Securities Law Blog

Olshan’s Shareholder Activism Group Issues Letter of Comment Citing Serious Shortcomings of SEC’s Proposed Proxy Voting Advice Rules in “Real World” of a Proxy Contest

On February 3, 2020, Olshan’s Shareholder Activism Group issued a letter of comment to the Securities and Exchange Commission in response to its proposed amendments to the federal proxy rules released on November 5, 2019 that would condition the availability of certain existing exemptions from the information and filing requirements of the proxy rules for proxy voting advice businesses upon compliance with additional disclosure and procedural requirements.  The scope of our comments is limited to the severe shortcomings of the proposed rules in terms of their practical application in the “real world” of a proxy contest.  We have drawn upon our vast experience in advising on hundreds of contested solicitations to highlight the flaws inherent to the proposed rules. 

Our primary concern is that the proposed rules would be ripe for exploitation and manipulation by each of the company and the dissident in a proxy contest by giving each party opportunities to preview a full copy of the PAF’s voting advice, in draft and final form, prior to such advice being formally issued. As discussed in further detail in the letter of comment, allowing the company and the dissident to preview the PAF’s full recommendation and the underlying rationale for its conclusions would create various opportunities for the company and the dissident to take strategic reactionary measures designed to influence the PAF to alter its initial conclusions and to garner more votes. We are also skeptical that confidentiality agreements contemplated by the proposed rules would be sufficient to ensure the confidentiality of the PAF materials or their content prior to their publication, especially in this day and age of heightened financial media attention to proxy contests. Any leakage of draft or final proxy voting advice prior to its formal issuance would have significant ramifications. In addition, we are concerned that a process that allows companies and dissidents to have access to and provide input on the full voting recommendations of PAFs as they are being formulated in real time could jeopardize the objectivity and independence of PAFs. We find such “big brother” like intervention to be wholly unnecessary and an affront to the integrity of the independent analysis and ultimate product rendered by PAFs. Requiring the proposed review and feedback process seems to inappropriately suggest that PAFs are somehow incapable of arriving at cogent conclusions on their own without outside intervention.

A copy of our letter of comment is attached to this client alert and available here.

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