Transparency at the Commission and in Our Markets
Chairman Jay Clayton
Remarks at the PLI 49th Annual Institute on Securities Regulation -
New York, N.Y.
Nov. 8, 2017
Engagement and the Proxy Process
An area not on the
near-term rulemaking agenda that is worthy of discussion is the proxy
process, including how investors participate in corporate governance
at public companies. Shareholder engagement is a hallmark of our
markets, and our proxy rules – to use a highway analogy – provide a
key lane for engagement, as well as much debated guardrails. Given the
core role of the proxy process in public company governance, I believe
the Commission should be “lifting the hood” and taking a hard look at
whether the needs of shareholders and companies are being met. How are
shareholders of all types getting information, and what information
are they getting? Even if well-informed, are shareholders able to
effectively participate in the voting process? What are the costs and
burdens of the proxy system on companies, and how are they borne by
shareholders? How are proxy rules affecting the ultimate beneficial
owners of public companies – a majority of whom are “silent” retail
Over the years,
participants in the proxy process – companies and shareholders alike –
have expressed concerns about a variety of proxy matters. In 2010, the
SEC solicited input on several proxy matters in a concept release on
the U.S. proxy system.
Since that time, the SEC staff has taken steps to enhance the proxy
process, but calls for action are becoming more frequent and are
growing louder.  It is clear there are still opportunities for improvement. I
believe the Commission should consider reopening the comment file on
the 2010 “Proxy Plumbing” concept release to solicit updated feedback
from market participants about what works and what does not work in
our proxy system.
While there are a number
of proxy matters that are timely for review, I will touch on two
topics today: retail shareholder participation and shareholder
Participation. I have become increasingly concerned that the
voices of long-term retail investors may be underrepresented or
selectively represented in corporate governance. For instance, the SEC
staff estimates that over 66% of the Russell 1000 companies are owned
by Main Street investors, either directly or indirectly through mutual
funds, pension or other employer-sponsored funds, or accounts with
And, if foreign ownership is excluded, that percentage approaches
approximately 79%. Yet it is not clear whether in our rulemaking
processes the views and fundamental interests of long-term retail
investors are being advocated fully and clearly, either by individual
investors or groups that represent them. Since I arrived at the
agency, I have made concerted efforts to reach Main Street investors
across the country, and this has resulted in productive conversations
with individuals, as well as those who advocate for them.
Many others at the SEC, including Rick Fleming, our Investor Advocate,
and the Office of Investor Education and Advocacy, concentrate on
retail investors generally and have specific outreach efforts focused
on investors who are teachers, students, serve in the military, or
live in retirement communities.
A majority of Main Street
America’s dollars are invested in vehicles where the investor – the
person with their money at risk – is not the voting shareholder. Often
voting power rests in the hands of investment advisers who owe a duty
to vote proxies in a manner consistent with the best interests of the
fund and its shareholders.
A question I have is: are voting decisions maximizing the funds’ value
for those shareholders?
In situations where the
voting power is held by or passed through to Main Street investors, it
is noteworthy that non-participation rates in the proxy process are
high. In the 2017 proxy season, retail shareholders beneficially-owned
30% of the shares in U.S. public companies; however, only 29% of those
This may be a signal that our proxy process is too cumbersome for
retail investors and needs updating.
Proposals. The shareholder proposal process is a corporate
governance issue that is subject to diverse and deeply held beliefs.
Various stakeholders – companies, fiduciaries, individual investors,
and investor groups – have established views on the appropriate set of
rules for shareholder proposals, and there seems to be little ground
for building a consensus. While I am supportive of rules that allow
shareholder proposals, I am searching for a way to reconcile the
multiple positions and find common ground.
History has shown that
shareholder proposals can gain traction and lead to corporate
governance changes that better track the long-term interests of Main
Street investors. They also create costs, including out-of-pocket
costs and the use of board and management time that otherwise could be
devoted to the operation of the company itself. Some are of the view
that companies should focus as much energy on shareholder engagement
as is demanded. Others want management to dedicate as much time as
possible to company operations for the benefit of all shareholders.
The shareholder proposal process is not the only piece of this puzzle,
but it is a piece worth examining.
Questions exist about the
appropriate level of ownership that should be required to submit
shareholder proposals, as well as whether our current resubmission
thresholds are too low. The concern is that the thresholds allow
proposals that shareholders previously rejected to be repeatedly
resubmitted even though they receive a small fraction of shareholder
support. We hear strong views on all sides, but one of my guiding
principles is that we have to consider whether our rules are serving
the long-term interests of Main Street investors. We need to make sure
that those investors have a seat at the table as we examine the proxy
Release on the U.S. Proxy System,
Release No. 34-62495 (July 14, 2010) [75 FR 42982 (July 22, 2010)].
 See e.g., Division of Investment Management
and Division of Corporation Finance, U.S. Securities and Exchange
Commission, SEC Staff Legal Bulletin No. 20, Proxy Voting: Proxy
Voting Responsibilities of Investment Advisers and Availability of
Exemptions from the Proxy Rules for Proxy Advisory Firms (June
30, 2014), available at
 The SEC staff estimates that the value of 66% of the
Russell 1000 is approximately $18.1 trillion.
 For example, in recent months I have engaged with retail
investors in Georgia, Illinois, Missouri, Montana, Utah, and
 A 2005 SEC rule proposal would have allowed proxy cards to
be sent with the notice of availability of proxy materials, but that
component was not included in the final rule. It is still an open
question whether eliminating at least one “click” in the process to
vote would result in more Main Street investors voting their
proxies. See Internet Availability of Proxy Materials,
Release No. 34-52926 (Dec. 8, 2005) [70 FR 74598 (Dec. 15,
2005)]; Internet Availability of Proxy Materials Release
No. 34-55146 (Jan. 22, 2007) [72 FR 4148 (Jan. 29, 2007)].