A proxy advisory firm recommendation is not a proxy solicitation
That was the conclusion of the U.S. Court of Appeals for the District of Columbia Circuit on July 1, 2025, handing a victory to Institutional Shareholder Services (“ISS”) and other such proxy voting advisors. ISS had fought the SEC’s change in 2020 to the 1934 Exchange Act’s Section 14(a) whereby all of a sudden proxy advisors were subject to “enhanced disclosure requirements” that proxy solicitors must deal with.
In a clear attempt to curb some of the power, or at least perceived “free hand,” of proxy voting advisors, the 2020 SEC tried to equate unprompted proxy voting recommendations with proxy solicitations. Under scrutiny this is not defensible since the former is not an attempt to induce a voting ACTION by institutional investors, whereas the latter certainly is – and is what 14(a) specifically addresses. Interestingly, when the 2020 rule was put in place proxy advisory firms could obtain exemptions from enhanced disclosure requirements if the firm i) disclosed conflicts of interest and steps taken to address them, ii) adopted procedures to make proxy advice available to the underlying issuer by the time the firm’s clients got it, and iii) established a means by which those clients were informed of the issuer’s response before the shareholder meeting. In 2022 the SEC rescinded two of these conditions, perhaps sensing it had overstepped its legal bounds in 2020.
The July 1, 2025 decision certainly confirms that. The D.C. Circuit Court concluded categorically that enhanced disclosure requirements under 14(a) do not apply to proxy advisory recommendations. And as icing on this cake, the SEC voluntarily dismissed its appeal of the decision “without explanation.”
All of this does not change the fact that ISS et. al. will continue to have detractors, along with countless others who rely on their voting recommendations every year. It may mean that policy reform in this space, over time – if it indeed happens – will have to come from the legislature, rather than a government agency like the SEC.