SEC to avoid enforcement of Trump-era proxy adviser rules

The US Securities and Exchange Commission on Tuesday said it will not enforce Trump-era rules for shareholder advisory firms, dealing a blow to companies such as ExxonMobil that have argued proxy advisers wield too much power.

In a statement, commission chair Gary Gensler said he has asked the agency’s staff to revisit restrictions for proxy advisers that the commission adopted in July 2020. The staff should also reconsider guidance aimed at defanging proxy advisers that the agency published in 2019, he said.

The SEC said “it will not recommend enforcement action” based on the agency’s 2019 guidance for proxy advisers and the 2020 rules, now that the commission “is considering further regulatory action in this area”.

Gensler’s decision marks a win for Institutional Shareholder Services and Glass Lewis — the two largest proxy adviser firms. Public companies represented by the Business Roundtable and US Chamber of Commerce had lobbied the SEC to impose regulations on the proxy advisers.

But investors — who use proxy adviser recommendations to vote on corporate boardroom matters — cheered the SEC’s action.

“It’s Christmas in June for investors,” said Amy Borrus, executive director of the Council of Institutional Investors. “SEC chair Gensler’s decision today for the agency to consider revisiting its controversial actions on proxy advice is a big win for investors and the proxy advisory firms that would have been shackled by the regulatory regime the commission approved in the previous administration.”

ISS sued the SEC to stop its guidance and the 2020 rules, and that case is still pending in court. Oral arguments are scheduled for June 7. The SEC’s proxy adviser regulations are expected to saddle ISS and Glass Lewis with new legal costs.

“We welcome the SEC’s announced decision to consider revisiting its proxy adviser rulemaking,” ISS said in a statement.

ISS and Glass Lewis provide investors with advice on how to vote on corporate issues ranging from climate change disclosures to the election of board members, and their recommendations can be influential.

ISS and Glass Lewis respectively endorsed three and two nominees to the ExxonMobil board put forward by activist hedge fund Engine No 1 Last week. At least two of the nominees were confirmed to have won seats.

In a 2020 letter to the SEC, Exxon also said it supported the agency’s regulations for proxy advisers.

Dennis Kelleher, president of the advocacy group Better Markets, said: “The actions by Trump’s SEC were wrong and likely illegal. Given that the SEC exists to protect investors, not incumbent management, today’s actions properly begin the process to restore investors’ rights and re-empower investors.”

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