Home Run and Foul Ball at the SEC

2020 saw an interesting event and, happily, non-event at the SEC.  The event or home run was the July approval of new regulations on proxy advisory firms, which takes away some of what many have considered an abuse of power by the likes of ISS and Glass Lewis over Corporate America.  The non-event or foul ball was the failed attempt by institutional investors to raise the threshold for their quarterly disclosure of holdings on Form 13F from $100 million under management to $3.5 billion.

The proxy advisory event will require firms to provide all issuers with their proxy voting advice (no charge) at the same time that such advice is given to the firm’s investor clients; and, provide notice to clients if the issuer has filed, or intends to file, a response (presumably challenge) to that advice.  This will give investors “both sides of the story” when making proxy voting decisions, which it has rarely had before.  The regulations, not actually effective until December 2021, will also address/correct conflicts of interest at advisory firms which, for example, charge investors for their voting recommendations while at the same time charge issuers for their governance consulting – giving the impression the issuer has to “pay up or get voted down.”

The 13F non-event dodged a scary bullet which would have allowed almost 90% of large investors not to disclose their holdings any longer.  The argument for the proposal was that, based on the importance of investment dollars involved per investor on a percentage basis, the quarterly filing obligation was simply a nuisance.  However, what was not considered was the fact that 13F filings significantly guide investor relations efforts within Corporate America, direct the focus of corporate executives, improve proxy solicitation when needed and, of course, uncover what could be predatory steps by activists.

Another interesting way to put these developments is institutional investors “lost” on 13F in terms of no-lesser filing requirements, but “gained” with proxy advisory firm regulation in that the information it uses to make informed voting decisions at shareholder meetings should be more accurate.

Good results in what was, otherwise, a pretty dismal year.