exclude proposals that are not immediately understood and widely accepted will kill many critical, constructive and necessary ideas in the womb.”

SHARE argues that the SEC’s process itself is inescapably tainted due to the SEC’s reliance on a number of letters supposedly written by individual investors to support the need for new rules. Those letters later turned out to be fabricated by corporate lobbyist firms and in some cases the individuals in question denied ever having written them.

“The reliance upon potentially fraudulent letters suggests that the SEC’s process in this instance is arbitrary and capricious and violates the requirement that SEC rules be based on a rational review of existing evidence,” Thomas said.

The full letter is available here: https://share.ca/wp-content/uploads/2020/01/20-01-30-SHARE-Kevin-Thomas-SEC.pdf

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For more information, contact:

Damon van der Linde

Communications Officer, Shareholder Association for Research and Education (SHARE)

604-695-2039

[email protected]