The adoption of these amendments is part of the SEC’s ongoing focus on the proxy process. This action follows recent guidance issued by the SEC that clarifies the applicability of the federal proxy rules to proxy voting advice and the proxy voting responsibilities of investment advisers, roundtables on the proxy process in 2018 and proxy advisory services in 2013, and the publication of its Concept Release on the US proxy system in 2010.

These amendments codify the SEC’s longstanding view that proxy voting advice generally constitutes a solicitation under the proxy rules. Accordingly, the definition of “solicitation” in Exchange Act Rule 14a-1(l) has been changed to specify that it includes proxy voting advice (with certain exceptions). The rule changes also clarify that failing to disclose material information about proxy voting advice may constitute a potential violation of the antifraud provision of the proxy rules. The amendments also provide additional illustrative examples to the proxy rules’ antifraud provision in Exchange Act Rule 14a-9.

Rule Changes

Rule 14-a1(1)

The definition of the terms “solicit” and “solicitation” in Rule 14a-1(l) has been amended to indicate that proxy voting advice generally constitutes a solicitation within the meaning of Section 14(a) of the Exchange Act. In addition, new paragraph (A) to Rule 14a-1(l)(1)(iii) describes the circumstances in which a person who furnishes proxy voting advice will be deemed to be engaged in a solicitation subject to the proxy rules. Finally, new paragraph (v) to Rule 14a-1(l)(2) codifies the SEC’s belief that proxy voting advice offered by a person who furnishes such advice only in response to an unprompted request is not considered a solicitation.

Rules 14a-2(b)(1) and 14a-2(b)(3)

The amendments also revise Rules 14a-2(b)(1) and (b)(3) of the Exchange Act. These rules provide exemptions from the information and filing requirements of the proxy rules. With the new amendments, proxy voting advice businesses must satisfy the following conditions of new Rule 14a-2(b)(9) to become exempt: (1) they must provide specified conflicts of interest disclosure in their proxy voting advice or in an electronic medium used to deliver the proxy voting advice [Rule 14a-2(b)(9)(i)]; and (2) they must have adopted and publicly disclosed written policies and procedures reasonably designed to ensure that:

• Registrants that are the subject of proxy voting advice have this advice made available to them at or prior to the time when such advice is disseminated to the proxy voting advice business’s clients [Rule 14a-2(b)(9)(ii)(A)]; and


• The proxy voting advice business provides its clients with a mechanism by which they can reasonably be expected to become aware of any written statements regarding its proxy voting advice by registrants who are the subject of such advice. This dissemination of information must happen in a timely manner before the security holder meeting [Rule 14a-2(b)(9)(ii)(B)].

The new rules include the following non-exclusive safe harbors which provide assurance to a proxy voting advice business that its written policies and procedures satisfy the above principles-based requirements:

• Rule 14a-2(b)(9)(ii)(A): the written policies and procedures are reasonably designed to provide registrants with a copy of its proxy voting advice at no charge no later than the time it is disseminated to the business’ clients. The safe harbor also specifies that such policies and procedures may include conditions requiring registrants to (i) file their definitive proxy statement at least 40 calendar days before the security holder meeting and (ii) expressly acknowledge that they will only use the proxy voting advice for their internal purposes and/or in connection with the solicitation and will not publish or otherwise share the proxy voting advice except with the registrant’s employees or advisers.


• Rule 14a-2(b)(9)(ii)(B): the written policies and procedures are reasonably designed to provide notice on its electronic client platform or through email or other electronic means that the registrant has filed, or has informed the proxy voting advice business that it intends to file, additional soliciting materials setting forth the registrant’s statement regarding the advice (and include an active hyperlink to those materials on EDGAR when available).

Rule 14a-9

The amendments alter Rule 14a-9 to include examples of when the failure to disclose certain material information in proxy voting advice could, depending upon the particular facts and circumstances, be considered misleading within the meaning of the rule. These examples include material information about the proxy voting advice business’s methodology, sources of information, or conflicts of interest.

The amendments will be effective 60 days after publication in the Federal Register. Affected proxy voting advice businesses subject to the final rules are not required to comply with the Rule 14a-2(b)(9) amendments until December 1, 2021.

Guidance

The SEC has also supplemented prior guidance regarding the proxy voting responsibilities of investment advisers. This action provides additional information to assist investment advisers in assessing how to consider additional information from issuers that may become more readily available as a result of the proxy solicitation rule amendments. The guidance also addresses circumstances where the investment adviser utilizes a proxy advisory firm’s electronic vote management system, as well as disclosure and client consent obligations when investment advisers employ such services for voting. This includes circumstances in which the investment adviser utilizes a proxy advisory firm’s electronic vote management system that “pre-populates” the adviser’s ballots with suggested voting recommendations or for voting execution services.

There is also further guidance that builds upon prior statements related to investment advisers and their proxy voting responsibilities. The prior guidance discussed how the fiduciary duty and rule 206(4)-6 under the Investment Advisers Act of 1940 relate to an investment adviser’s exercise of voting authority on behalf of its clients. This supplemental guidance will assist investment advisers in fulfilling their proxy voting responsibilities in light of these amendments to the solicitation rules under the Exchange Act.

The supplemental guidance follows a question and answer format, similar to the prior guidance, and provides examples to help facilitate compliance. It will be published on the SEC’s website and in the Federal Register, whereupon the guidance will become effective. The SEC encourages investment advisers to review their policies and procedures in light of the guidance. If firms identify operational or other questions in the course of that review, they should contact the staff of the Division of Investment Management.

Sources:

SEC Adopts Rule Amendments to Provide Investors Using Proxy Voting Advice More Transparent, Accurate and Complete Information (www.sec.gov)

Exemptions from the Proxy Rules for Proxy Voting Advice (www.sec.gov)

Supplement to Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers (www.sec.gov)