SEC Chair Gary Gensler directed SEC staff to evaluate whether further regulatory action concerning proxy voting advice should be recommended and to revisit recent rule changes and interpretations adopted by the SEC under the prior chair. In particular, Chair Gensler instructed staff to reconsider the 2020 rule changes codifying the definition of solicitation to include proxy voting advice and establishing the criteria for the information and filing requirements by proxy advisors. He also highlighted the 2019 interpretation and guidance concerning the application of the SEC's proxy rules to proxy advisors.
In a related public statement, the SEC Division of Corporation Finance announced that for the duration of the Division's consideration of the issues, it will not recommend enforcement action on the basis of violations of the 2019 interpretation and guidance and 2020 rule amendments. Further, the Division stated that, even in the event the rule amendments and interpretations are left in place, it will not recommend enforcement action "for a reasonable period of time" following the resumption of litigation by Institutional Shareholder Services challenging the 2019 interpretation and guidance and 2020 amendments.
In a separate statement, Commissioners Hester Peirce and Elad Roisman disapproved of Mr. Gensler's directive, asking what circumstances have arisen since the 2020 rule adoption that would justify its reconsideration. As a result of the rule's December 2021 compliance date, the Commissioners expressed that it is "challenging, if not impossible" for the SEC to understand the impact of the amendments in practice. The two Commissioners emphasized that in adopting the 2020 final rule, the SEC spent years evaluating all policy arguments, for and against the proposed amendments, asserting that the final rule is reflective of the variety of input received by the SEC. The Commissioners expressed their hope that the SEC not make any changes to the proxy voting advice rules that would (i) deprive users of the information necessary to adequately consider such advice or (ii) lead users to make decisions on the basis of misinformation.
Commentary Steven Lofchie
The rule amendments and interpretations at issue were adopted on party-line votes. At the time, the Democrats (or the lone Democrat, in some instances) on the Commission dissented. While the policy of the rule changes may have been disputed, the changes themselves were properly adopted in accordance with the requirements of the Administrative Procedures Act (or at least there is no suggestion otherwise). Thus, from an administrative law standpoint, it seems an unusual act by the Chair, acting individually, to suspend a rule making adopted by the Commission as a whole.
Of course, given that the Chair could almost certainly muster the votes needed for a Commission majority to delay the rule changes, one could either ask what difference does it make that the Chair acted by fiat or one could ask why did he choose to act by fiat. What makes the administrative law issue more interesting is that the SEC staff fairly recently issued a letter (on a wholly unrelated) custody issue, in which the staff said that it would take a temporary no-action position as to certain securities lending practices. In reaction to that letter, the two Democratic commissioners issued a joint statement criticizing the staff's action and saying that "[whether] an extended, across-the-board grace period for [...] violations should be granted [is a] decision [that] falls within the discretion of the full Commission." (Of course, it may also be reasonable, at least as a practical matter, to distinguish between a decision by the Chair and an action of the staff, or between a rule that is in force and one that has not yet come into effect.)
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