WASHINGTON—The U.S. Securities and Exchange Commission voted 5-0
Wednesday to consider new rules to modernize shareholder voting, with a
particular eye toward regulating proxy advisory firms.
The inquiry into proxy advisory firms comes as the SEC opens a broad
review of the mechanics of shareholder voting, also addressing issues such
as "empty voting," in which shareholders place votes even if they have
little or no monetary interest in the firm, according to a summary of the
The commission also will explore "over-voting," in which a broker's
clients cast more votes than a broker is actually entitled to vote on
their behalf, and "under-voting," which occurs when investors who are
allocated the ability to vote fail to do so.
Proxy advisory firms offer several services to corporations running
shareholder elections, such as research and recommendations on particular
proxy issues or casting the actual votes.
The SEC is considering whether proxy advisory firms like RiskMetrics
Group, Egan-Jones Proxy Services, or Glass Lewis and Co. should be subject
to greater oversight from regulators.
Mary Schapiro says proxy advisory firms wield significant influence in
shareholder elections, particularly for investors who may not have
specialized expertise. Critics have suggested there may be a conflict of
interest if those firms provide services to both corporations and
The SEC will explore the potential conflicts of interest in proxy
advisory firms and ask whether it makes to sense to require eventual
public disclosure by those firms of their voting recommendations in
commission filings, according to the summary.
Regulators are interested in how proxy advisory firms get the
information that they pass on to investors, and whether it is accurate.
Proxy advisory firms "should be subject to increased SEC oversight and
should be required to make additional public disclosures regarding their
standards, methodologies and conflicts of interest," the National Investor
Relations Institute, a professional organization, said in a statement.
The SEC says more than 600 billion shares are voted every year at more
than 13,000 shareholder meetings. The proxy is the principal means for
shareholders and public companies to communicate with one another.
"To result in effective governance, the transmission of this
communication must be, and must be perceived to be, timely, accurate,
unbiased and fair," Ms. Schapiro said.
The inquiry could take the SEC in several directions. The commission is
seeking comment for 90 days on numerous issues involving proxy voting.
Any actual rulemaking on proxy voting mechanics will coincide with a
full plate of rules the SEC must write under the financial overhaul bill,
which could pass Congress as early as this week. But proxy mechanics
generate a lot of interest among commission staff and in the financial
community, which could propel the process.
The SEC will look into proxy distribution fees, which are charged to
issuers to reimburse brokers for the costs of forwarding proxy materials.
Maximum fees are set by stock exchanges, but they haven't been revised
The commission also will examine a system that gives shareholders the
ability to keep their identities confidential from the issuer.
"With fresh insights, we will examine whether those policies still
represent the most appropriate regulatory response to the competing
interests of privacy versus effective shareholder-corporation
communications," Ms. Schapiro said.
The Shareholder Communications Coalition, an advocacy organization,
believes it is important to eliminate barriers between public companies
and their beneficial owners holding shares, "so that companies are able to
know who their shareholders are and can communicate with them directly,"
said Niels Holch, the coalition's executive director.
The coalition has recommended that beneficial owners wishing to remain
anonymous should be permitted to register their shares in a nominee or
custodial account with their broker or bank, Mr. Holch said.
Ms. Schapiro has dubbed the review "proxy plumbing" to underscore the
notion that all technical aspects of proxy voting are under the radar. It
is distinct from a more controversial proxy access rule under
consideration that would give shareholders easier access to corporate
Ms. Schapiro has said she wants to finalize the proxy access rule this
year, but it is expected to meet with stiff opposition from the business
community and will likely be approved by the commission on a divided vote.
Fawn Johnson at